Investing vs Debt Payoff
Deciding to invest or pay off debt can be a controversial topic and there is no clear answer. A lot of it depends on your particular situation and your acceptable level of risk. Here are some general situations and topic to think about whether you should invest or pay off your debt.
· Rates of Return – If your investment is going to earn a lot more than the interest rate of your loans, it might make sense to carry the loans and invest.
· Risk – Keep in mind the factor of risk. Your investment will likely have risk involved as where loan payoff will be risk free. So, if the rate of return on your investment is close to the interest rate of your loans, it may pay make sense to pay off the loans.
· Taxes – In order to compare apples to apples, tax-adjust both side of the comparison so you can see the after-tax benefits or detriments. Consider tax benefits of retirement account contributions as well. Depending on your tax bracket, contributing to a ira or 401k can give you an immediate return on tax savings.
· Employer Match – It’s always a good idea to contribute enough to your 401k or 403b to get your employers full match. It’s an immediate return and you don’t want to be forfeiting free money. Even if you had to pull this money out and get hit with a 10% penalty to pay off loans, you’ll probably still be ahead.
· High Interest Rate Debt – If you have a high interest rate debt you should be paying it off as one of your major priorities first.
· Do Not Get More In Debt – If you’ve got a loan your trying to pay off, stop borrowing money to buy other stuff that’s not needed.
· Loan Forgiveness – Do you have student loans and meet the criteria of the loan forgiveness program? Make sure you qualify and follow the rules. No sense in paying them off if someone else will but it may be a good idea to create a backup account just in case this program gets canceled.
· Debt Timeframe – There’s a lot of different opinions out there but as long as there’s not a specific reason why your holding on to that debt that will be making or saving you money, pay it off as quickly as possible.
Montrose Colorado is the hub of South West Colorado! If you’re thinking of buying or selling in the area, find out more info here: hanks for reading,
Real Estate Investor
P.S. I am also a Real Estate Investor and invest in multi-unit properties from duplexes to apartment buildings. If you know of anyone that may be interested in selling, pass them my contact information or send me their info. Thanks!