Paying Off Debt Vs Investment
Most of us come to this cross roads in life, which with the excess money, is it advisable to pay off the debt or to invest. Joshua Kennon, an advisor on debt management is of the following view. Debt can be categorized into two types one with high rate of interest and second with lower rate of interest. Credit Cards belong to the first category, they demand higher rate of interest and hence when an individual has more debt in the form of credit card repayment, it is only advisable for him to go ahead and pay off the interest occurring from the credit card and not think about the investment. In case of the second categories of debt, which is lower rate then it, is advisable that he invests in those investments, which gives higher returns. According to Mr.
Kennon two things must be taken into consideration, a. What is the rate of return of the investments? b. What is the rate of interest of the various debts? Only if an individual can convince himself that paying off a debt would help him to reduce some of his burden and thereby increase the monthly amount saved. According to Debt adviser Steve Bucci. There are two methods, which an individual can adopt, one is to pay similar kind of debts i.
debts having similar interest rates, which are smaller in amount and easier to pay. The second one is to pay the one, which has higher interest rates like credit cards. Accordingly when an individual pays off a number of debts then he feels good about himself and can start concentrating on the next amount of debt to be paid or the investment he would like to venture into. In case of debts, which attracts higher rate of interest, an individual can pay that first such that he is left with more cash later so that he can concentrate on the other debts. But whatever be the choice the individual must chose one, which suits him; the most and can give him more convenience. Steve Bucci also advises that paying off debts must reflect on one’s credit rating. When an individual starts to pay off debts to lender then he is left with lesser debts and his credit rating would go up. This in turn would help him in the long run when he has to take a bigger debt for other types of investment.
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