Wanting to invest money is an admirable desire to have. However it may not be the smartest thing you could do if you have outstanding debt. For the purposes of this article we won’t focus on mortgage debt since this is really a different area of concern. With that said you can overpay on your mortgage (if your particular mortgage allows you to) and pay it off in full a lot sooner than you would have done otherwise.
Here though we are focusing on unsecured debt such as that accrued on credit and store cards and perhaps unsecured personal loans. This type of debt can have high interest rates that will suck cash out of your bank account more easily than you may at first believe. If you’re paying 18% in interest on an outstanding balance you shouldn’t be looking for suitable investments to focus on. Instead you should be looking for ways you can reduce the outstanding amount you have on your credit or store cards.
Why is this the first step?
The reason is simple – even the best investment won’t pay more than 18%. If it promises to it is likely a scam. This means you need to get rid of the debt before you can even think about searching for suitable investments.
The first thing you should do to help achieve your goal is to start paying as little in interest on these debts as possible. This might mean consolidating several debts into one. Look around for a credit card that offers zero per cent interest on a balance transfer. You may be charged a fee to transfer the amount; furthermore the amount of time you get interest free can vary. So you have to balance the two areas together to make sure you can get the results you want. It might be better to pay a slightly higher fee to get a longer interest free period.
How much can you pay off each month?
Ideally you should divide the amount outstanding by the number of months you’ll get interest free. Pay off the resulting amount every month and you can be clear of the debt by the time the interest free period ends. This is good news for you and gives you a target to shoot for. At worst, if you haven’t cleared all the debt you’ll have a lot less to pay off than you would have done otherwise.
The money you’ll save in interest can be put towards paying off the debt, so don’t be tempted to stick with a minimum payment. Funnel as much spare cash as you can into paying off your debt so you can get rid of it. Once you’ve done that you can focus on looking for investments that will earn you interest. It is definitely something to shoot for if you haven’t yet put any investments together and you’re struggling to get rid of some debt instead. In a few months’ from now you could be in a much stronger position.