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Top Four Tips Whether to Pay Your Debts or Invest

Top Four Tips Whether to Pay Your Debts or Invest

by Thomas on May 20, 2013

A lot of people are caught in between a situation whether to pay their debts first or to invest. Maintaining a healthy financial life is quite difficult if you already have a substantial amount of debt to cover. It’s easier to say ‘I’ll pay my debts first once I get my money’ but the reality is that sometimes you’ve already invested you’re money in other things without any returns until you realized that you haven’t paid your monthly contributions.

When you’re in this kind of situation, you better start planning for solutions to keep your finances at hand. Here are top four simple yet realistic tips to guide you in deciding whether you should pay off your debts or to invest.

  1. Determine your Financial Goals

    Determining your financial goals start with planning for short-term and long-term goals. It should be determined by how much money you earn and the amount of expenses that goes off every day. Short-term goals can be checked monthly or quarterly and your long-term goals can be from three to five years or more. Make a checklist of when you can complete your loan payments then you can decide whether you’re going for another loan or to invest or just save your money. Keeping a checklist makes you focused and motivated.
  2. Make a Budget Plan

    After determining your financial goals, the next important thing to do is to make a budget plan. Allocate the money for your monthly bills and other daily expenses. It’s also important to set aside the money to pay your debts. Knowing where you spend your income monthly will help you balance your loans and expenses. If you’ve got extra money on your pocket, then you can both pay your loans and invest. Make wise investments where returns are significant.

  3. Keep an emergency fund

    No matter how small is the amount left from allocating your income, it’s important that you keep something for your emergency fund. You never know when accidents, illness and other unexpected events can happen that will require you to spend immediately. Your emergency funds can also be used to pay your loans in the future if the money that you’ve allocated for a certain payment schedule falls short. In the event that you quit your job without any fallback of another job, your emergency funds can at least keep you going for a few months until you found a new source of income.
  4. Prioritize Debts with High Interest Rates

    Always remember that all debts are not equal. Prioritize your debts that has higher interest rates to keep you from paying fines or penalty interests that can cost you more than what you should be paying for. On the other hand, you shouldn’t be lax when it comes to low interest rate debts. Else, it’ll give you an idea to pass on the payment since you’ll only pay a small amount of penalty for your missed payments. The goal here is to avoid spending more on interest rates.

These tips are a general advice. Seeking professional financial advice can also be a big help especially if you are planning to have a higher credit rating or you want to invest on something bigger. The important things to remember when it comes to handling money are to plan and prioritize. Do not apply for a loan when you know that your source of income cannot cover the amount of its monthly term payments. Always stick to your budget, be patient and your financial needs will be fulfilled when you stick to your goals.

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