Continue Investing or Pay Down Debt?
Q: SMI recommends using your surplus to first pay off debt, rather than investing it. I have investments averaging 8-12% over the last several years. Is it a reasonable compromise to use my surplus income to pay down my 4% student loan, but not actually take money out of investments to pay down the debt?
A: Given that the debt being discussed carries a very low interest rate (with an even lower real rate if you're deducting interest on your taxes), that probably is a reasonable compromise, particularly if your investments are in tax-advantaged accounts. If the debt carried a higher interest rate, like credit card debt, it might be worth pulling the money out of your investments to repay it immediately. But if you have the income to pay off a low interest rate debt like this rapidly without pulling money from investments, that's probably okay.
Although we believe it's very important to first establish a solid foundation (Levels 1 and 2) before jumping into the investment markets (Levels 3 and 4), we acknowledge these are guidelines, not laws. Ultimately the decision—and the consequences—are yours. Our rationale for making debt repayment and saving the priority is straightforward: At Levels 1 and 2, every dollar of surplus is used in a manner that guarantees you will advance financially. There are no such guarantees investing at Levels 3 and 4.
If you have the means to pay your debts off now but invest the money instead, you are playing a dangerous game. There are three possible financial outcomes from doing this. First, you might lose part—or all—of your investment money. Second, you might make a profit, but the profit could be less than the interest you're paying on your debt. And third, you might make a consistent profit exceeding the rate of interest you are paying on the debt. In that case, you might profit financially from the decision.
Understand though, this isn't a purely financial decision. Debts are obligations, and as such, they must be honorably met no matter what the circumstances. Aside from the practical advantages of getting debt-free—less financial stress and savings on interest expense—there are biblical ones to consider as well. Here are three:
• To be obedient. "Give everyone what you owe him: If you owe taxes pay taxes; if revenue then revenue; if respect, then respect; if honor, then honor. Let no debt remain outstanding, except the continuing debt to love one another..." (Romans 13:7-8).
• To maintain your integrity. "The wicked borrow and do not repay, but the righteous give generously" (Psalm 37:21).
• To preserve your allegiance to Christ alone. "The rich rule over the poor, and the borrower is servant to the lender" (Proverbs 22:7). 
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