Monday, 23 February 2015

Should you pay down your debt or go for an investment?

You have suddenly got a lot of cash in your hand- what would you do? Go for an investment or decide to pay off your debt and reduce your obligations. It is a hard choice but the choice can be solved after looking answering these questions.

First look at the interest rates of your debt and your probable investment. Calculate whether the money you are investing will give you enough high returns than what you will spend on the interest and fees of the debt you are supposed to be paying off. Go only for the investment if it is getting much more returns than what you need to pay off your debt (with interest) in the future. If not, it will be a loss to you- you can rather than pay off the debt.

Taxes are another thing which may affect your returns- they may reduce the returns on your investments or also make your debts less costly. Calculate your returns after taxes to get the exact worth of what you will earn or how much you need to spend.

The second thing is to check is whether the prepayment of the debt has a penalty. Some creditors impose a penalty if you pay off your debt early and to avoid such penalties, take a look at the terms of your debt’s terms.

The other side to this can be that if you have a bad credit score, it would advisable to pay off your debt than invest. Because delaying paying off that debt could prove more detrimental to your credit score than the returns on your investment would help your finances.

The conclusion to this is that to pay off a debt or investment depends on your financial situation. What your present financial situation is what determines whether you pay off your debt or invest.

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