Pay Off Debt or Save and Invest

 

Pay off debt or save and invest? This is the question.

Prioritising what you should do with your money is always an issue. Most people, especially those aged 25-40, are usually carefree regarding money. Saving up for the future is not really a priority, and paying everything off with a credit card seems to always be on the books.

These days, saving up should always be your priority for financial planning. However, if you have a huge pile of debt, you might get confused about which to prioritise: paying off your debts or saving up for the future. We weigh your options and what you should do first.

Start by Building an Emergency Fund

You never know what will happen next, and sudden emergencies may arise at the most unexpected time. Start by getting a small chunk of your salary every payday and put it in a bank account meant for your emergency savings. The amount you can save up will likely make or break your retirement plans.

Debts Within the 5-7 Percent Interest Rate Must be Paid Immediately

Debts that are within the 5 per cent interest are still safe. However, if it starts to go beyond 7 per cent, you would be better off paying it off first before considering investing in your savings. Debts that go beyond the 7 per cent interest rate have a higher chance of getting considerable interest, which you do not want, especially if you are trying to be frugal. It may be you must consider debt consolidation. If the rate is still at 5 per cent or below, you will be better off investing your money for extra savings.

Borrowing from the Bank and Lending Companies

If you currently do not have money on hand and are struggling to make it through, your solution to the problem might be lending money and properties from lending companies and the bank. There is nothing wrong with this, even if you have bad credit, as bad credit, car finance, and mortgages exist. However, when everything becomes more accessible and you get a new income, paying off your debts is wise. Huge debts from the bank can incur a considerable interest rate, and you definitely do not want to be buried deep in debt, especially when it comes to properties and dealing with the bank.

Save Up for a Home Down Payment

Having a house of your own is actually a very good investment when it comes to your retirement. Applying for a mortgage can be a big responsibility, and paying it off continuously until your retirement can be a task. This can also be difficult as once you have already retired; your income won’t be that stable compared to when you were still working.

Minimise the Use of your Health Savings Account

A qualified and high-deductible health insurance plan can be a very good investment, especially for retirement. You can even contribute to it while still young and working during its pre-tax days. Using the money tax-free for health care expenses would also be wiser. The amount you won’t be able to use will automatically be carried over, and you can invest it in the long term. If you reach the age of 65 and you haven’t used most of it, then lucky you, as it would have already grown without tax and can be withdrawn penalty-free. You can still use it before you are 65, especially when you have no other option but to turn to it. Remember, health is wealth.

Get Ready for Retirement

This is one of the most important pieces of advice we can give you. Prepare for retirement and start with tax-advantaged accounts such as 401(k) and IRAs. This will make it easier for you to deal with debts in the future.

The question here can be answered depending on the situation. There are situations wherein paying your debt can benefit you, and there are some wherein saving can do you a lot of good. Just remember to heed our advice, and you will be well on your way to a better retirement plan.

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