The advantages of investing are clear, and you might be tempted to make an investment if you find a product that could help you reach your goal. But what if you owe money at that time?
Many experienced investors say that you should only start when you’re debt-free. This may be the ideal, perfect world-scenario, but having debt should not stop you from investing. The best way to do this is to look at the type and the nature of your debt itself.
Difficult debt
If you owe money and you’re having a hard time paying it back, you probably shouldn’t start investing yet. Instead, focus your resources towards ensuring that you can fulfill your responsibility to fully repay everything. Making a budget, which includes your debt repayment plan, can be very helpful for you to accomplish this goal.
The same goes for situations in which you can’t immediately pay off the whole debt, and so you’re chipping away at it as big and as often as possible. Remember, the longer it takes for you to repay the borrowed money, the more you’ll end up ‘spending’ in the long run – because of interest charges.
Paying off your debt sooner means you’ll have more funds to invest with, and that could increase the returns you’ll get in the end.
Managed debt
On the other hand, you might have borrowed money with the arrangement of paying it back via a fixed monthly amount. If you’ve budgeted for this and you have no problems making these payments while still taking care of your essential expenses, you can consider investing.
Don’t forget that you’ll still need to have an emergency fund before you begin. And this requirement is non-negotiable. This can help you keep up with the payments in case something bad happens unexpectedly.
Otherwise, you might end up having to liquidate your investment before it can give you the best returns, just so you can pay your debt.
Remember also that peso-cost averaging can yield good results for your portfolio, so you don’t need to wait until you’ve gotten a large amount before you start investing.
