Personal Finance

I know that paying off the mortgage and investing is both important - hear which one Dave Ramsey thinks is more important

Joey Frenette

Published: January 31, 2025 12:13 pm

Paying off the mortgage is a dream of many long-time homeowners, but should you cut down on that debt cost at the cost of saving for your future? As nice as it would be to live in a home that’s all paid off, perhaps throwing everything at one’s mortgage debt isn’t the optimal solution in all cases. Of course, some scenarios could allow for one to aggressively pay off debt while continuing to build their retirement nest egg. Though opinions on the subject are sure to differ greatly across gurus and financial experts, I do think that Dave Ramsey’s thoughts on the matter are worth consideration.

If you’re a Ramsey fan, you’re probably well aware of his behavioral plan, which is more psychological (think the financial “wins”) than mathematical. When it comes to debt elimination, I’m a pretty big fan of Ramsey’s approach. He thinks investing some (around 15%) towards retirement still makes sense as one gets more aggressive with spending down their mortgage debt.

Instead of deciding whether extra cash should go towards paying down the mortgage or topping up the retirement portfolio, Ramsey thinks it’s a good idea to consider making cuts to the lifestyle in order to put a bit more extra towards that mortgage payment. In other words, such a move could allow one to have their cake and eat it, too.

Cutting down on the lifestyle instead of investments to pay off more of the mortgage debt—a smart plan!

Of course, cutting some of the enjoyment out of the monthly budget may take away from current-day enjoyment. But Ramsey thinks there’s plenty of time for enjoyment in the future, well after the mortgage has been paid off and the nest egg has been built up to a more substantial amount.

Indeed, Ramsey seems to be right on the money in this case. Though someone looking to pay off mortgage debt while continuing to invest doesn’t need to cut the budget in a way such that they’re only eating rice and beans for dinner, I do think that foregoing vacations (those aren’t necessary) and other luxuries is a wise idea. For those serious about bettering their financial futures, perhaps cutting those streaming subscriptions could make a lot of sense as well.

Indeed, with Netflix (NASDAQ:NFLX) poised to increase its prices once again, perhaps now’s a time to cut ties, at least for the time being. Of course, missing out on one’s favorite shows is the cost one will have to pay if they want to cut that budget down by enough to shore up meaningful amounts to throw at the mortgage debt. If one has a rather hefty mortgage, such sacrifices in the present, I believe, are more than worth making.

Paying off debt versus investing amid a red-hot market

While mortgage rates may pale in comparison to stock market returns, especially of late, with the S&P 500 up 52% in the past two years, I think it’s a mistake to expect more outsized gains ahead for financial markets. If anything, last year’s big gains could mean less pie to be enjoyed by investors over the next three to five years or even a decade!

That’s why the prudent thing may be to tackle that mortgage debt head-on after one has a good portion (15%) allocated towards retirement investments. Indeed, it’d probably feel better to trim away at the mortgage debt (let’s say 6% interest) than to take a chance on a return that may even be negative in the coming years. Of course, timing the market is an impossible feat.

Either way, cutting down on the lifestyle seems to be the better idea than taking away from the 15% committed to investments, at least in my view. As always, contact a financial advisor if you’re in doubt about the right path forward. At the end of the day, Ramsey’s advice won’t be right for everyone.