Why is paying off debt always the biggest priority to advisors?

I have been an active follower of this site and have been around enough financial professionals in my time. One thing I always see and hear is advisors recommending that their clients pay off their debts above all else. Paying off debt seems to be advised over investing, saving, acquiring a loan, a home purchase, etc. Why is it that advisors and professionals are so firm on paying off debts before other options, is there a specific reason? I get that paying off one's debts is crucial, but feel there are other options that should at least be considered as a primary goal for an individual's finances. Are there any advisors who have a similar mindset to mine?

Debt, Personal Finance
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March 2017
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When making decisions about investing, or anything else really, the best path to choose is often the one that requires you to make the fewest amount of assumptions. Clearly no one can predict the future of an investment's return, but we can know for certain that every dollar of unpaid debt will grow at a guaranteed fixed rate (i.e. the stated APR). Thus, we can know with great certainty what the impact of paying down debt will be rather than speculating in the financial markets. In order to justify an investment over debt repayment, the expected return must be higher than the interest rate on the debt.

With that said, it's not always so cut-and-dry. If you have student loans, I wouldn't let that impede you from saving for a down payment on a house. Or if an employer match exists on a 401(k), then this should certainly be prioritized (in fact, I often urge even those with debt to contribute to 401(k) plans regardless of a match to help build the right habits). Every situation is a bit different and needs to be looked at individually.

Many advisors on this site are here to help consumers build and maintain their wealth in much the same way they do for their clients. While paying off debt isn't the most exciting advice, it's often the most prudent. You should beware of the risks of seeking a professional that simply echoes what you want to hear; this would be like a smoker looking for the one doctor that will tell them that smoking is okay rather than to quit.

If you need any clarification or want to chat, feel free to shoot me a message.

Adam C. Harding, CFP

March 2017
March 2017
March 2017
March 2017