Yep, it’s annoying.
That’s how it is when you think about investing while in debt.
One side of the fence is telling you how horrible of an idea it is. The other side is telling you that you’re jeopardizing your future by not doing it.
You just can’t win.
Well I’ve got news for you; there is no right or wrong answer!
The decision is up to you. If you’re on the fence, here are some things you should think about when it comes to investing while in debt.
What Are Your Interest Rates Like?
The first thing you need to figure out (if you don’t already know) is what kind of interest you’re paying on debt.
If your debt is in the form of a car or home loan you could very well be paying a super low rate of 5 percent or below. However, if you have credit card debt you might be paying upwards of 30 percent interest. Ouch!
Over the past 20 years the stock market has returned about 8 percent. So if you’re paying interest rates below 8 percent then it may be worth it to invest while paying the minimum on debts. If you’re paying more than 8 percent then it’s a better idea to pay off your debt.
BUT, it’s also extremely important to note that you are in no way, shape, or form guaranteed an 8 percent return on investment by putting your money in the stock market. The truth is there’s a chance you could earn far less (even into the negatives) or far more.
Nobody can predict what the stock market will be. There are NO guarantees.
When you pay off debt however, you’re getting a guaranteed return on your investment.
How Old are You?
Another important factor to consider is your age.
If you’re near retirement age then your money isn’t going to have that much time to grow. You’d be better off to reduce or eliminate your debt. By doing this you’ll have a lot less stress in retirement and will be able to stretch your budget further.
If you’re young however, then investing is a better option. The longer you invest the bigger your nest egg will get. This is all thanks to compounding interest.
Do You an Employer Match on Retirement?
In my opinion if you have an employer match on your 401k you should be contributing enough to take advantage of the full match.
That’s free money people! And it’s also a guaranteed return on investment. Debt or no debt I wouldn’t pass it up.
Conclusion
There’s no cookie cutter answer to whether you should invest while paying off debt.
Sure, in some situations the answer may be obvious but in other situations it’s a gray area.
Weigh the pros and cons. Think about the interest rates you have on your debt, your age, and whether or not your passing up free money.
That should make your answer a little bit clearer.
What do you think? Should you invest while in debt?