There are some people who rely on debts just to pay off something that requires money then and there. There are also some people who turn to investing their money in stocks, for example, and they reap the rewards of having a passive income stream.
But of course, as with all other things, there are pros and cons to this. If you’re asking the question, “should I pay my debt off first or invest my money today? Which one is better?” than I am here to help you decide.
In today’s article, I will talk about their pros and cons so that you can best decide which one is for you.
1. Not Worrying Too Much
Borrowing money to pay for things that you need is perfectly fine. Conventional wisdom states that you should pay off your debt as soon as possible. But, that can prove to be detrimental to you, especially if there are debts that give you ample time to pay it back.
In the case of student loans, for example. You are given a few years to repay the loan in full. Times can be rough sometimes and having an extra buffer of money is ideal.
If you choose to pay the debt completely, but you’re sacrificing some of your reserves just to pay it off, it can lead to more financial struggles in the end.
However, if you do decide to pay it off and still have some cash reserved, you will be worrying too much now as your debt is already paid off.
2. Investing Can Provide a Regular Income
You probably know by now that investment can yield you great results, especially if you’ve invested in stocks that have a great return.
If you’re thinking of retirement and you want to have regular income still, investing your money is the way to go.
This, however, can be a bit dangerous for people who are struggling to make ends meet. Investing money is a bit of a gamble. Suppose that you invest in stocks and it experienced a sudden crash, you could potentially lose a lot of money in the process.
Only think of investing your money if you have enough in your coffers.
3. Paying off Debts Early Can Be Disadvantageous
Say you’ve taken out a cash advance to pay for your father’s medical expenses because of an emergency, and you paid all of it immediately on your next salary instead of just paying a small premium monthly, you could end up getting into another debt.
This is why paying off debts can be disadvantageous to you. You have to take advantage of the time that is given to you.
If the debt that you have needs to be repaid in a few months, you can allot a portion of your salary to your daily and monthly expenses, save a bit for your rainy day fund, and then give a small portion of it to pay for the debts.
This way, you will not forcefully spend a huge chunk of your salary just to pay off a debt.
4. Investment Rewards Could Take Time
When you invest in something, it could take you a long time before the rewards that you reap is sizable enough. Yes, there are many investment plans and options out there, but the thing they have in common is that they require some time for it to grow.
Furthermore, investing money can be a huge risk. What is your risk tolerance and how much are you willing to tolerate?
Things to Ponder
So to wrap things up. Do not pay off your entire debt and maximize the time that you’re given. The money that you save will be used for other things and you just have to pay the premium that is necessary so that the interest rates will not burden you too much.
On the other hand, if you have some money that you can spend comfortably, invest that money instead. It takes time before you can reap great rewards, but if you have the cash, definitely start investing.
Whether you’re choosing to pay off your debt or investing your money, both have pros and cons. It’s all a matter of looking at your finances and both of these things could potentially affect you.