Does it make sense to start or to continue with your investments instead of focusing on debt repayment? should one press the pause button on investing when having debt?

Well, this could be a fiercely debated topic but one needs to do some math before making a decision. This is because everyone has a different financial situation, income source, and financial needs.

Being in debt is surely no fun. Even a small loan amount could be an anxiety factor for one who can’t able to focus on saving and investing. Having no debt/loan can make your life much easier to plan for savings and investments. A journey towards successful investing becomes ‘Lighter’ when one has no or less debt burden.

Now, how do decide which road to take first? is there any process that can help in decision making? Yes, the following are 3 easy steps to help you to do the math:

1. Find out your loans with high-interest rate

Listing down your various loans with their interest rate and then finding a loan or loans having a high-interest rate, should be the first step.

 2. Prioritize payment of debts

If you have debt like a credit card which probably carrying the highest annual percentage rates (APR) then it makes sense to prioritize your debt pay off over investments. The reason here is- you will hardly be able to see an average return on your investment and also on average over a long period of time. Even in a bull or growing market, you would still be on the losing side as the real rate of return will be negative.
While if you have a loan with an interest rate of lower than 5% it could be manageable to start investing some savings instead of exclusively focusing on debt repayment.

3. Pay off the loan(s) with the highest interest rate

paying off high-interest loans should be the first priority, Sketch out a smart debt-repayment strategy, stick to it and in no time you can be free of bad debts. You can start by getting into a written budget before the month begins. See how much you can afford to pay. If possible, get your income up and if needed sell off things that you don’t really need.

Not everyone has a debt burden, but those who are under this burden should need to apply a disciplined approach. Remember, repayment of debt has very little to do with money and much to do with the perspective.
Hence, embrace some good financial habits like saving more, altering spending habits, understanding the difference between a good loan and a bad loangood financial habits

One more point to note here is that debt burden can be reduced byways like debt consolidation, refinancing options, etc. Further, many experts say,’ you should have enough in an emergency fund and have no interest debt, before starting investments.

At ‘Fund-Matters’, we  always recommend this- Instead of messing up finances by panicking, debt should be deal with a disciplined approach.