Should You Pay Debt or Should You Invest?

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This guest post is from Blair Thomas.

Finding the right path financially to put yourself on the path out of debt and towards your long-term financial goals can be difficult. When you compare paying off debt against investing towards your future there are attractive merits to both approaches. Being debt free means you no longer lose money on interest and you have more financial freedom for daring investments. Investing for the future can compound your money and overcome any interest you still have from debts.

The question then is: what should you do? Pay off debt or invest? The answer is simple: Do both.

An important factor to consider while building your financial game plan is what is the best way to avoid losing money forever. Money can become permanently lost through accruing interest, missed investment opportunities, and tax considerations. If you focus trying to avoid and contain losing money forever than over time your assets will increase and take less punishment from permanent loss.

When it comes to paying off debt, every time your interest accrues and you are forced to pay more interest for a longer period of time you are losing that money and you can’t get it back. The longer you drag out paying off your debt the more money you’ll have to pay towards it and the difference between the earliest you can pay off your debt and the time you actually do pay off your debt is money lost forever. 

Yet all debt is not created equal. There are worse kinds of debt that can sink you faster than you can bail out the water. For example, credit card debt will get you into financial trouble and lose you more money permanently than student loans or a mortgage while not providing any future assets. Analyze your debt and determine which debt will cost you the most and work on limiting the money lost to interest.

Investing also has the potential to lose you large amounts of money permanently. If you are investing for retirement you can receive benefits such as tax breaks ensuring the entirety of your dollar goes into investment. A dollar towards debt payment usually is taxed so only 85 cents goes towards your payment while a dollar towards retirement is a dollar towards retirement; no money redirected to taxes forever. Additionally, due to compounding the sooner you invest into retirement the more you allow your retirement savings to snowball overtime into a larger lump sum. 

Investing is also a far less certain and more mercurial process. A bad investment can lose you more money at once than delaying the paying of your debt several years. Risk analysis is pivotal towards analyzing whether the chance of losing money forever is worth the taking the opportunity to succeed on an investment.

What your decision boils down to is how can you effectively analyze the returns of an investment, or rather the loss of potential returns forever, in comparison to the money you lose to interest on a monthly basis. If you can balance out and limit the amount of money lost through missed opportunities, taxes, and interest over time you can give yourself a financial advantage over time but limiting your losses as you get yourself out of debt and investing for the future.

Blair Thomas is an electronic payment expert who can help process the sales of electronic cigarettes, who loves all things finance and planning. He is one of the co-founder’s of eMerchantBroker, the #1 high risk credit card processing company in the country. 

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