This is an investment blog, so you’re obviously interested in investing. If you’re also in debt, you’re probably struggling with the proper balance of paying off that debt and investing.
Why It’s A Difficult Choice
Let’s face it, investing is sexy. You start with some money and, pretty much through magic, you get MORE money. You feel like a rock star and a millionaire all at once.
Compare that to paying off debt. One day, you’re minus something, and the next day you’re minus a little less. It just doesn’t feel as good.
As an investor, you’re always thinking about the risk/return balance. In the scheme of your entire financial situation, paying off debt is equivalent to a guaranteed return on investment. If your average debt carries at an 8% interest rate, you’ll have to do significantly better than that on your investments to cover taxes and other fees that go along with investment income.
The Power Of Focus
There’s a certain amount of distortion that comes with having to juggle both debt and investments. You’re pulled in two directions, and it means every dollar is a bit confused. Imagine for a moment putting your investing on hold and focusing on paying off your debt completely.
Start by using a debt repayment calculator to figure out how long it will take at your current rate to pay it off. Now calculate how much you contribute to your investments every month and add that amount to your debt repayment plan.
Now get excited about being out of debt. Think about how every single dollar will increase your net worth in a positive way, rather than just slowly filling in a hole to bring you to zero.
There’s a power to this type of focus. Knowing how much more money you’ll have for investing at the end of this road will help motivate you. Using your calculator every time you find some extra cash to throw down on your debt and seeing how much sooner you’ll be done is exciting.
What About The Time You’re Not Investing?
Of course, focusing on debt like this means there will be a period of time where you’re not investing. In theory you’re losing out on some returns there. Back to thinking about the guaranteed return from paying off your debts, combined with all the additional money you’ll have once your debt repayment is finished means you’ll be able to make up that down-time very quickly.
In the end, you’ll be in a stronger financial position. With no monthly debt payment obligations to worry about, you can spend more time learning about investment options and get more aggressive with your strategy.
If your debt load is looking like it’ll take years to pay off, it makes sense to speak to a professional to learn about other options that are available to you. Debt.ca has number of solutions and is a great place to learn about these options.
Readers what’s your take? Are you debt free or investing while paying down your debt?