Debt Payoff vs. Investing
A couple has $30K in student loans at 5% interest. One wants to aggressively pay it off; the other wants to invest since market returns beat 5%.
Alex
Side A
Pay off the debt first — guaranteed 5% return and the psychological freedom of being debt-free.
You want to put all extra income toward paying off the $30K in student loans. Debt-free in 18 months vs. 7 years of minimum payments. The 5% guaranteed return from eliminating interest beats the risk-adjusted return of investing. Plus the psychological benefit of being debt-free lets you invest more aggressively later.
Jordan
Side B
Invest the extra money — historical market returns of 10% easily beat the 5% loan interest.
You want to invest the extra money in index funds rather than accelerating the student loan payoff. The S&P 500 averages 10% annually — you'd lose 5% in opportunity cost by paying off a 5% loan early. The loan payments are manageable. In 7 years, the invested money could grow to $50K+ while you still pay off the loans on schedule.
Expected Outcomes
Scored from Side A's perspective. Positive = favors Alex, Negative = favors Jordan.
All extra income goes to debt payoff; no investing until $30K loan is fully cleared
70% of extra income to debt, 30% invested; debt cleared in ~2.5 years
Split 50/50 between extra loan payments and index fund contributions each month
Minimum loan payments maintained; 70% of extra goes to investing with 30% to debt
Only minimum loan payments made; all extra income invested in index funds for growth