Whether you’re in or approaching retirement, having extra cash lying around can pose a real dilemma. Should you invest it for potential future growth, or use it to pay down significant debt? Both options can be smart financial moves for your future.

In this week’s Money Wisdom Question Series, Heath Grossman, CFP® explains how the choice between investing and reducing debt depends on your individual situation.

When to Invest

If your investments could potentially earn a greater return than the interest you’re paying on your debt, investing might make more sense. The practical benefit is the potential for more growth over time, and a nice boost to your retirement savings.

Psychologically, you need to be comfortable with some degree of market risk or exposure. At the least, you should be okay with taking on risk associated with your particular investment choice.

When to Pay Off Debt

High-interest debt, like credit card debt, is tough to beat from an investment standpoint. Credit cards often charge over 20% interest, much higher than the stock market’s historical return of around 10% (S&P 500).

Your debt repayment plan might use the snowball method or the avalanche method. Either way, paying off debt is a great way to lower your interest costs, improve your credit score, and relieve money-related stress.

Consider the Type of Debt

The type of debt you have matters when answering this question. Mortgage debt is fine to have when it’s manageable, does not consume too much of your monthly income, and has reasonable interest.

Credit card debt is what you want to focus on paying down. If you’re unable to pay off your credit card balance each month, it may be time to reassess your spending and budgeting habits.

When to Take a Balanced Approach

A third option is to consider building an emergency fund. From there, you can split the extra money between investing and debt repayment. Ultimately, using your cash wisely — whether it is to invest or pay down debt — is better than living beyond your means.