Should you invest or pay off debt first?

Whenever we thought of doing investment question comes in mind, should I invest or pay off debt?

If you’re in debt, getting out of it should be your top priority, not investing. Paying off debt is best investment. This is because all of the gains you’ll get in investing will be eaten up by the penalties of being in debt.

Inflation works against you by 5% per year. So if you earn 10% with your investments, you win the battle.

But, credit card debt is much more powerful. It works against you by approximately 40% per year (that’s 3% per month). This is eight times more powerful than inflation! So even if you earn 40% from your investments (which by the way is difficult to do on a consistent basis), you end up not earning anything!
This is why your top priority should be to get out of debt first.

This isn’t a guide on how to get out of debt.

Here are some of the most important and practical things that you can do to pay off debt.

  1. Record the amount you pay for your debt and the amount you borrow each month.
  2. Decrease the amount you borrow each month.
  3. Increase the amount you pay for your debt each month.

I’m sure you’ve heard of the advice to stop borrowing, leave the credit cards at home, and start paying cash for everything. You may have heard the advice before, but are you doing it? Chances are, not yet.

The reason is that it’s just too uncomfortable to change old habits!

Don’t change too many things at once, you’ll burn out and fall back into old habits. So my advice is just start with 1, follow with 2 and then 3. Recording how much you’re borrowing and paying back forces you to face the reality of your debt problem.

This is the most important step to solve the problem. If you don’t know how big your problem is and how well you are solving it, then you’ll never be able to solve it.

Once you know how much you borrow and pay back each month, slowly decrease the amount you’re borrowing and slowly increase the amount you’re paying back. From borrowing Rs.5,000 per month from different people, just try and borrow Rs.4,900 this month. From paying back only Rs.3,000 per month, start paying back Rs.3,200.

While the changes may appear small, the important thing is you’re already moving forward to becoming debt free.

If you want to save your hard earn money by not investing in fraud scheme then check our guide.

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