Investing helps you to build wealth. It helps to grow your ‘money tree.’ But, the question is, can you invest money when you’re in debt? Is it possible to invest money and pay off debt at the same time? This is a pertinent question because both are important. If you don’t explore the options to reduce credit card debt and pay it off, then your financial life will be in big trouble. Collection calls will not let you stay in peace at home. Your credit score will drop and it will make it difficult to obtain a loan from potential lenders. If debt collectors become frustrated for payments, then they can even sue you.
Again, if you don’t invest money, then it won’t be possible for you to build wealth. Right investment strategies can help you to make your hard-earned money work to double itself over the long term. Investments help you to set aside money for tomorrow. There are both short-term and long-term investments. Both fulfill your long-term and short-term financial goals.
Moreover, investments help you to earn additional income. Some types of investments even help you get a regular source of income in the form of dividends. So, that is an added advantage.
Now, the big question is, can you make investments and pay off debts at the same time? The answer is, ‘yes.’ You can do that under the following conditions:
● You want to clear debts gradually and invest money at the same time to secure your financial future.
● You have some money in your hand to make investments. If both the conditions have been met, then you can surely invest and eliminate debts at the same time. However, the final decision is yours. Absolutely yours.
How to invest when you’re trying to clear debts
Here’s four potential options how you can make smart investments while clearing debts.
1. Invest in the 401 k plan: If your employer offers a 401k plan, then you should grab it with open arms. The employer matches your contribution to this plan. So, if you’re contributing $500 to a 401k plan, the employer will also contribute the equal amount in your case. So, you’re getting an extra $500 in your nest-egg, which is not bad. Who will give you an extra $500 nowadays? Moreover, the amount you contribute to the 401k plan is tax-deductible. So, you’ll save money on your tax also. Make sure when you contribute to the 401k plan, you make minimum payments on your debts as well. After your debt is paid off, you can make bigger contributions toward your 401k plan.
2. Invest in low-cost stocks and mutual funds: The price of mutual funds is quite low now. The same situation is with stocks. So, if you have low-interest debts like mortgage and student loans, then you can invest in stocks and mutual funds. It’s a great time for investments (at the time of writing), especially because the price is quite low. You can buy good mutual funds and stocks of blue-chip companies at a super low price with a small amount of money. You may not get this chance later.
The economic situation is not good right now due to the pandemic. However, the situation should revive later. We expect that both the stock market and mutual funds will recover from the economic crisis. In this case, the price of stocks and mutual funds will increase and you’ll get good returns on your investments.
3. Try to invest without paying commission: When you’re exploring options to reduce credit card debt, you’re actually looking for ways to save money. Honestly speaking, you wouldn’t have thought about investing money if your financial future was not at stake. Anyway, the main point is that you’re investing money to make money in the future. However, when you’re investing money while paying off debts, you should try to get rid of extra expenses like commissions. Brokerage firms usually charge commissions for buying and selling stocks.
The goal of some brokerage firms is just to earn commissions by selling and buying stocks of their clients. They earn commission on trading transactions. If you’re buying a small number of stocks and paying a big amount on the commission, then it doesn’t make any sense. It’s not a good financial move. This is why you should look for the brokerage firms that don’t charge any commission on specific types of investments. The more you can save on the transaction fees, the better.
4. Automate your investments: You need to strike a balance between paying off debts and your investments. So, calculate how much you want to invest and how much you want to put toward your debt payments. Once you have determined the figures, you can create an investment account. Transfer the amount to the investment account at the beginning of every month. For instance, if you have decided to pay $300 towards debt and $200 toward your investments, then make sure you transfer $200 to the investment account every month. You can coordinate with the bank and automate the transfer as well. This would help you to be consistent with your investment planning.
Conclusion
Right investment strategies can help you to make money in the long run. Be extremely careful when you’re investing your hard-earned dollars. There are too many rumors circulating in the investment market. You shouldn’t get swayed. Rather, you should understand where to invest during the pandemic.
On the other hand, try to make the most of your payments on your debts by minimising fees. Some credit card companies are waiving off late fees and interest rates for the time being. So, speak with the customer care executives and find out what offers are there for you. Take advantage of them and see how much you can save. If they are giving some special offers, then try to get rid of high-interest debts first. That would help you save a lot of money. The double-digit interest rates of credit cards eat a lot of money. The moment you can get rid of credit card debts, you can start contributing more toward your investment accounts.
Knowwhere2invest.com is not a registered investment, legal or tax advisor or a broker/dealer. It is not regulated by the FCA, the PRA, the SEC or any other regulatory body. All investment/financial opinions expressed by Knowwhere2invest.com are based on the personal research and experience of the owner of the site, or the various contributors to the site and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors may occur. Nothing on this site is intended as an investment recommendation for any specific individual.
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