Blog Invest Should I Pay Off Debt or Invest? A Short Guide

Should I Pay Off Debt or Invest? A Short Guide

date August 31, 2022 time 5 min read 114 views

If you ever find yourself with a bit of extra cash, deciding whether to pay off debt or invest can be challenging. Both options have pros and cons, so it’s important to consider them all carefully. This guide is designed to give you all the information you need to make a more informed choice.

Before we get started, it should be clear that both options are good, and if you can do both, the rewards will be high. However, if you can’t set aside enough to invest and pay off your debts simultaneously, you’ll need to choose between the two. It helps to understand both options and select the best one for you.

If You Have Lots of Debt – You’ll Probably Want to Pay It Off First

If you have a large debt — such as multiple credit cards with high-interest rates — you’ll probably want to focus on paying that off first. Credit card debt is one of the most common traps people fall into – so don’t worry if you’re one of them; you’re not alone. The interest rate on this kind of debt is among the highest you’ll ever pay, so by clearing it, you’ll be able to save a lot of money in the long run.

Clearing your credit card debt should be a priority.
Clearing your credit card debt should be a priority. (Source: Pixabay)

Interest on a $5,000 credit card balance at 20% will cost you $1,000 yearly in interest payments alone. If you can clear this debt in just one year, you’ll save yourself $10,000 over five years! 

That kind of saving can make a difference.

However, debt like student loans and mortgages are designed to be paid off long-term. There’s less urgency to pay off these debts, which are relatively low interest. In fact, it’s often possible to negotiate with your lender to either reduce your payments or extend your repayment period. 

You might want to do that if you’re looking to grow your wealth, such as launching a new business, extending your home, or other investment projects.

How to Manage Your Debt

  • Set up a regular payment schedule for each of your debts — including your minimum payments and any extra you can afford to send. 
  • Make a standing order to ensure your repayments are automatically deducted from your bank account each month.
  • Check your accounts regularly for late fees and other charges that may have been applied by mistake.
  • If you can’t manage to make all your payments on time, contact your lenders and explain your situation. Depending on your circumstances, they may be willing to offer you some assistance. 
  • Don’t be tempted to take out more credit just to try and cover your repayments.

Grow Your Wealth with Investing

On the other side of the debate, investments give you a chance to grow your wealth and improve your financial standing. The key is to have a diverse and long-term strategy and avoid plowing all your investments into one area. It’s also important to understand there’s always risk involved with investing.

Growing your wealth involves a diverse investment strategy.
Growing your wealth involves a diverse investment strategy. (Source: Unsplash)

Risk is a crucial element of how investments work. The general rule of thumb is the higher the risk, the higher the potential return.

However, note the keyword here – and it’s not return. The degree of risk usually determines how likely you are to see a return on your investments. 

For instance, putting your money into real estate and stocks is seen as a steady and safe investment over the long term. Cryptocurrencies such as Bitcoin are less stable but have higher returns than traditional investments.

This is why it’s essential to have a diverse investment portfolio, where you can manage the risk and generate a healthy return. Here are some other tips you could follow.

Investment Tips

Set your budget: Not everyone can invest $100,000 right away, and most can’t. Set a budget you can work with and slowly increase your investments over time. You can do monthly, quarterly, or annual investments – whatever works best for you.

Understand your investments: You don’t have to be an expert to invest your money wisely. However, it’s essential to understand what you’re investing in and how it works. Don’t be tempted by the headline figures of sky-high returns and jumping in blind. Do your research and get as much information as you can about the investment before making any decisions.

Identify your risk tolerance: There’s always an element of risk with investing, so identify your risk tolerance. How much are you prepared to lose? Are you willing to lose your investment in pursuit of high gains, or are you ready to accept a lower return for reduced risk? Answering these questions will help shape your investment strategy.

Pay Off Debt or Invest? Take a Balanced Approach

The key to any financial strategy is balance. Take a long-term view over your finances, and break down the goals you want to achieve into manageable steps so you can work towards them gradually. Paying down debt doesn’t have to be completed before you start investing. It can even positively impact your long-term finances by improving your credit score and making room for additional savings.

A balanced approach to debt and investment is essential.
A balanced approach to debt and investment is essential. (Source: Unsplash)

It’s essential to pay off any high-interest debt, like credit card bills, as soon as possible, but mortgages can be managed over an extended period. 

The smart strategy is to emphasize your financial goals and do whatever it takes to achieve them. It will very likely involve a mix of debt management and investment.

Manage your debt to set a solid foundation. Invest to build on that foundation. 

Investing with Myconstant

I believe that by the time you read this far, you already have your answer whether to pay off debt or invest. If you are looking for an investment opportunity with attractive interest rates, come to Myconstant. 

MyConstant —unlike any money-making scheme promising you quick and easy money, we have a proud record of no investor losing their initial investment to date.

Crypto Lend is our anytime-withdrawal investment account for cryptocurrencies, and gives you the chance to earn 4% APY to 12.5% APY interest. We also have a range of non-crypto products, such as our USD wallet – Deposit money online, which pays 4% APY if you add your dollars while also giving you the option of withdrawing at any point.

Benefits include:

  • Up to 8% APR on fixed-term investments
  • No fees for USD investments
  • Anytime withdrawals
  • Minimum investment just $10
  • No maximum investment limit

Sounds interesting? Sign up for a free account today and start investing.

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George Schooling

George Schooling

Invite friends and you both earn 10 USDT when they first lend stablecoins or make a crypto-backed loan

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