As you’ll no doubt have noticed, the whole idea behind this website is to encourage and guide you in the process of investing money. But there are always caveats to this procedure. The main one is to note that debt should always be taken care of first. This is because most debt will have a higher rate of interest attached to it than you could ever hope to gain on an investment.
Should you clear all your debts before you start to invest money?
Not all of them, no. For instance a mortgage would not be included because most mortgages run over at least 25 years. You’d be waiting a long time to start any kind of investment at all if you were going to clear your mortgage first.
No, the kinds of debts we’re talking about here relate to credit card debt and store card debt. These will undoubtedly have much higher rates of interest than you would earn on your investments, so it makes sense to pay these off first.
Work out what debts you have
This is the most important step and also the first one you should take en route to clearing them. Write them all down and list the amounts you have in each case. For instance if you have three credit cards list all the balances and note down the rate of interest applicable to each one too.
The process of clearing them should work like this:
* Pay at least the minimum on each balance each month as requested
* Work out which credit card has the highest rate of interest
* Pay off as much of the most expensive credit card balance as you can each month
* Clear the most expensive balance first, then work on the others in turn
Note how much you spend on clearing those balances each month
The more you can put towards clearing your debts each month the better. But make a note of the cash you can devote towards this. This will help you figure out how much you can invest in other things in the future, once your debts are cleared.
The next step beyond your debts is to save enough for emergencies. Then you can get started investing properly in stocks, shares and other investment opportunities, depending on what you want to opt for.
It might seem counterintuitive to ditch any investment plans you might have in favor of going through the above steps. But the sooner you clear any debts like these that you have, the easier it will be to free up more cash to invest in the future. This will put you in a much better financial position, and you will be able to find out which investment options will be best for you as a result.
So take a fresh look at your finances now and see whether there are any debts you should be focusing on ahead of making those all important investments.