Millennials are too focused on paying off debt to invest, but experts say there's room for both

• Many millennials who are staying out of the stock market say they're focused on paying off debt.
• Experts say you should pay off debt and invest at the same time if the interest rate on your debt is lower than the average stock-market return.
• Access to benefits — such as 401(k) matching — make the case for investing even stronger because investors get a "guaranteed return."

It's no secret millennials carry a heavy debt load. As Business Insider's Hillary Hoffower has reported, the generation is facing an affordability crisis fueled partly by increased living costs and student loans.

For its Master Your Money "Invest & Thrive Survey," Business Insider and Insider Intelligence asked 2,020 millennials (defined as those age 21 to 38) about their investment behaviors. Among them, 41% of respondents said they were not investing.

The main reason they gave for staying out of the stock market had to do with income limitations, but debt was a close second.

Among non-investors, 22% said they weren't investing because they had too much debt, the "Invest & Thrive Survey" found. More than a third said paying off debt would cause them to start.

Millennials on the whole are more focused on paying off credit-card and student-loan debt than building wealth through investing. Among a pool of 1,807 survey respondents with financial goals, 38% said their debt load was a main barrier to achieving their goals.

Taking on debt isn't the worst financial decision you can make, but putting off other goals and priorities such as investing because of debt could cost you big. Sometimes taking on debt is necessary, but waiting to put your money to work until your account balance says zero could cut into years of wealth generation.

Strike a balance between debt payoff and investing

The first order of business for any borrower is making the minimum payment every month. Not doing so could wreck your credit and cause you to default on your loan.

Beyond that, one financial expert suggests a rule of thumb for deciding whether to put additional cash you have toward debt or into an investment account to make the most of your income: Look at the interest rate.

A well-diversified portfolio should return about 6% annually, after taxes, Sallie Krawcheck, CEO of online adviser Ellevest, told Erin Lowry in her book "Broke Millennial Takes on Investing." Based on that, any student-loan debt with an interest rate of 7% or higher should be paid off before you start investing, Krawcheck said. Otherwise your investment gains will be virtually wiped out by the cost of your debt.

Unfortunately, credit-card debt usually carries a much higher interest rate, so it's often better to prioritize that before investing.

But because of the pandemic, student-loan rates are historically low. You might be able to lower your interest rate through refinancing, if you qualify, and free up cash for investing. Just make sure to get quotes from multiple lenders to figure out which one will most benefit you.

Don't pass up a 401(k) match because of low-interest debt

Amassing a proper retirement nest egg takes decades, and every year counts.

According to the "Invest & Thrive Survey," 19% of the millennials who said they didn't invest said one reason they didn't have a 401(k) was they had too much debt (respondents were able to choose more than one answer). Just over a quarter said paying off debt would spur them to contribute to a 401(k).

Having access to a 401(k), which allows employees to save money before taxes and grow their balance tax-deferred, is a privilege in itself. But some employers sweeten the deal by matching contributions up to a certain amount. Experts often call this a "guaranteed return" or "free money" you shouldn't pass up, unless you're seriously strapped for cash or burdened by high-interest debt.

It's important to remember that everyone handles money differently, and emotions often come into play, whether we invite them or not. If debt represents a significant emotional burden to you, regardless of the interest rate, paying it off before investing may be the way to go. Just know that you'll probably have to invest or save more later to make up for lost time.