Dave Says
Advice from Nashville's leading Financial Aid Advisor Dave Ramsey
Author of Financial Peace and The Total Money Makeover
Do I Invest or Pay Off Debt?
I'm in my early 20s and have heard you talk about the importance of investing money early. The earlier the better. I've got a student loan, a personal loan and a car payment equaling around $20,000. I've started the baby steps you suggest. I've got a $1,000 emergency fund in the bank. I'm budgeting and using the envelope system. However, after making the minimum payments, I've got around $150 left over each month. Should I go ahead and start an investment program with that money?
Robert in Houston, TX
Dear Robert,
Investing early is very important, but you're trying to short-circuit the process. Follow the baby steps in order. Baby step one is $1,000 baby emergency fund you said you've already got. Baby step two is get out of debt using the debt snowball. List all of your debts smallest to largest and apply that extra $150 a month you have to your payments on the smallest debt. When you pay that off, roll the payment you were making on that debt, plus the extra $150 into your second smallest debt. Only when you've finished paying off your debts do you start investing. If you follow the baby steps, in the right order, you'll get out of debt faster and then have a lot more money to invest. I believe in investing as early as you can start, but only when you're at the proper place in the baby steps plan.
- Dave
7/5/2004
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