Debt Payoff and Investing: A Coach's Playbook

Should you pay off debt or invest first? A Ramsey-certified financial coach breaks down how to do both — the smart way.

In this episode of the Tall Oaks Podcast, Branden DuCharme sits down with Marcus Corvino, the financial coach at DuCharme Wealth Management, to answer one of the most common questions they hear from younger clients and second-generation families: should you wait until you're debt-free to start investing?

Marcus walks through the debt snowball method, when it beats the math-optimal "avalanche" approach, and the behavioral side of paying off debt that most calculators ignore. Then they tackle the big question — how to think about investing while you still carry debt, why an employer 401(k) match is so hard to pass up, and how to choose between Roth and tax-deferred contributions. Plus: the truth about "0% interest" car loans, and why financing more car than you can afford can quietly work against your retirement.

Whether you're just starting to tackle debt or deciding where your next dollar should go, this conversation gives you a clear framework to work from.

Questions for Marcus? Reach him on Instagram: @marcus.at.dwm

▶️ Watch the video version on YouTube: https://youtu.be/Nbsg2qSj3tk

Learn more: https://ducharmewealth.com

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 Information presented on this program is believed to be factual and up to date but is not guaranteed to be accurate and should not be regarded as a complete analysis of the subjects discussed. Discussions are limited to the dissemination of general information and do not constitute personalized investment advice. A professional advisor should be consulted before implementing any of the options presented. Encompass More Asset Management, LLC is a registered investment advisor with the U.S. Securities and Exchange Commission and only transacts business in states where it is properly registered or is excluded or exempt from registration requirements.

#PersonalFinance #DebtPayoff #Investing

Transcript

# Tall Oaks Podcast — Episode 122

## Debt Payoff and Investing: A Coach's Playbook

*Featuring Branden DuCharme and Marcus Corvino, financial coach at DuCharme Wealth Management.*

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**Marcus:** Going to the Ramsey program. I know what they coach. I understand why they take the approach that they do, but I don't I don't actually agree with it to a point. What is it?

**Branden:** You know, you stop making progress and you start making wins. Yes. The hardest part of winning the finance game is the patience.

*Information presented on this program is believed to be factual and up to date, but we do not guarantee its accuracy and it should not be regarded as complete analysis of the subjects discussed. Discussions and answers to questions do not involve the rendering of personalized investment advice, but are limited to the dissemination of general information. A professional advisor should be consulted before implementing any of the options presented. Encompass More Asset Management, LLC as a registered investment advisor with the US Securities and Exchange Commission, and only transactions in states where it is properly registered or is excluded or exempted from registration requirements.*

**Branden:** Hey everyone! Welcome back to another episode of the podcast. I'm your host, Branden DuCharme. In the studio today I am joined by the financial coach from our practice here, and we want to give you a quick light episode here. Everyone's busy for the summer, but one of the questions that we get a lot is especially from a younger generation. So maybe kids of current clients that we start engaging with and helping out, we'll oftentimes have questions about their debt. Right? And hey, like, when should I start investing versus paying off my debt is a common question, right? That we get what debt should I pay first? Should I do this balance transfer thing? Like there's a lot of questions around debt, managing that credit scores, all that kind of stuff. So I thought, what a great opportunity to bring financial coach on a little bit more. You know, your wheelhouse, Marcus, to kind of work with some of those finer details and pick your brain on it. So like I said let's tackle the first one right. So common question amongst younger people, especially their professionals, second generation clients, this sort of thing like hey, when should I start investing versus like paying off debt right. Yeah. What are your thoughts?

**Marcus:** You know, there's going to be multiple schools of thought on this. And, you know, mathematically there may be a best solution. And it does come down to the individual, but it also comes down to the type of debt that we're addressing. That's actually probably the most important question, because if you're talking, hey, I have $100,000 in student loans or I have $500 credit card, those are going to be kind of two different answers because the time frame to address them is drastically different. But, you know, for the most part, you want to isolate the, the debt that is the most impactful to you first, right? And for the majority of people, you know, we can get into the student loan conversation. You know, that could be a conversation in and of itself. But let's just say that it's like credit card debt. So the basic consumer debt that plagues most people most of the time, the conversation is going to start around that first regardless of the interest rate. Because in part of that reason is, is you can take address the highest interest rate first in some schools of thought, but for the most part you want to take which debt is the lowest amount as a total. And there's some psychological benefit to addressing that first. So if you want to think of it like a checklist like, hey, I have let's say I have ten types of debt, but I have one that's 500. Next one's like 2500. And it progressively gets bigger as you go down.

**Branden:** The list goes all the way down to the mortgage, you know, mortgages, Vegas or student loans. And you know, it's like then you have your car and smaller than that is, you know, maybe a major credit card and you get all the way down to, you know, whatever the Kohl's card, the department store, credit card, 500 bucks. Exactly.

**Marcus:** And you know, the reason that the address, the smallest volume amount of debt works really well is because once you check that off and you say, okay, cool, I don't have that anymore. Sure. Now it's like, I don't have ten things. I have nine things. And then you can address. Hey, well, okay. Cool. Well that money was already going towards X debt. You just you can kind of roll it into the next one. Sure. And that can accelerate that payoff. And that type of methodology is actually pretty effective for it. That's what the Dave Ramsey program calls the snowball effect. You just take the small, you order it by size, address the smallest one first, pay the minimums on every other one. Everything that's left over goes towards that smallest debt. Get that paid off. Then everything you're paying that smallest now goes next smallest, which is now the smallest because you've paid that one off. Right? Right. And it accelerates over time. And it's actually just talking with a client recently who is using a different method. I don't even know what they call it might have been called like the maybe the waterfall approach, avalanche approach, whatever they call it, I don't know, it. Basically it was.

**Branden:** Like Everlane should be where you start with the smallest interest rate for or sorry, the largest interest rate.

**Marcus:** And that's kind of what they were addressing. They were like throwing a big lump sum at that and then kind of tailoring them down above the minimum. Yeah. You know and that can that works mathematically. It works really well.

**Branden:** Mathematically works better.

**Marcus:** Yeah. Right. It does. And you know, sometimes if you're a type of person that having to address ten things at once doesn't bother you psychologically at all, great. Go for it. You know, the minimum is a great way to go as far as money out of pocket to pay those debts off, you know. But I could tell that the, the stress of dealing with all those types of debt was wearing on her. So I kind of said, well, let's take a look at this approach if you haven't looked at it yet. And she hadn't. And I said, well, how would it feel for you just from a motivation standpoint, if you know, in a month you can pay off one of these and then in two months you pay off the second one and then in three months after that. So in six months you have three of these gone not to worry about. You could just see this person light up. Yeah, right.

**Branden:** Yeah. Well you stop making, you know, you stop making progress and you start making wins. Yes. Right. And, you know, finance is a game where stuff can move really quick in your face, but stuff can just take time, right. And a lot of times the hardest, the hardest part of winning the finance game is the patience and the patient side. Right. So sometimes we think of things like six months is forever away or two years is a really long time from now. And it's really not in finance terms. Right. But we live in a world of instant gratification. And so I think what you're calling out behaviorally, if I'm understanding you correct, is, hey, you can stop having this thing where you're always saying like, okay, well, I'm making progress, right? And so, you know, in 15 more months and 14 more months and 12 more months and you can start saying, oh, I got a win. Okay, I got one done. Right. Check it off. You know, it's so you stop making the progress. You start making the wins. And that's what keeps somebody going and motivated to continue to, you know, pay stuff off. Right? I mean, if you're paying debt off to some degree, no matter what, you're tightening the, the belt trap to, to sort of speak. Right. So at a certain point, like you have to make sure you're saying motivated so that you continue to keep the belt straps tight, right. Yeah.

**Marcus:** And I think, you know, you know, it's really important to, to address those type of wins too, because you know, we're we've, you know, the attention span of people, I guess over time if they've measured is kind of getting shorter.

**Branden:** Yeah. We all have the attention span of a goldfish right.

**Marcus:** Yeah. Essentially. And you know, and because we have digital access to everything that can always be in our face constantly, you know, and that's, that's an asset. And you could potentially call it a liability as well because. Yeah. So you know, if you're constantly hey what's my balance today. What's my balance today. What's my balance. And you're looking at this and then if it has like an accrued interest to the day, you say, oh man I got this more. And it could just drive you kind of nuts. And you know, part of paying off debt is one becoming a little bit more disciplined with your cash flow. But also it's like you still want to be able to enjoy life in that process, which is totally possible, right? People have a tendency to tie their life to certain things. And I've seen people have met people that identify with how much debt they have, both to the positive and to the negative. Right. And, you know, if you're one of these people where you're really stressed out by that, you know, sometimes just changing the outcome from to a win based outcome by just checking off like, hey, this is no longer applicable to me. That's no longer on me in the end. Yeah, you may save a few bucks, but it may be marginal biased on the amount of stress it saves you over that time frame.

**Branden:** Yeah, well, you know, that's the behavioral side of finance, right? Where you can start a plan and you can say, okay, well the optimal plan from a calculation perspective is to do this. You know, the avalanche method attack the highest interest rate first, right. However, if you get discouraged halfway through, put the whole thing on pause for 3 or 4 months. All of a sudden it's actually more expensive, right? Or, you know, could be. So that's the behavioral side. Like you have to acknowledge the behavioral side of finance essentially at all times. Right. Or it's going to wreck you. So okay, so your methodology of paying off debts, you prefer the snowball method. Right. Tack the smallest balances first. And so we talked about an example earlier where hey, you have you know, the department store credit card. You've got, you know, your phone that's financed at T-Mobile. You've got your. You know, major credit card, your Costco card, you've got your, you know, a small car loan, a large car loan, a student loan payment and a mortgage. Right. And like, at what point do you start investing money. Right.

**Marcus:** Yeah, that's a good question. And it's really important because there is there are a lot of different thoughts on this. And this is where like as a, you know, going to the Ramsey program, I know what they coach. I understand why they take the approach that they do, but I don't I don't actually agree with it to a point.

**Branden:** What is it. What is the.

**Marcus:** Pressure there in their mind is you don't do any investing at all, even into like a retirement account, until all your debts paid off.

**Branden:** Okay.

**Marcus:** So that's where I start to disagree, because if you have an employer sponsored 401, there's some tax benefit there to you as well. Right? So and if they're doing a match, you know it's hard to beat a 100% match right.

**Branden:** Yeah. Right. Like if, if, if you put in $3,000 into your four one and your employer puts in $3,000 on your behalf, like your rate of return on your $3,000 is immediately 100% rate of return, you've doubled your money. So even if the credit card is 30% a year, right? That $3,000, you could have paid off a credit card at 30% a year would have, in effect saved you easy round numbers here, thousand bucks. So instead, like you're, you know, you're out an extra thousand dollars of interest, but you're up an extra $3,000 of contribution. So you have a net positive of $2,000. And that's not accounting for any additional returns that then, you know, the markets make for you. Right. So it's great starting point. I think that's a really great call out like that. People have to remember and understand is when you get that employer match and that's an opportunity set for you. Like if it's all sixes but you get a long term tax benefit, you probably still want to take that. But most people get that employer match and you want to take advantage of that, right? If you have the capacity to attack both. Right. So he put enough money in the 401(K) to get the match, take the free money, and then still chunk away at the credit cards. Right. Aggressively. I always like, you know, one of the things that you guys hear me say around the office all the time, right, is like, hey, don't feel victim. Don't fall victim to the or right. Embrace the genius of and yeah. So it's not invest money in the 401(K)or pay off a credit card. It's invest money you know in the 401(K). Get that match and still pay off the credit card. Right. You got to figure out in your cash flow in your personal economy how to make that happen. But if you can tackle both, then do it right. Certainly will slow down the payment of, you know, the reduction in debt, but your net worth will grow faster. And that's really what matters is the net at the bottom of the debt, you know, at the bottom of the page. What if they don't have an employer match?

**Marcus:** Well, you know, I still think that it is still best to have some sort of tax deferred account that you're leveraging against your income. So if there's no employer match but there is A 401(K), or if you're self-employed and you have a SEP or solo 401(K) or whatever, right. So put your, you know, my, my personal recommendation for people is 10% of your growth goes into your retirement and that's it. Any age if you can afford to do more, do more, right. If you know if the maximum contribution is more than 10% and you can afford it, yeah, go ahead. Go for it. Right. And you know, because again, debt is a time based game that pay off. But also like building net worth is time based. So if you're delaying your, you know, retirement savings, whatever the goal for that is you do have to delay that by ten years. You're ten years behind in starting from zero. The first ten years are probably the most important ten years of the investment. So my thing is in tax deferred accounts, take advantage of it. And because you're not only building your base, you're also dollar for dollar. It costs you less to invest because it's pretax.

**Branden:** Right. Well you know and I want to call something out really quick. Is that like you know oftentimes what we work with or what you might work with is somebody that's a pretty high income earner. Right. And so pretax might be more appropriate. I think the terminology that we probably should use is actually just tax advantage. Right. Yeah. And the reason why is, is if you're, you know, if you're dealing with a small amount, it might be like trying to think how to articulate this here. If you're dealing with an amount of debt, it might feel large to you. But if it's small and absolute terms relative to tax brackets, right? Yes. You still might want to do Roth. Right. Especially if you have, you know, a bright future ahead of you that you think your earnings potential is going to grow over time. Right. You still would want to probably really consider Roth contributions, right? Yeah.

**Marcus:** That's totally fair.

**Branden:** So not tax deferred but tax advantage still right. Because it gets that tax free growth. So just wanted to maybe clarify that for somebody like hey there's there is a time to do tax afraid. And there's a time to do Roth. And those things can change from year to year depending on how intricate somebody's planning is, what their life circumstances are. But it's about getting the tax advantages associated with either one of those options, right?

**Marcus:** Yeah, absolutely. So, you know, one of the big things is I don't like to see people get so focused on something that is just mathematically attainable, like paying off debt and forego something that also is mathematically attainable, as in building a good nest egg later in life for retirement. Yeah, right. They are both. Possibly you can do both at the same time. You know, I would say that from the investing side, any investments beyond a retirement, I would pause for a while. There's a substantial amount where it makes more sense to invest versus pay off the debt, because now we're talking this is like basically like your take home pay. And when you do run the math there, your net. When we talk from a net worth perspective, when you pay off the debt and then you start investing, the net worth grows at a substantially faster rate than it does if you're doing both at the same time with those that take home money, because that was my experience. I tracked it for three years, and then when I paid off that, I mean, it went up really fast comparatively.

**Branden:** So you have a lot more cash flow to put towards the investments. I think there's like a gray area. Right. So I think a lot of people, if you say, hey, you do the 401(K) or you know, hey, put some money in, you know, a rather a, you know, don't lose sight of that, you know, make sure you're paying off the credit cards otherwise. And that makes sense to them. Right? People go, yeah, okay. You know, credit card 18% interest. You know, it's probably higher than the expected return on the investment in the short term. So yeah. Yeah, let's do that. But what about when you get to see you knock out all the credit cards. And now what you end up with is a car. You know, you have a car loan, right? The car loan is the next thing. Right. So where you know that like, you know, revolving consumer debt, but a car loan is your small signal. Is it. How do you tend to think about that with people.

**Marcus:** So this is where I start to deviate a little bit from the Dave Ramsey program. If people really buy into like that type of program, I'll go with that with them because that's what they're comfortable with, which means that they're more likely to go with it. Right? I always this is where I really do take a look at the interest rate, because some people get great interest rate on cars. Right? So I, you know, me, as an example, I worked for an auto parts manufacturer for a number of years, and I got beneficial treatment for that because of the nature of my work. So I qualified for 1.9% interest rate on a brand new car. Yeah, there was no way I was paying that off early.

**Branden:** Yeah.

**Marcus:** Yeah, right.

**Branden:** If somebody cut me, if somebody let me borrow $1 billion tomorrow for 1.9% fix, I'd absolutely take it.

**Marcus:** Yeah, exactly. And, you know, so this is where I start. This is where I start looking at that because and, you know, that's the first piece of it and it's not the only piece. And then the other piece comes with, well, how much of that car payment is eating up your take home pay? So your cash flow, like what percentage of this are you out of balance with that. Right. So like my general rule of thumb that I advise people on, like when I coach them is like, hey, if your interest rate on your car is less than like 3%, you know, you're fortunate enough to have that, just let it ride.

**Branden:** Less common. No. Yeah.

**Marcus:** No less common now. But you know, but if you're, you know, you start getting into the five, seven, 8% then it's like well okay. And let's take a look at this right.

**Branden:** Yeah. Let me give a quick call out on that. That just popped into my head to you. Because sometimes I do still see where it's like a pretty low rate. So somebody like, oh I got you know, I got 2% or I got 3% on the car loan or hey, I even got like a 0% interest on my car loan. This is a quick, friendly reminder to everyone. No free lunch is in finance, right? So if somebody's going to sell you a car and they're going to finance it on your, you know, for you, right, it with a 0% interest rate, money is never free. That's okay. There's always a cost to money. And so what they've done is they hide the cost somewhere. You pay more for the car and they give you a 0% rate. They make a larger margin that essentially covers their internal cost. To carry that note at 0% interest. Right. You still pay a loan. It's tougher to figure out what your effective interest rate is that way. And so a lot of people will fall victim to that. The difficulty around that is just realize that, like so if the price of the car, you know, lowers, you got used to the full principal balance. Right. If you sign up for an 8% interest rate and interest rates go to four, right. You can refinance the loan okay. So oftentimes it's actually better to pay a lower amount for the car in absolute terms and sign up for a little bit higher for an interest rate. Because you lock in optionality if the interest rate environment changes.

**Marcus:** Yes, that's.

**Branden:** Very true. So just quick side note on that.

**Marcus:** Yeah, that's very true. You know, in the other part that I tell people with this is like, look, you know, we're going out of debt instead of if you had the behavior of a halo, we're going to buy a car every three years, which a lot of people do, and they start rolling the loan into the new car. It basically turns into like, well, how about this? You just run this car until it basically dies or it's not worth it to fix it again? Sure. And then, you know, essentially, like whatever that would be is you either by if it does die, like you buy a cheaper car or you already creating like a savings account to buy the car.

**Branden:** Yeah. Yeah, I would say, I would say the number one thing that I see hold people back. Right. If you evaluate people in their 40s, 50s and 60s and you know what has held them back the most financially over the course of the lifetime, a common theme often is that they drive, you know, they're constantly financing vehicles and so well, the financing of the vehicle actually isn't the problem. It's that the it's more vehicle than what they can truly afford. Right. So again, like, you know, you had mentioned like, okay, you could get a 2% interest rate, right? So like if you could afford a $30,000 car and you've got the assets to pay it, but they just give you a, a 2% loan. Well, like that's just effective use of leverage. Nothing wrong with that. Right, exactly. If you have to finance the car because your assets are $1,000. So you have to finance a $30,000 car, and now you're stuck to that payment. And you don't have assets that are helping cover that. You know, they're making that payment for you bad use, right? It's bad debt. And that's what really holds people back. And so this constant, you know, need for the newest car is an interesting behavioral dynamic of witness and people that's really cause a detriment, I think far greater than the realize, you know, in the end, you know, if you look at retirement savings and you say, okay, average cost of vehicle today, let's, let's call it $50,000. And, you know, somebody on Main Street goes to retire with $1 million in their IRA or whatever. But they have financed cars their whole life. Well, when you get to retirement, you don't have to take money out of the IRA at a reasonable rate to pay the car loans, or you have to take 100 grand of the IRAs to pay them off. Except it's worse than that. You got to pull out enough from the IRA to grow, set up for the taxes, and so you could be anywhere from needing to pull out 120 to 140,000 out of the IRA to pay off the two cars, and then immediately takes your retirement savings down 15%, right? Yeah. Just to have the cars. Right. And so, you know, being at a spot where if you're somebody that again you want to drive a nicer car or you want to buy a new car every couple of years, whatever. Nothing wrong with that. But what does it really take to afford that is a different conversation. You just want to understand the impact it's going to have long term. So yeah okay. So car is maybe like the point where you start to look and say, hey do I start, you know, do I start investing or do I just aggressively pay the car off? I think you should think about risk capacity to like what's your risk tolerance emotionally. Do you want the thing that's like a little bit more guaranteed, right. Because if you save money on interest, it's sort of a guaranteed return if you, you know, but you could take some risk and potentially make higher returns in financial markets. Right. Investing in assets. So you got to look where that's at where your risk threshold is. I generally think with cars though, it's nothing wrong with the prudence of paying a car off, you know.

**Marcus:** Correct.

**Branden:** Unless you're a little bit more sophisticated and really understand what you're kind of doing with your whole balance sheet. I think that's a really great place to stop. But I think that kind of answers the question for most people, right? Like most people, wants to get beyond the cars. They it's kind of the same sequence from there, right? Like, okay, you do student loans, do you want to pay student loans off? It kind of just start to depend on the rate and your time horizon, your capacity for risk. You know, what keeps you up at night versus doesn't? What are your end goals? Where do you want to be in retirement? So how fast you need to grow money, right. Or you know what's that capacity there. Right. So I think getting to that stage helps people really clarify the way that they should be sort of thinking about it. Certainly, if anyone has more specific questions, they can reach out. What's the easiest way to get a hold of you, Marcus? If somebody wants to, you know, pick your brain a little bit more on this kind of stuff.

**Marcus:** So I have just marcus.at.dwm on Instagram is probably the easiest way to get Ahold of me. Okay, great.

**Branden:** Well easy peasy. Yep. Appreciate you and all the work you do. Just help them get people dialed in and stay on track. Right. It's like that accountability piece is so important and I appreciate the effort. You put it with that. Yeah.

**Marcus:** Cool man.

**Branden:** See everyone out there.