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Podcast: Should You Pay Down Debt Or Invest?

May 4, 2021

In this episode…

Pat and I discuss different strategies for dealing with debt and mortgages when your goal is financial independence.

Should we focus on investing, or should we aim to be debt-free?  Which will help us become financially independent faster?

We explore the ins and outs, and share thoughts on the various options to help you decide what to do.


Listen to the show…

(you can download the mp3 file here)


Discussion points…

  • The worst form of debt  (02:31)
  • Our thoughts on credit cards  (06:05)
  • HECS/HELP debt  (08:51)
  • Mortgage debt and calculating the benefit  (13:28)
  • Should you pay down your home loan or invest?  (19:06)
  • Accessing home equity in retirement  (23:56)
  • How does debt affect our ability to become FI?  (28:31)
  • Mortgage strategies to optimise your cashflow  (30:57)
  • Margin loans and investment loans  (47:08)
  • Takeaways from this episode  (52:29)


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Have something to add to this discussion?  Share your thoughts in the comments below…


18 Replies to “Podcast: Should You Pay Down Debt Or Invest?”

  1. Another good one guys.

    My approach: Each fortnight put 50% towards buying LICs/ETFs and 50% into the mortgage offset. When a correction happens use most of that money in the offset to buy shares that have dropped in price.

    Best of both worlds. Money in the offset helps to sleep well at night too.

    1. Thanks John. That’s an interesting approach, and I can see how it’d be enjoyable in practice. Is there an upper limit to the amount of cash you would build up if there’s no correction? And what is your threshold for investing that cash… a 10% fall, 20% fall?

  2. Gday Dave. It is simple enough and works good enough for me.

    I just try to keep the same amount in cash in the offset as I have invested in the share market. As Peter Thornhill said (paraphrasing) keep a lot of dry powder and be ready to go when the big opportunities present themselves.

    In terms of a correction I would be going pretty much all in again if there was another 2020 level drop (30-40% or more). 10% or 20% correction I’d certainly be buying something.

    I use the free LIC/ETF reports on Firstlinks as a guide for the ‘usual’ price to NTA of the stocks. The reports are available at:

  3. Would have been interesting to hear your thoughts about what you would do if the interest rate of a mortgage became larger than the average return of your index shares.

    1. Well, if we get to the stage where mortgage rates are 5%+ then depending on the environment we’d probably both opt to pay down debt. But if the sharemarket had fallen 30% or something, then maybe not, since future share returns would be higher than average after a large fall. So there’s no fixed view, it just depends on the situation.

  4. Another interesting discussion guys.
    As an older (48) guy who has found the fire community. My goal putting as much as I can into my super to retire early for me at 60. Then any leftover on the mortgage can be paid out then when I can draw on the super tax free.

  5. Hi Dave and Pat, Thanks for your podcasts.

    I can see a risk if choosing to pay minimum house payments while maximising share investing.

    This could come about if an economic/stock market downturn causes a loss of employment.

    This could could cause you to have to sell shares in a depressed market to keep the roof over your head.

    If the house is being paid down first or faster, this would give you breathing space with the bank without having to sell any, or as many shares in a depressed market.

    Maybe I’m thinking to negative re job loss possibility, but I do like to look at worst case as well as best case possibilities.

    Keep up the great work,


    1. Cheers Simon. Yeah that’s definitely a possible risk. But you should also have an emergency fund as we discussed here which would avoid that problem in most cases – Emergency Funds

      Situations like that are also not very common, and on average, you’re likely to be ahead by investing on current numbers. But there’s no right answer, it depends what we’re each comfortable with.

  6. I couldn’t disagree with you more about your idea of forcing people to borrow on the equity of their PPR before being able to access the old age pension.
    You guys were saying that the only reason people want to keep their houses is that they want to pass on a hefty inheritance to their 50 and 60 year old kids.
    That’s rubbish.
    Have you had a good look at how much nursing home places cost?
    Most people want to hang onto the family home for as long as possible before Mum (and it’s usually Mum because she’ll outlive Dad) gets old and has a fall and needs to go into care. The family home is usually sold THEN – in order to provide her with the care she needs. If it’s been drawn down upon the years before, how will she come up with the hundreds of thousands of dollars needed? Do you think those 50 and 60 year old kids – who more than likely are supporting their own families – will have the money?
    My parents are self-funded retirees but when they get too old and frail to look after themselves, their home will be sold to provide them with nursing home beds.
    Don’t be too quick to sell out the equity of the PPR of your parents… you may find you’ll personally end up paying for their care…!!!

    1. You’ve misunderstood. We never said to force anyone to do anything. You’ve made too many assumptions about what we meant. I know this is a sensitive issue but we really were a bit more balanced than that. When I brought it up, I was honestly thinking of using home equity as extra income. Not cutting people off and saying ‘live off your equity’ before you can get a pension.

      We’re also not saying people with a house that just happens to have gone up in value a lot should get no pension, it’s really to stomp out bad behaviour and people taking the piss with the rules as mentioned. The underlying point was that we think having an unlimited house value creates the wrong incentives and there should probably be some sort of reasonable limit built into the system.

      1. Sorry Dave. To be fair, I was listening when driving and I may have missed the bit where you talked about reasons other than bad behaviour and leaving an inheritance for the kids.
        Maybe what needs to be done is to put some reasonable limits on Nursing Home costs as well for self-funded retirees, so they don’t need to have hundreds of thousands of dollars in reserve, just in case.
        I’ve said to my boys that my PPR will be my entry into the Old Ladies Home. Hopefully with a Happy Hour at 5PM every day…

        1. All good, understandable. It’s definitely a complex topic with no easy answer since we’re talking about people’s capacity to live a good life. We definitely wouldn’t suggest a harsh rule – you’d know our personalities are much more reasonable than that.

          Haha, gotta build in the happy hour 😉 Are you not doing that already?

  7. That was a great one, and extremely topical!

    I’m working full-time, paying minimum on my mortgage and investing in mainly income-producing activities. My plan is that when the investment income roughly covers my base living costs, I’ll probably stop adding to my investments (ie, reinvest the income), and pay down the the mortgage with my salary, possibly refinancing along the way to bring down the minimum payments.

    FIRE is definitely the plan! However, my main objective along the way is security – if I happen to lose my job, then there’s a safety blanket until things get back on track. This strategy will enable that without going in to too much (if any) personal debt, and stressing over the need to get another job!

    It’s interesting what you say about the home equity/retirement side of things. I also think our pension structure will change – and it’s perfectly reasonable in a lot of circumstances (though not all) to tap in to the value of a home. Some of us might not be eligible for a pension, so it could possibly be an alternative.

  8. Just listened to this now and it was very informative, thanks.

    Just wondering how some or th this mentioned would apply now with interest rates on mortgages much higher.

    I am new to investing and torn between investing in shares or paying down the mortgage. One one hand, it’s a guaranteed return if I pay down my home loan, but on the other hand, time in the market is valuable as well to get compounding interest working well.

    1. Solid question Luke.

      Essentially it just means paying down debt is much more attractive than before. But there’s no slam dunk answer. Some people will prefer getting rid of the mortgage, others will still prefer building a larger portfolio. But the numbers are now reasonably similar to one another in terms of likely return (at least for now while rates are at 6% ish).

      If you’re aiming to have a paid off home by the time you hit FI, then paying down debt might feel like a more natural fit. But if you don’t care about that and just want a big portfolio to pay all your bills, then investing may suit you better.

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