Many people struggle with huge debt burdens—student loans, mortgages, car loans, and consumer debt are some of the biggest financial burdens that weigh people down. Debt is particularly disheartening because you don’t seem to get anything in exchange for paying down/off debt and it can be particularly frustrating watching money flow out of your account to your creditors. Another worrisome angle to debt is that it can keep you stuck financially because there’s practically nothing left over to save or invest after you make debt repayment and financial obligations.
In the last couple of years, the mass media has been interested in news of rising consumer debt in different parts of the world. In 2015, BBC reported that about 19,638 people went bankrupt in England and Wales in the third quarter of the year alone.
Unfortunately, the avalanche of information on how to manage debt and investing makes it confusing for people in debt to know the right step to take. Unfortunately, when people are confused, inactivity tends to prevail and they often lose great opportunities to improve their finances through investing. Here are four tips that could help you manage investments while in debt.
Know how much debt you owe
The first step towards finding a balance between the need to pay down debt and the need to grow your wealth via investments is to know how much debt you have. You’ll find it hard to make educated financial decisions and sustain your investment journey if you don’t have a clear picture of your finances. You can know all your debt by ordering a copy of your credit report in order to determine your outstanding balances. You may want to get rid of high interest debt and consolidate other types of debt so that you can ease the strain on your finances.
Pay extra attention to interest rates
If you want to invest while managing debt, you’ll need to pay special attention to interest rates in relation to the return on your investments. Before you divert any money intended for repaying debt to investments, you need to be sure that the return on the investment is higher than the interest rate on the debt. Many personal finance experts advocate paying down consumer debt but if you have a low-interest credit cards, you may want to think twice before closing down such accounts.
In order to get the best combination of interest rates and ROI, it might be smart to diversify your dividend investing portfolio with a mix of speculative investments and conservative investments. The conservative investments generate a ‘guaranteed’ ROI for stability while the speculative investments can yield sudden boosts to increase the overall value of your portfolio.
Getting out of debt and investing are priorities
Paying off your debt is a financial priority that you can’t afford to push to the backseat. Debt can hurt your credit and mess up every other aspect of your financial life. However, making smart financial decisions also deserves a high position in your list of your priorities.
Without investments, your income is practically restricted to your earnings from your job, which in most cases could be likened to peanuts that you earn in exchange for your time and expertise. Investments help you to earn money without your direct efforts and you’ll find yourself on a faster path to financial freedom if you have multiple streams of income.
Link up your investment efforts to specific goals
Trying to get out of debt is a lofty financial goal that will drive you to make smart financial decisions. However, managing debts and investments at the same time won’t be easy and you can expect to stretch each dime you earn in the real sense of the word. Creating a strong link between your investments and specific life goals can help you stay focused in times of financial stress when you are tempted to cash out all of your investments. You can associate your investments with goals such as paying debt down faster, retiring early, taking your family on a vacation, or donating to your favorite charity.