When an opportunity arises, individuals, or rather debtors with high debts, often seek debt advice on if investing the excess funds at hand will help get out of debt soner. Getting out of them early could be an option only if you have extra funds due to inheritance money, tax refund, job incentives, or another cash windfall. However, there is no hard and fast solution to get out of debt fast.
If you can afford it, making a lump sum payment would clear off your debts at once. If not, you can find other methods. In a typical case, if an individual earns some extra income, they might either choose to do the following:
Out of the three situations, it cannot be concluded which method is sure to work. The individual’s situation, debts, and stock investment are accountable. Therefore, no matter how much your excess funds are or your debt value, you must research cautiously and adequately consider every factor in deciding whether to invest, plan to write off debt, or do both at the same time. Whichever method you follow, there are varied pros and cons to it.
That being said, here you can find the pros and cons of all three situations. Because when you know the degree of benefits, you will get by applying a particular method, making an informed decision becomes more manageable.
The financial advisor will most likely suggest you pay off your debts first before investing in stocks if you seek financial advice as your step change your financial journey. By doing so, you won’t have any vulnerable factors to affect your credit rating. Regardless, if you opt to get out of debt rather than investing in stocks, you might want to consider the following reasons:
Decide after considering the above reasons why you should get out of debts first rather than investing in stocks.
As much as investing in stocks might bring your considerate returns, there are also as many risks associated with it. People usually make stock investments to earn huge returns and pave the way for financial security for future terms. Prone to multiple risks and market fluctuations, investing in stocks is a long-term option, the returns of which you can use to get out of debt.
That’s why financial advisors associated with national debt help often suggest assessing all the investment risks so that you do not incur huge losses. If so, loss of money will impose an immense burden on you in addition to pending debt repayment. Moreover, debts are a short-term financial expense that you could, if affordable, can get rid of via different debt measures. Thus, even if you want to get out of debt fast, consider the long-term benefits of stock investment.
While the final choice is for you to make, you might want to check out the reasons why investing in stocks is preferable before getting out of debt fast.
Suppose you have stock investments. Now, think about if you have a high debt load with interest. To get out of debt fast, you can choose to sell the stocks to raise money to pay off the debt. The basic concept that applies when considering getting out of debt fast and stock investment is the payout Vs. return.
The last method while considering debt payoff and stock investment is to invest in stocks while paying off the debts. You do both at the same time. There are savings and the possibility of future earnings, while on another side you regularly make payments to get out of debt fast. It’s all about financial balance
A few reasons you should make a stock investment while clearing off your debt is the ultimate solution.
This third method is the ultimate solution to get out of debt while building financial security.
When a person with huge debts gets more than sufficient income at hand, the first thought is to get out of debt as soon as possible. While being entirely debt-free is good, saving or investing the excess income for other productive and future benefits is more important. As such, below are a few factors that you should consider while trying to reach a perfect outcome.
The more debt you have, the more significant impact on your credit score. If you don’t rebuild your credit score soon enough, you might not access further credits. So, you should follow ways to improve your credit utilisation rate and credit rating. Review your budgeting process and decide the best bet you have to not lose points on both sides. StepChange Debt Advice is the best option if you have unsecured debt like Credit Card, Gas Bill, Mortgage etc.
If you got a low debt interest rate, you could put off clearing them for another time. But, if the interest rate on your debts is high, you better focus on paying them off first. If the high-interest rate on debts is not cleared fast, the resulting amount will be tremendous. To get the best outcome from such a situation, you should compare the debt interest rate (annual percentage rate) with the potential interest rate on returns on the stock investment.
If the debt interest rate is higher than the returns on investment, you will have to pay up more than what you are earning as investment returns. You might face a huge loss.
If you are an adult working person with high debts, you can cease to get out of debt, instead focus on investing in stocks and saving up funds. Not having any future financial security at that period is bad. But if your retirement is near, you must get out of debt fast. Some debts can have severe implications during retirement.
Anyhow, you must play safely while investing in stocks. If you cannot reach the right decision, consider getting help from a financial advisor. Your investment goals and debt payout should reflect your capacity and financial situation. As you know, every solution to get out of debt has its merits and demerits.