Devin is 34, and after years of feeling behind, he finally has about $500 left over at the end of each month. A promotion last spring did it — same apartment, same used car, just a little more room. For the first time he wants to be one of those people who “puts money into the market.”
The problem is the statement sitting on his kitchen table. There’s a credit-card balance charging 19.9%, a car loan at 4%, and now this $500 he doesn’t know what to do with. Every video he watches says start investing early — compound growth, time in the market, all of it. So that’s the plan: finally fund the TFSA he keeps meaning to open and start buying.
But something about it nags him. Investing feels like progress; the card just feels like a bill. And yet that card is quietly charging close to 20% a year on every dollar he hasn’t paid off, while the market — on a good long-run average — might hand him 6 or 7%. Put that way, “invest first” starts to look less like getting ahead and more like running up a down escalator.
Here’s the move Devin was missing. Every dollar you have can do more than one job, and you can rank those jobs by the return each is guaranteed to produce. Paying off a debt isn’t exciting, but it has a hidden superpower: the return is certain. Clear a 19.9% balance and you’ve earned a guaranteed, tax-free 19.9% on that money — no market, no risk, no waiting. Almost nothing in investing reliably beats that.
So the rule is simpler than the feeling. Rank every dollar by its guaranteed return — the interest rate you’d avoid by paying something down — and start at the top.
- Grab any employer match first. If your job matches RRSP or pension contributions, that’s an instant ~50–100% return. Nothing — no payoff, no investment — beats free money.
- Clear high-interest debt next. Anything above roughly 6–8% — credit cards, payday loans, unsecured lines — is a guaranteed return you can’t reliably earn in the market. Kill it before you invest a dollar.
- Invest alongside low-rate debt. A mortgage or car loan under ~5% can run quietly in the background while you invest the rest. Paying it down faster is still a guaranteed return, so it comes down to how much you value certainty.
Put a real number on it. Drop in your spare cash and the two rates, and watch what one year does to it either way:
That’s the call for one dollar. But most of us carry more than one debt — and the same rule sets the order. Line them up highest-rate first and attack from the top; that’s the fastest, cheapest way out. Tap the debts you carry and see your sequence:
For Devin the order wrote itself. The $500 goes at the 19.9% card until it’s gone — the highest-return move on the table, guaranteed. The 4% car loan stays on schedule. And once the card is clear, that same $500 rolls straight into the TFSA, now with nothing eating it from behind.
Rank every dollar by its guaranteed return. Pay anything above ~6–8% (credit cards, payday loans, unsecured lines) before investing — that payoff is a guaranteed, tax-free return you can’t reliably beat. Below that, and after grabbing any employer match, investing usually wins. This weekend: list each debt’s rate next to your expected return and start at the top.
FAQ
Should I pay off debt or invest first?
Pay down debt whose rate beats your expected after-tax return. Credit cards almost always win that test; low-rate mortgages usually don’t, so you can invest alongside them.
What counts as “high” interest?
Roughly anything above ~6–8%. That’s a guaranteed return you can’t reliably beat in the market, so clear it before investing.
What if I have an employer match?
Capture the full match first — it’s an immediate ~50–100% return that no debt payoff or investment can match.
What about my mortgage?
At typical rates it’s usually fine to invest alongside it. Extra payments are still a guaranteed return if you value the certainty.
Next weekend — once the high-rate debt’s gone, what order should your money fill next? Your First $10,000: What Order to Fill Your Accounts (link goes live Jul 11).