'Don’t be a wuss': Iowa man, 21, is $95K in debt but wonders if he should be investing while also paying it off. Dave Ramsey sets him straight

Dave Ramsey and co-host Jade Warshaw gave a simple answer in a clip posted Oct. 18 (1).

“Here’s the thing, the compounding interest,” Warshaw began before Ramsey interrupted her to underline the importance of the point, “works on your debt, too.”

Compounding works both ways

Ramsey reminded listeners that compounding can work against you with debt the same way it works for you with investments.

“The only difference is the rate,” he said. “If you're saving money at the same rate that you're not paying off debt at the same rate, you have broken even exactly.”

And even if the rate of Dean’s earnings outpace his debt‘s interest, he’s starting with $0 invested, while his debt has a $95,000 head start.

The longer you wait to pay off your debt in full, the more money you end up paying the lender in interest. Carrying debt also locks up a portion of your income in debt repayment that could otherwise go toward investments.

For Ramsey and his colleagues, debt is a creeping contagion that can infect your finances if you don’t take care of it as fast as you can. That’s why he encouraged Dean to take advantage of his youth and discharge his debt swiftly.

“You have lots of energy. Go use it. Go get you some money. You’ve made a mess and you need to clean up your mess,” Ramsey said. “Don’t be a wuss. Do it, man.”

The math favors paying down debt — most of the time

Are there cases where it makes sense to prioritize saving over paying down debt? The answer is yes. Debt can be useful or even valuable if it’s used the right way.