Pay Off Debt OR Invest?
SHOULD YOU PAY OFF DEBT OR INVEST?
On our path to Financial Freedom we are most likely at some point have to make a decision if we pay off our debt or invest?
If you are at this cross roads keep on reading. I am a big believer that you don’t always have to make a choice in life. Why can’t we have both? And hence my theory on paying off debt and investing.
Not all debts are created equal and the same goes for investing. Believe me when I say that you can invest and pay off your debt at the same time.
Here are 4 Steps which will help you pay off your debt and start investing:
STEP 1: PAY YOURSELF FIRST
Pay yourself first is where you save a certain percentage of your income every time you get paid. This amount should be put aside regardless how much money you owe. Contact your creditors and work out a plan on the minimum amount you are able to pay every time you get paid. Your creditors would be more that happy to work out a solution once they know you are able to pay them something. Do not spend “pay yourself first” money on anything and keep adding to it.
STEP 2: PAY OFF THE DEBT WITH THE HIGHEST PERCENTAGE
A lot of people suggest that you should be paying off the smallest debts first but I believe you should tackle the highest percentage debts first as this will save you a lot of money. For example, if you have a personal loan for $10,000 at 9.99% and a credit card for $15,000 at 21%. You should be paying the minimum amount on your car loan and aim to pay off your credit card as soon as possible as you are paying a lot more money on interest.
STEP 3: INVEST IN DIVIDEND STOCKS
Once you have saved $1000 from “Pay Yourself First” invest this money into a dividend stock. Many reinvest their dividends however if you have debts you can opt to not reinvest your dividend until your debts have been paid off. This way whatever dividends you receive from the stock you can pay off your loans faster. I personally have done this as my main aim was to start investing as soon as possible as I am in investing for the long run and whenever I get the dividends, I put it towards my debts. It may not sound a lot to start off with however if you have your loans for a long term every penny counts.
STEP 4: START A SIDE HUSTLE
Find ways to earn more money so that you can pay off your debts faster. Anyone aiming for Financial Freedom or wanting to pay off their debt have to find multiple sources of income. There are so many ways you can make money these days. Anywhere from selling handmade items to digital products. The possibilities are endless. The more you earn the faster you will be able to achieve your financial goals. I personally started a Digital Business so I could earn more and pay off debts which I incurred from my pervious business ventures.
Both investing and paying off your debts are important to the Financial Independence journey. The faster you pay off your debts and the earlier and more your invest the better.
