When the monthly debt payments compared to your income are high, or the interest rate is high, then paying debt off as quickly as possible is a great idea. When the interest rate on the debt is less than 6%, and the monthly debt payments to your monthly income are beneath 36%, then invest your dollar.

Let's run through an example, shall we? My student loans total $24,859.79, so to pay them back within ten years draws on my debt-to-income (D/I) ratio.

If I accumulated $1,000 from cutting back on big purchases, eating out, and vacations, I could explore a few options to put it to the best use. Most of the time, the possibilities get boiled down to two streets: I could invest it in a tax-advantaged account (401(k), IRA, HSA, 529, etc.), or I could pay down my debt.

Let's look at my options.

1. My $25k worth of student loans has a [weighted average] interest rate of 4.53%; 0% right now because of the freeze.

2. Vanguard's Exchange Traded Fund (ETF), VOO, is where I would put my money otherwise. VOO has a ten-year ROI of 13.04%.

There are essential things to keep in mind when evaluating this potential situation.

2. 1. 1. Past performance does not indicate future performance. (Disclaimer that you'll see everywhere - no one can predict the future).

      2. Annual Percentage Rate (APR) ≠ Return on Investment (ROI).

         1. ROI is essentially Annual Percentage Yield (APY), but APY differs from APR mathematically. Generally, converting APR to APY gives a larger numerical value.

         2. APY = [1 + (APR / Number of Periods)]^(Number of Periods) - 1

If I look at option one, $1,000 @ 4.53% APR will put around $1,245 in my pocket. With option two, $1,000 @ 13.04% ROI will put around $3,406 in my pocket. There's no guarantee that VOO will continue to return 13.04% on average by ten years. Not sure about you, but I'm willing to take that risk for a 274% larger payout.

Let's run another scenario. Say you had private loans at 8.4% APR and wanted to invest conservatively to avoid short-term value fluctuation with a bond market ETF, BND, with a ten-year ROI of 1.3%. $1,000 to pay down an 8.4% APR loan puts $1,481 in your pocket, vs. $1,000 to invest for ten years in BND puts $1,138 in your pocket. The BND Bond ETF pays out 77% of the amount you'd have saved if you paid down your student loan debt.

Revisiting our disclaimers from earlier, "past performance does not indicate future performance;" we don't know if the bond or stock market ETFs will perform as estimated. Unless we restructure the debt with another lender, we can be sure that our debt payments will be consistent.

Suppose I had the pair of 8.4% APR student loans and a 13.04% ROI investment. I would put the $1,000 away for the long haul. You'd end up with 230% more money from the $1,000 than if you had paid off part of your 8.4% student loan.