Should you Invest or repay debt? 4 Factors to consider

I have been trying to pay off my debts, mostly student loans, and credit cards so I can go travelling
and enjoy life.

Here are some factors that I have been considering in order to make the choice whether to go for a debt repayment or invest the money instead in a hight yield fund.

1. Build an emergency fund: You don’t know when you may have an emergency. Therefore, it is always necessary to build an emergency fund rather than investing the money for future returns.

2. Plan a budget: Making a budget plan is a prerequisite to deciding whether to invest or repay existing debt/debts. A budget plan will help you to know how much you can save in a month. While planning your expenses, make sure you allot the required amount to stay current on your loans. You should at least make the minimum loan payments every month.

3. Consider tax implications: In order to make a fair choice, consider whether the interest on your debt is tax-deductible and whether the interest on your investment is taxable. As for example, mortgage payments are usually tax deductible, so the effective interest rate is lower than the stated rate. Similarly, there are some tax deferred investments (such as, 401(k) plans) that lower your taxable income. Thus, assess the nature of your debt and the type of investment before making the choice.

4. Consider debt payments as an investment: Do you know that your debt payment is also an investment? Yes, it is true. As for example, when you make a $100 payment on a credit card loan with 15% interest rate, you actually get an annual return of $15. In this way, you can avoid paying an extra $15 in future.

After considering the above factors, if you prioritize paying off debts, then you can take help of a debt consolidation nonprofit company to pay off your dues quickly. In this way, you may have to pay comparatively low fees for the professional help. This is what I plan to do.


Then I can enjoy this: