Should I invest if I have credit card debt?

Short answer: If you carry a credit card balance at 20% or anything close, pay it off before you invest. Long-term stock returns sit around 7% a year. Paying off a 20% debt is a guaranteed 20% return. Nothing you can buy in your TFSA touches that. The exception worth knowing: if your employer matches RRSP or stock-purchase contributions, take the match even while paying down debt, because the match itself is an immediate 50% to 100% return.

I’ve watched smart people argue themselves into investing while carrying credit card debt. Usually it sounds like: “I don’t want to miss the market,” or “If I just put $50 a month into the TFSA, it’ll grow over time,” or “The interest isn’t that bad.”

The math doesn’t care about any of that. Carrying a $3,000 credit card balance at 20% costs you $600 a year. Investing $3,000 in the stock market and earning the long-term average returns roughly $210 a year. You’re losing $390 a year while feeling productive. The TFSA dashboard going up doesn’t fix the credit card statement going up faster.

If you’re carrying high-interest debt, pay it off first. Then come back to investing.

This isn’t financial advice. Everyone’s situation is different, and some of this depends on details only you can see. But the general framework is more universal than people think.

Why the math is so one-sided

Three numbers worth keeping in your head:

Paying off credit card debt is the same as earning 22% on that money, guaranteed, with no risk and no tax. There’s no investment that offers a 20% guaranteed return. The closest you can get is a GIC at maybe 5%. Stocks might do better than 7% in a given year, but they might do worse, and they might be down for several years in a row.

When the guaranteed return on debt is higher than the expected return on investing, the choice isn’t close. Pay the debt.

The “I’ll feel better investing too” trap

A lot of people split the difference. They put $200 a month on the credit card and $50 a month into a TFSA. It feels balanced. Like they’re being responsible on both fronts.

What’s actually happening: they’re paying 20% interest on a balance that’s coming down slowly, while earning maybe 7% on a balance that’s growing slowly. The net is still negative. They’d be objectively better off putting the full $250 on the card, getting it cleared, and starting the TFSA fresh six months later.

The emotional pull to “do both” is real and understandable. Watching the credit card balance fall feels demoralizing if there’s nothing growing on the other side. But the right answer is just to clear the debt faster and shorten the period you’re stuck doing the demoralizing part.

Where the line actually sits

Not all debt is credit card debt. The decision changes once you cross below roughly 6% to 7% interest, because that’s the rough range where long-term stock returns and debt costs converge.

Below the line: invest first or split.

• Mortgage at 4% to 6%. Most people can carry a mortgage and still invest comfortably, especially because mortgage interest is locked in over a renewal period and often partially deductible if it’s a rental property. Paying extra on the mortgage versus investing becomes a personal preference.
• Student loans at 5% to 7% (Canadian government loans). Right at the line. Some people prefer the certainty of paying these off; others split. Federal Canada Student Loans are now interest-free as of 2023, which makes the decision lopsided in favour of investing while you pay the principal.
• Car loan at 3% to 6%. Similar to mortgage logic. Lower-interest auto loans don’t need to be your first priority.
• HELOC at prime or prime+0.5%. Depends on the rate environment. Often falls into “split or invest first” territory.

Above the line: pay off first.

• Credit cards at 19% to 24%. Pay them off. Every time, no exception.
• Payday loans at any rate. Pay them off immediately. Often higher than 20%.
• Buy-now-pay-later (Klarna, Afterpay) gone past the interest-free window. Behaves like a credit card. Pay it off.
• Personal loans at 10% to 18%. Pay these off before investing.
• Store cards at 25% to 30%. Even worse than credit cards. Top of the list.

The one exception: employer matches

If your employer matches RRSP contributions or offers a stock-purchase plan with a match, take the match even while paying down debt.

A 50% employer match is an immediate 50% return. A 100% match is an immediate 100% return. No investment, no debt, beats those numbers. Even paying off a 24% credit card is slower than catching a 100% match.

The right move is to contribute exactly enough to capture the full match (and not a dollar more), then put every other dollar of your investing budget on the debt. Once the debt is gone, redirect those dollars back to investing.

If your employer doesn’t match, this exception doesn’t apply. Pay the debt first.

What about building a credit history?

Credit history is a real thing that matters when you eventually apply for a mortgage or a car loan. But it has nothing to do with investing first. You can build credit just by using a credit card and paying it off in full every month, never carrying a balance, never paying a cent of interest.

If you have credit card debt accruing interest, your credit score is probably already fine (you’ve been using credit). The score isn’t a reason to keep the balance. Pay the balance, keep using the card, pay it off in full each month going forward.

The full order of operations

For someone starting from scratch, the rough sequence is:

1. Pay off any debt above 8% to 10% interest. Credit cards, payday loans, store cards.
2. Build a starter emergency fund of one month of expenses in a HISA. This is your buffer so a surprise expense doesn’t put you back into credit card debt.
3. Capture any employer match on RRSPs or stock-purchase plans.
4. Pay off remaining higher-interest debt (personal loans, lines of credit above 10%).
5. Build the emergency fund up to 3-6 months of essential expenses. The emergency fund article walks through how much.
6. Start investing in your TFSA. Most Canadians earning under $80,000 should fill the TFSA before the RRSP. The TFSA vs RRSP article covers when each one wins.
7. Pay down medium-interest debt (5% to 10%) alongside investing, depending on personal preference.
8. Carry low-interest debt (mortgage, auto, federal student loans) and invest in parallel. Both can be true at the same time.

The full version of this with more detail lives in the order of financial priorities article.

Frequently asked questions

Is it ever worth investing while I have credit card debt?

Almost never, with one exception: if your employer matches retirement contributions, contribute enough to capture the full match. The match is a guaranteed 50% or 100% return, which beats even a 24% credit card. Past the match, every other dollar should go on the credit card until it’s clear.

What about my TFSA contribution room? Won’t I lose it?

You don’t lose TFSA room by not using it. Unused contribution room carries forward indefinitely. Every year you don’t contribute, the room from that year is still waiting for you, and a new year’s room gets added on top. Paying off credit card debt for a year doesn’t cost you anything in TFSA terms.

Should I cash out my TFSA to pay off credit card debt?

Probably not as a first move, but it can make sense if the debt is bad enough. The trade-off: TFSA withdrawals come back as contribution room next year, so you’d recover the room over time. The savings on credit card interest is immediate. If the choice is between paying 22% on a $5,000 credit card balance and pulling $5,000 out of a TFSA earning 7%, the math favours paying the debt. The catch is whether you’ll actually pay it off and not run the balance back up. If there’s a real risk of the debt returning, fix the spending first.

What counts as “high-interest” debt?

Anything above roughly 8% to 10%. Credit cards, payday loans, and store cards are obvious. Personal loans, lines of credit, and some car loans can creep into this range too. Below 8%, the math is closer and personal preference plays a bigger role.

Can I just pay the minimum on my credit card and invest the rest?

The math doesn’t work. Paying the minimum on a $5,000 credit card balance at 22% means you’ll be in debt for over 20 years and pay roughly $7,000 in interest. The investment returns on the money you “kept” can’t keep up with that. Pay the credit card down aggressively until it’s gone, then start investing.

What if my debt is from helping family or covering an emergency?

The reason for the debt doesn’t change the math, but it can change how you feel about paying it off. Either way, the interest rate is the only thing that matters for the decision. A credit card at 22% is 22% whether the balance came from groceries, a car repair, or helping a family member.

Bottom line

Investing while carrying credit card debt is a guaranteed way to feel productive while losing money. The simple version of the rule: pay off anything above 8% to 10% before you invest, take the employer match if you have one, and don’t try to do both with a credit card balance.

This is the boring answer. It’s also the right one.