In this blog post, I will uncover step by step how I personally plan to pay off my debt while investing to become financially free.

The fact is most people have some form of debt, for example, a mortgage or study loan. Others have unfortunately taken some consumer loans and pay a high-interest rate for this.


It has become a natural part of our lives and today it’s considered normal to have debt even its risky below the surface 😯

It may seem tempting at the moment when you want something, but in the end, you will be dealing with this debt.


Debt can push you further away from your vision.

I also have debt (however, no consumer loans) but at some point in my journey towards financial freedom, it will be paid off.


Pay off debt or invest

My very short answer to the “pay off debt or invest” 
question is: 

The 7 steps to financial freedom

  1. Establish a small emergency fund of 1000 EUR

  2. Pay off any high-interest loans above 7,5% (APR)

  3. Establish a strong 6 months emergency fund while you start investing (60/40)

  4. Pay off any other loans while you continue to invest (60/40)

  5. Pay off your mortgage while you continue to invest (40/60)

  6. Be debt free while you invest till you’re financially independent

  7. Be financially independent

💡 Follow my personal 7 steps plan to financial freedom


My debt


  • 30 years loan agreement (2046)
  • 4,58% (APR)  annual variable interest rate
  • Minimum monthly payment is approximately 14,00% of my income

Student loan

  • 8 years loan agreement (2022)
  • 1% (APR) annual  fixed interest rate
  • Minimum monthly payment is approximately 4,00% of my income

I have set a goal to pay off this loan 3 years earlier at New Year 2019.

Leveraged loan

  • 3 years loan agreement (2020)
  • 7,45% (APR)  annual variable interest rate
  • Minimum monthly payment is approximately 11,00% of my income
  • Invested mostly in P2P Lending

Step ➀

Everybody needs an emergency fund

First, you must be prepared for the worst. If you pay off debt or invest, you still need to establish a smaller emergency fund as anything can happen at any time.

It is too uncertain and unsafe to live on the edge.

To begin with I will suggest that you save 1000 EUR

This shouldn’t take more than 1-2 months to save.

You will start getting into the habit of saving and feels good to have some money on the account.


"The arrival of winter finds us in one of two categories: Either we are prepared or we are unprepared."

Step ➁

Pay off any loans with a high-interest rate

It’s time to remove dirt in your life 😛

Most people agree that expensive consumer loans are a bad thing to have and must be paid off as quickly as possible.

Loans with a high-interest rate take money away from you and make it even harder for you to become financially independent.

If you have any credit card debt or consumer loans they usually have a high-interest rate.

I think everything above 7.5% is too high interest and need to be paid off immediately.

You can try out negotiating your interest rate if you have a lot of debt and save some money. Simply just ask them.


Step ➂

Establish a strong 6 months emergency fund while you start investing (60/40)

This emergency fund will for sure make you sleep well at night 🙂

I have chosen to save money that potentially can cover 6 months of expenses.

This money is not considered as an investment but should be used in emergency cases and is available immediately.

I’m actually lucky because I have a good agreement with my bank and my emergency fund has an interest rate of 5%. In most cases, you will not get any interest but maybe you can figure out something.

I think it’s also important to get started and invest. It will give you motivation, valuable experience, and a potentially great return.

I started my first investment in some stocks and I knew very little at the time. I just wanted to get started and learn.

Out of your monthly saving rate, approximately 60% should go to your emergency fund and 40% should be invested in my opinion. 

In this way, you will have a little more focus on minimizing risk and create a better financial foundation.

You may have noticed that my overall investment portfolio is far greater than my emergency fund.

Continuously I have become wiser on investment and I would have established this emergency fund first if I could redo it. The emergency fund minimizes the risk and is a better foundation.


"The beautiful thing about learning is nobody can take it away from you."

Step ➃

Pay off any other loans and continue to invest (60/40)

In this step, you continue to pay off debt while investing. It’s not about to pay off debt or invest anymore. You do both 😉

I have no consumer loans but I do have a student loan. I have 
set a goal to pay off this loan 3 years earlier at New Year 2019 and it will be about a half year after finish step 3.

I also have a leveraged loan and use it to invest. Leverage investment is also risky like any other debt but all debt is not equal.

I try to lower the risks and still create more passive income with my own guidelines.


My guidelines for leverage investment


  • Short time to pay back the loan (within 3 years equals 33% yearly)
  • Monthly payment must be less than 15% of my income
  • The total debt is less than 50% of my assets
  • The borrowed money will create a minimum 5% return on investment

I expect to finish this leveraged loan by the end of 2019 and unless I make another loan, I will finish this step. 

It’s a good opportunity to kickstart compound interest but it requires some good loan terms and good investment opportunities at the same time.

Another perspective

You may know Dave Ramsey, a famous American who helps families with their financial situation through his own radio program.

According to Dave Ramsey, debt is always bad (even leverage investment) and according to his experience, debt creates problems along the way.

He has his own steps to follow.

I agree with him that debt, in general, isn’t good, but there are some great opportunities for more passive income with leverage investing.

Dave Ramsey did leverage investment when he was in the 20s but he borrowed too much money (300% more than his assets) and took way too much risk in real estate. He ended up losing everything and become broke overnight.

I think the lesson is that it’s a great tool to do leverage investment, but it’s also risky

It should never be a threat to your vision for sure.

At times, you will have to step out of your comfort zone to realize significant gains. – Peter Michael, MyInvestment.Blog

Out of your monthly saving rate, approximately 60% should go to your loans and 40% should be invested in my opinion.

In this way, you will have a little more focus on minimizing risk.


Step ➄

Pay off your mortgage while you continue to invest (40/60)


This step will take some time to complete but you should be able to pay off your mortgage within 15 years.

I would like to pay my mortgage within 8 years (2026).

Out of your monthly saving rate, approximately 40% should go to your mortgage and 60% should be invested in my opinion.  

In this way, you will have a little more focus on creating wealth and benefit from compound interest.


Step ➅

Be debt free while you invest till you’re financially independent

This step is a dream for many (including myself) because it’s a huge step to become debt free.

I’m pretty sure this will give me a great feeling of control 🙂

The stress about money will be gone and everything is about to fall into place. I can’t wait for this level and every skill I have learned at this time.


Step ➆

Be financially independent

The last step and my vision will become a reality.

It’s unreal right now but maybe it becomes more realistic when I approach this goal.

I have a good feeling about this day! 😎


Never establish consumer loans

You will regret it.

It is obvious that you are obligated to repay the borrowed money with interest.

You really can’t ask yourself the pay off debt or invest question in this situation because it is obvious that it must be repaid.

The fact is the borrower doesn’t care if you get sick, lose your job, get divorced or have children. You still have to pay as agreed.

The interest you pay will take money out of your finances and you, therefore, have less opportunity to invest and build up your wealth.

You’re saving rate can also be hard to keep up in those circumstances.

I will personally never establish any kind of consumer loans (travel, cars etc.) because they will push me in the wrong direction and will be out of line with my financial independent mindset.

I had previously a personal loan and it gave me a negative feeling to pay back every single month. Fortunately, I’ve refunded the money, but it took almost 2.5 years to deal with.

Remember, these are my steps towards financial freedom and maybe other ways are better for you in your situation.

Hopefully, it has given you the inspiration to plan your own steps.


That’s it. In the next post, I will furthermore go more in-depth with the financially independent mindset. It will also be about the belief system and my thoughts on how to set investment goals that suit your vision. 


I am writing continuously while I'm through the process myself. I therefore only write what has worked for me. I hope you liked this blog post about "pay off debt or invest".

The next blog post is about setting goals to become financially independent.

Setting goals to become financially independent


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2 Responses

  1. Luna says:

    Excellent post about this topic. I was really thinking about if I should pay off debt or invest.

    I definitely love this site. Keep writing!

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