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Is It Better To Pay Down Debt or Invest Your Savings (A look at the Psychology)

Updated: Oct 4, 2022


We have another article that takes a look at the maths for which what is better to do with savings: pay off debt or invest it. That article is technical and looks at quantitative factors for making the decision of which is best. This article is exploring the opposite viewpoint and the benefits of paying off debt. So what are the benefits to paying off debts early versus slowly?


  1. Debt is a strong predictor of unhappiness. That means depression, anxiety, stress, or suicide ideation tend to be higher when people have more debt. So paying off debt can mean people are happier.

  2. People that are happier (which can happen from being debt free) also tend to be healthier. One study found that people who were stressed about work and money were at a higher risk for heart disease, stroke, and diabetes.

  3. People without debt feel higher satisfaction in life. This sounds similar to point #1, but it isn’t. Happiness and life satisfaction are two distinct concepts. Happiness is known as Hedonia, and it’s more like moments of joy, elation, laughing, etc. Meanwhile, satisfaction is known as Eudaimonia and is more about connections with people, accomplishment, feeling content, and achieving goals. Back to debt, many people that become debt free more commonly report that they have lived life to the fullest.

  4. A sense of protection and safety comes from being debt free. If you don’t have a

mortgage, it’s easier to feel like the bank won’t come take your home. This is mostly true; however, it does overlook the fact that a property or home is never truly 100% safe from or being taken away. This is a testable theory – don’t pay your rates bill for 10 years and see what happens. So, it is true that the BANK can’t take your home, but other authorities such as the government, still can.



You’ll notice that the points above are nearly all to do with well-being, mental states, and how people feel. There isn’t much quantitative data to support paying down debt (though there is some), and the reason is because the decision is highly emotional and personal. Many Kiwis truly don’t like the idea of holding onto debt, even if it is does help build wealth, and that’s ok. In that instance, paying off debt quicker is better for people, psychologically, if they feel strongly opposed to debt itself. Don’t forget though, it’s crucial to recognise what is important to each individual and then build a plan around that. That’s what good advice does. It educates people so they understand their options, and then helps each person do what THEY want to do.


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