People often restrict themselves from the investment sector, if they are under any kind of Debt. For people, paying off their debt means reduced stress, lower risks, and a greater ability to withstand personal emergencies. Here the question is, just because a person is having a debt to pay at present, he should avoid investing in the future? Can’t debt payment and investment go simultaneously?
Well, there are smart strategies that can help people, to complete their debt payments, as well as do investments for their future. A person can always decide which debt to be paid, when and how, however their decisions lie on the interest rate, their debt type is demanding. Debt can be many like home loans, credit card payments, education loan and more.
Financial advisor advice, if a person is receiving a return that is higher than the interest rate on their debt then they can do investment along with debt payment, but if it is not so, then they should clear off their Debt first. A person should have a perfect plan if they are including both investment and debt payment in their financial planning, and most importantly, they should carry their plan in order.
Read the blog to know which debt to pay off first and which financial goal can be given the first priority before paying off debt.
Credit Card Payments
This is one of the high-priced debts that come with a high-interest rate, which is up to 36-48% per annum. Credit card payments are necessary to be cleared on time, if not done, they pile up and become a headache for the person and a burden on their finance.
If people have credit card payments as their debt, it would be best if they would clear off their debt first, and then plan for their investment. People always have an option to convert their credit card payment to monthly, which will help them clear off their credit card debt, fast and smoothly. The convergence of credit card payments in monthly EMI’s bring down the interest rate by 1 or 2 % that can help the people save hundreds, and these hundreds saved by the people can be converted into their investments.
Well, it is always a necessity for people to build an emergency fund, besides of their all debts. So basically people, after clearing their credit card debt, should first look at creating an emergency fund. An emergency fund should comprise of an amount equal to people’s 6 months of expenses. For an emergency fund, people can keep their money in banks or best, they can invest in Liquid Mutual funds.
Invest for Retirement
Retirement planning is a long term investment, and if it started early, say in the ’30s, then people have 20-25 estimated years to invest for their retirement. Basically, people can start investing for their retirement with a small amount, which in the long-term will help them accumulate big for their after retirement expenses. The best way to plan for their retirement is by investing in mutual funds via SIP (Systematic Investment Plan). SIP and long term investing is a successful combination of wealth creation.
So, after you have created your Emergency Fund, you should move forward for your retirement planning.
Education and Home Loans and Investing for Other Goals
Well, paying off your education or home loan and investment planning can go at the same time, this is prominently because of two reasons, first, these loans have a low-interest rate (approximately low than the return rate from mutual funds), and secondly, these loans do have a schedule of repayment. Basically, to carry out their debt payment and investment simultaneously, people do need to pay their debt installments on time, and also they can follow the golden rule of wealth management that is 50-30-20, where 50% of their income is used for the needs, 30% for wants like debt payments and investments, and 20% for their savings.
As of now, you must have understood the smart strategies, through which you can clear off your debt and carry your investment as well. So, basically, people, who are backing out from investment because they have a debt over them, should start investing for their future, as their debt payment is not going to take a stand for their goals. Also, do remember always, when you plan your investment, do set a goal, it will help you in accumulating a good amount to accomplish your goal.
For more details and information you can contact us at Shri Ashutosh Securities Pvt Ltd., we are here to help you in any way possible.
(Mutual Fund investments are subject to market risk Illustrations are for example only, there is no guarantee of returns. Past performance is not an indicator/guarantee to future returns).