Should you pay off debt or invest? That may be the ultimate question, and who really knows if there is a ‘right’ answer or not? Paying off debt first may seem like the most logical thing to do, it can be looked at as investing in yourself or your future. Investments come in many different forms and it does not seem to make much sense to invest in something when you are, indeed, in debt. This can be tricky though as well because maybe an opportunity has risen where a small investment may turn into a huge profit for you and your family, which in turn, would eliminate your debt. Oh, the decisions to be made!
Credit Check
Credit checks are important to do at least once a year to ensure that there are no errors. Some people may check their reports more often than others but it should be done at least once a year. Your credit score rating can and will fluctuate throughout the year depending upon payments that you have made, accounts that are open, loans and so forth. Bad credit loans can wreak havoc on your credit score rating and this is another good reason that paying off debt first seems like the best route to take.
Another reason to review your credit rating is to see if you are actually gaining credit points and subsequently getting the best loan terms possible. If you are consistently making payments (more than the minimum is suggested if possible) and continue to do so over a certain amount of time, sometimes you may be able to adjust loan terms/payments which can help you save some money!
Ideally, a credit check is an easy and efficient way to protect against identity theft. Monitoring your credit report regularly is one of the easiest ways to safeguard your personal information and allow you to be able to make investments in the future. Once falling victim to identity theft, it may take years to recover from the damage that is done.
Cash and Debt
Generally, a good rule of thumb is to have a minimum of half a years’ expenses on hand. This is considered a safety net; do you have that? Do not feel bad if the answer is no because many people are in the same boat. Statistically speaking, large amounts of Americans either fall into the middle class mark or lower. It has been said that a very small percentage of people in this country are considered in high upper class range, and the majority lives paycheck to paycheck.
Economically, things are very difficult right now and finances are the first to be affected by that. Paying off debt first and credit cards should be near the top of your list. If you cannot pay the debt off quickly, you are better off paying the debt down and getting rid of the card. Yes, it builds credit, understood, but it can also be damaging and the interest rates can be very steep! All of a sudden, a two hundred dollar purchase can turn into five hundred and a lower credit score rating.
Smart Investments
Not all investments or debts for that matter are considered ‘bad.’ They certainly are not treated as equals either. A bad credit loan or defaulting on a loan is not good while making an investment and purchasing a house may be very good. A mortgage and student loans generally are not thought of as bad investments, unless of course you start to fall behind on payments. Homes, you are investing in a secure place to live a long time and with school, you are investing in your education and future.
Everything is relative when you look at the bigger picture. Knowing the proper time to pay down debt and when to invest will make a huge difference. Only you really know your financial standing, the best thing you can do is to be honest with yourself and decide: is paying off your debt or investing the better option for you right now. Who knows, you may just be able to do both.
Amy Johnson is an active blogger who is fond of sharing interesting finance related articles to encourage people to manage and protect their finances.
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