Should I Start Investing if I Still Have Debt to Pay Off?

Should I start investing if I still have debt to pay off? This is a common question among twenty somethings with credit card and college debt but are still interested in making some money investing in stocks. We often confuse investing and saving which I am quite guilty of myself. This goes hand in hand with investing while carrying debt and important not to forget. There are certain instances in which investing while in debt is a good idea.

When many people talk about debt they attribute it as good debt or bad debt:

• Good debt is the kind that can be used to afford high priced investments that may or may not increase your credit rating and introduce you to repayment plans and options that often last years. Good debt is also characterized as maintaining a low interest rate and an excellent array of options to pay back. Student loan debt and the loan to buy a house are examples of this.
• Bad debt is often characterized as debt which was taken out for trivial purchases or non-necessities such as luxury items, clothes, night on the town, vacation, etc. Although these items are not often the problem the method used to pay for them is. Thus the credit card is usually considered the single most important factor in bad debt. This is due to their ease of use with seemingly no immediate negative consequences and the high rate of interest incurred as a result.

Deciding whether or not to invest in stocks will play largely on the type of debt you have. I have student loan debt that seems like an unfathomable number. But it is at a low locked in rate, gives me plenty of time to pay it back, and features low monthly payments. This is a perfect example of an opportunity to invest while paying off debt. It works especially well for the youthful investor.

Opposite of that it is illogical to try to invest if you owe more money in the intermediate, not necessarily a higher amount but when it is to be repaid. Credit cards like student loans require monthly payments but the amount of interest charged on the outstanding balance is exponentially higher than that of a student loan. That is assuming you did not get hustled into a credit card shark! Any returns you are able to achieve in stocks will be eaten away by the interest incurred on your balance. Further, if you fail to see returns it is as if you used your money to buy lottery tickets that have no chance of winning.

So what’s the verdict? Investing while you have debt is possible and is often a great idea. But before you make any decisions on investing with debt you need to assess your needs and what type of debts you have. You need to make sure you have an emergency fund and source of current revenue. You cannot feasibly invest with heavy credit card debt. School loans represent a healthy debt, but should not be forgotten as they still require regular payments and often hold an interest rate. If you have any concerns it is important to consult a Certified Financial Account or other qualified financial expert.

 

Tagged credit card, Debt, Investing, Student loans