To pay off debt, or invest?

Advisor, Coach, Speaker - Smart Happy Money

Pay off debt or invest

One of the most common questions people ask me is whether they should pay off debt or invest?

Well, the answer is……. it depends.

Actually, the answer could be a little bit of both.

Let’s look at an example.

Michelle has $500 per month after all her spending needs are taken care of. She has a loan to pay down but would also like to build an investment portfolio.

What to do with the $500?

Let’s assume that Michelle is happy to invest in the stock market and that her interest rate in her loan is 3.5%. It comes down to a simple question. Will an investment in the market make more than 3.5%?

If Michelle pays the $500 of the loan, then she is effectively earning the interest she would otherwise have paid, 3.5% on that $500. If she invests, then her returns will be volatile but over time may outperform the mortgage rate.

Does this mean that she should invest? Well no, not necessarily. Michelle needs to consider how much risk she wants to take. The loan saving is definite. The market return could be higher or lower.

Many areas of finance do not have absolute answers. What we search for is the best way to proceed to reach a client’s goals, and that is what you should consider too. What are your goals? Some people just hate debt and need to be out of it, some people are fine with debt as long as it’s manageable.

Either way, get some advice and run the numbers. You will make the right choice!

 

Want more info?  Book a quick call with Smart Happy Money

CLICK HERE

For details, licensee information and disclaimers please see www.smarthappymoney.com.au

Advisor, Coach, Speaker - Smart Happy Money