DEBT OR INVESTMENT
First, compare your debt’s interest rate to the returns on your investments. Pay off high-interest loans first. If you have low-interest debt, it may be a better idea to make minimum payments and put more money into your investments. But remember – paying off debt provides a guaranteed return; investing does not.
Consider the type of debt. Quickly pay off high-interest loans that are not tax deductible, like credit cards. Tax-deductible debt like a mortgage can save you money.
You may want to find a balance, which means investing and saving for retirement while paying down costly debt at the same time. Popular methods include the 50/30/20 budget that devotes 20% of your income to savings and debt payments. There’s also Oprah’s Debt Diet, which allots 15% of income to debt and 10% to savings.
Your personal financial intentions should guide your decisions, so determine your goals. For some, being debt free offers endless relief, while others can’t sleep at night without an emergency fund. It’s important to study your situation and determine where your money will have the most impact.
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