Should I Invest Or Pay Off Debt?
Currently people are controlled by a large amount of extra expenses due to mortgage management, handling of credit cards and the payment of some personal loans; all these expenses undoubtedly represent considerable expenditures that can affect the well being of each person. Sometimes people feel indecisive when making the decision to invest their money,pay down their debt or even save for a rainy day fund. We will make that decision a little bit easier for you.
Tips to determine if it is better to invest or pay debts:
1) Create an expense plan:
Before thinking about investments it is best to determine if this money is really extra money and does not need to put towards a mandatory bill payment. Remember that it is essential to establish what is the total amount that must be used to cover all the debts that you have, because if you stop paying any you will be generating income costs that may actually out “earn” your investments.
2) Establishes a contingency fund:
Another aspect to determine if it is better to invest or pay debts is to establish what are some of the extra expenses that you may incur. Remember that nobody has a fixed income forever, for this reason it is better to save money in case of an emergency. Experts state that an average contingency fund must cover at least three months of the most important expenses in your life. It is essential to have this money in an account that is safe and easy to access and withdraw from.
3) Think of paying a debt as a form of investment:
The further you pay down a debt the less interest you pay. So even though it technically isn’t an investment, make it feel like one so that you are encouraged to pay it off.
4) Prioritizes debts:
Most experts state that it is best to prioritize debts that have higher interest rates than those that have lower interest rates. There is also a trick called the “snowball” effect. This is where upon completion of paying off a smaller debt, that payment can simply be added to your bigger debt creating a snowball like compilation of payments.
5) Check what is the annual return on investments versus interest rates on debt:
When finding an opportunity to invest the best will be to establish what is the yield that investment will produce and compare it to the interest that is generated by the debts. From there you can figure out if it is better to invest, or pay off your debts.
Some tips for you to make the decision of whether it is better to invest or pay debts are:
1. When you are free of debt you will be able to invest larger amounts of money and thus generate more income.
2. On the internet you find a large number of ideal options to calculate which is more viable, an investment or the payment of debt.
3. Find a circle of people who have begun to reduce their debts so that you guys can share stories and learn from them.
4. It is not advisable to ask for a loan to invest it. With this you will be increasing your debts in addition to the return of the investment is never guaranteed,you could lose that money and end up in even more debt.
If you’re looking for an expert opinion on how to start paying off debt, we have decided to embed this great video by Dave Ramsey to get you started. Enjoy!