Paying off Debt vs. Investing
From time to time I get asked: “Is it smarter to pay off my debt with the extra money I’ve or put it into an investment?” I usually respond with this question: “Paying off your debt is a good investment in your future isn’t it?” Consider it, because it does make sense.
Doesn’t it make sense to you, if you keep yourself from paying the interest on a debt, you are making future money. The money is of course a future savings, which by definition is an investment.
A lot of people who invest money would like to see a good return over the life of an investment. Let’s state an average return on a moderate mutual fund over a 20 year span has returned 10%. The average Credit Card interest rate is 12.99%. Are you beginning to see where I’m going?
The main difference between paying off debt and making an investment is risk. The investment isn’t guaranteed to produce (Hence your risk) The debt, however, is guaranteed to keep charging interest.
A big issue with investing in anything is the lack of knowledge the investor has about the investment. We have the ability to concur that paying off a mortgage debt quickly can have massive benefits. Much like a stock which makes big daily gains.
So now we’re coming to a highly important point. Having an investment make large gains is much like paying off debt swiftly. The question remains, how do we as people in debt, pay off our debts at an accelerated pace?
There are only a couple of ways to do this. One is to change the rate of interest that’s accrued. Another is to slash the term of when the payment is due, which will increase the payments. The final way is to increase the payments and activity.
When you’re taught how to use existing lines of credit to leverage your debt, you’ll then be in a position to accelerate your debt payoff. We have demonstrated in this article that paying off your debt is a brilliant way to invest your money.
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