As a nurse, you work long shifts, care for patients, and take on a lot of emotional and physical challenges. When it comes to your financial well-being, you may be wondering: Should I focus on paying off debt or start investing? It’s a common question, and the answer depends on several factors like the type of debt you have, your financial goals, and your risk tolerance. Let’s break it down so you can make the best decision for your situation.
1. Assess Your Debt Situation
First things first: not all debt is created equal. Nurses, like many professionals, may have a mix of high-interest and low-interest debt. The type of debt you carry plays a significant role in determining whether you should prioritize paying it off or investing.
- High-Interest Debt: Credit cards or personal loans often come with interest rates of 15%, 20%, or even higher. It’s tough to outpace those interest rates with any investment. If you have high-interest debt, it’s generally a good idea to pay it off as soon as possible. Every month that you carry a balance, you’re losing money to interest that could be better used for your future.
- Low-Interest Debt: Student loans, mortgages, or car loans may have interest rates in the 3% to 6% range. While this debt isn’t as urgent to pay off, it still affects your cash flow. However, with these lower rates, you may have more flexibility to focus on investing while making your regular payments.
2. What’s Your Interest Rate vs. Investment Return?
One key factor to consider is the potential return on investment (ROI) compared to the interest rate on your debt. Historically, the stock market has provided an average return of around 7%-10% per year. If your debt carries a lower interest rate than the average market return, investing may offer a better long-term payoff.
For example:
- If you have student loans at 4% interest, and you believe you can earn 7% by investing in a broad stock market index fund, investing makes sense mathematically.
- However, if you’re paying 18% on credit card debt, no investment will consistently offer you a better return than eliminating that high-interest debt.
3. Consider Your Financial Security and Emotional Well-Being
Money is not just about numbers. It’s about peace of mind. Having a clear plan for your financial future can reduce anxiety and improve your overall well-being—something crucial when working in a high-stress profession like nursing.
Ask yourself:
- Do I feel stressed about my debt?
- Would paying it off quickly give me more freedom and flexibility?
- Or would I feel more secure building an investment portfolio for the future?
Sometimes, even if the math leans toward investing, the emotional satisfaction of being debt-free outweighs potential investment gains. You may feel a sense of relief and empowerment from eliminating debt, and that can be priceless.
4. The Power of Compounding: The Case for Investing Early
One of the strongest arguments for investing early is the power of compound interest. Even if you’re only able to set aside a small amount of money each month, starting earlier can significantly grow your investments over time.
For example, if you invest $200 a month with a 7% annual return starting at age 25, you could have nearly $480,000 by age 65. If you wait until age 35 to start, you’d only have around $240,000 by the same age—even though you invested the same amount monthly. The earlier you start, the more time your money has to grow.
If you want to learn how to invest: Enroll in Investing 101 for Nurses
5. Building an Emergency Fund
Before you focus heavily on debt repayment or investing, it’s critical to have an emergency fund in place. As a nurse, you may have unpredictable schedules or unforeseen life events, so having 3-6 months’ worth of living expenses saved in an easily accessible account provides a safety net. Once that’s covered, you can focus more confidently on tackling debt or investing for the future.
6. So, pay off debt or invest?!
In many cases, it doesn’t have to be an all-or-nothing choice between paying off debt or investing. You can take a balanced approach by splitting your extra funds between the two. For instance, if you have an extra $500 each month, you could allocate $250 toward debt and $250 toward investments. This way, you’re making progress on both fronts.
7. Take advantage of what you have now
Many hospitals or healthcare systems offer retirement plans like a 401(k) or 403(b), often with employer matching contributions. If your employer matches contributions, that’s essentially free money! If you’re not taking advantage of this, you’re leaving cash on the table. Even if you’re focused on paying off debt, it’s usually wise to contribute at least enough to your retirement account to get the full employer match.
8. Know your OWN financial goals
At the end of the day, your decision should align with your long-term financial goals. If you want to retire early, have more financial freedom, or travel more often, you might lean more toward investing to build wealth. If being completely debt-free is a top priority for you, then focusing on paying off debt could take precedence.
Conclusion: There’s No One-Size-Fits-All Answer
As a nurse, your career is dedicated to helping others, but it’s crucial to take care of your own financial health as well. The choice between paying off debt or investing isn’t a black-and-white decision—it depends on your specific financial situation, goals, and comfort level. Consider factors like interest rates, potential investment returns, and your emotional well-being. In many cases, a balanced approach can help you achieve both goals simultaneously.
By making informed choices now, you can build a stronger financial future—whether that’s through becoming debt-free, growing an investment portfolio, or both.
