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To Save or To Pay Down Debt?

July 6, 2022

Zoelie Guitard, BBA

Like many goals in life, good habits are key to success

At this time of year, many young professionals are starting their career after years of post-secondary education and in many cases, they have accumulated significant debt. Like John and Jane who met while completing their Chemical Engineering degree. Those first paychecks represent the start of their financial independence. But with independence comes decisions that can affect their financial health for years to come. A question that often comes up, not only at the start of a career like John and Jane’s, but many years into it, is: “Should I save or should I pay down my debt?”.

Asking the question is a good first step

John and Jane asking this question means they are already on the right path. That’s because reducing debts or increasing savings are both beneficial to their financial health. The biggest risk to John and Jane is if they find themselves only spending into their growing income as it increases. What they should be doing is using a healthy portion of those increases to further focus on their debt repayment and savings.

More than just math

Some will approach the debt and savings question from a mathematical point of view. Jane for example is a numbers person. If the debt costs more than the investment return, she wants to pay off the debt first. If the investment generates more than the cost of debt, she’d like to prioritize investment. However, we cannot ignore the emotions linked to money. Some people, like John, don’t sleep well knowing they have debt. You have to consider and manage the emotional aspect of money. If a strategy doesn’t “feel” right, it is harder to commit to it and achieve the desired results.

Good habits are key to success

“Should I save or pay down debt” suggests that it is an either-or proposition. And yet, it is possible to do both. Since good habits are key to a good financial health, there is an argument to be made for John and Jane to save AND pay down their debt immediately. The specifics of the strategy – how much to save and how quickly to pay down debt – will depend on their circumstances. Doing both, even in small amounts, will create those good habits for John and Jane, which in turn will make it easier for them to allocate increased income to debt repayment and savings.

With the recent and significant increase in interest rates, it is a good idea for everyone to review their debt situation and repayment strategy, not just John and Jane. Regardless, keep in mind that the earlier you start investing, even small amounts, the more difference it will make in the long run. “Time is an investor’s best friend” is a popular saying for a reason. Let’s say John and Jane each need to accumulate $750,000 for retirement at age 65 and their investments generate an average annual net rate of return of 5%. John, who doesn’t like debt, starts investing 15 years prior to retirement. He must invest $33,102 per year for a total of $496,530. On the other hand, Jane starts to invest while paying down debt 30 years before retirement. She reaches the same goal by investing $10,751 per year for a total of $322,530. That’s a difference of $174,000 in Jane’s favour.

Saving and paying down debt are both good options for healthy personal finances. Prioritize paying off high interest debts such as credit cards, but also start the habit of saving regularly for short-term emergencies or longer-term goals. Work with a professional advisor to determine a customized strategy that will take your circumstances, priorities and concerns into consideration.


Zoelie Guitard is an Investment Associate at Louisbourg Investments. Comments or questions may be submitted to Zoelie at

This writing is for general information purposes only and is not intended to provide legal, accounting, tax or personalized financial advice. If you are not sure how to proceed with a request for further information, seek help from a professional. Any opinions expressed are my own and may not necessarily reflect those of Louisbourg Investments.

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