Stop investing to get out of debt – Should you adapt this approach to repay debt?
By Guest Author: Diana Degarmo
There are many consumers in the US who are not able to invest due to theobstacle of steep piles of credit card debt. While using their credit cards, most of them are unable to keep a track of their expenses and hence they soon fall in debt for which they have to take credit card consolidation help.
Mortgage loan payments, student loan bill payments, auto loan payments and credit card bills may wreak a mess on your paycheck leaving you with the feeling that you can’t save a penny for investing any further. Most debtors are wondering whether they should stop investing in order to repay their debt obligations and if you too are thinking the same, it is good that you’re taking your financial health into consideration. Read on to know which way you should adapt to build wealth and also repay your debt at the same time.
The benefits of investing that make it an option to build wealth
If your sole aim is to build wealth and multiply your funds, investment is perhaps the best financial tool. Because of the compounded interest throughout a fixed period of time, the value of the initial investment will appreciate with time. If you can make investment your goal, you may forget useless expenses as your aim would then be to save every penny to use it for investment and then make it grow with time. Certain investment options like gold and silver investment can also be a hedge against inflation and can even protect your financial future. If there is a financial disaster in the long run, you can sell off your investment assets in order to avoid being a bankrupt, not being able to tackle your unexpected medical bills or your student loan payments. This is certainly a positive side of investment and you should take into account the aforementioned points when you think of putting a halt to your investment pursuits for repaying your credit card debt.
Investing while in debt – Does the interest rate earned get nullified by the rates spent?
The only problem that may arise when you’re investing while you’re in debt is that the interest rates that you earn through investment gets nullified as the interest rate that you’re paying on the unsecured debts are very high. This is especially true for the credit cards as they carry double-digit rates and this unnecessarily aggravates your debt load. The interest rates on the
investment assets are modest enough as the only aim of such options is to add value to the funds that you’ve invested initially.
Snowball your credit card debt payments to get out of debt
When you want to ensure that you repay your debt before you invest money, you can take resort to the snowball approach of debt repayment where you repay your debt accounts one by one. You just have to arrange the accounts according to the smallest principal balance to the highest. Start off by repaying the account with the smallest outstanding balance while paying the balance of all the other cards. This way you may be able to get out of debt on your own while saving money for investment purposes. Therefore, if you want to build wealth through investment, make sure you trigger off your credit card debts. Choose to save money and spend money wisely so that you don’t have to take help of professional debt relief options.