There is a classic question in personal finance circles about debt and investment: Should I invest if I have debt? There are different ways to answer the question, but the most common response urges individuals to invest only when return rates exceed the interest rate of personal debts. Here’s an example.
Let’s say you have student loans at 7% annual interest. You also have a Roth IRA filled with index funds that bring in 9%. Because your IRA is generating returns 2% faster than your debt is taking your money, you can comfortably invest away as long as you maintain your payments.