Invest if You Have Debt

It is a common misconception that you need to be debt-free before you can invest your money. Not necessarily so. Depending on the type of debt you have, you will want to put some of your money to work – working for you and for your retirement. There is a difference between good debt and bad debt, and that makes all the difference when investing.

If you have bad debt such as credit cards, then it is worth paying those off first. You will not make the kind of interest in the long run off of your investments that you will pay on the money you owe on your cards. So put all of your spare change toward paying more than the monthly minimum so that you can get a handle on the debt you have accrued. You can, though, check into options at your job, sometimes if you invest through your company’s 401(k) plan your employer will match funds with you. Plus, the money comes directly out of your paycheck even before Uncle Sam gets his. But everything else needs to go toward paying them off.

Student Loans are not bad debt as long as they come with a low (usually around 5%) locked-in rate. So, keep paying on your loans, but invest in your 401(k). Any future bonuses, etc. put toward your student loans, and it will all pay off in the long run.

If you have good debt such as a mortgage, then you should be putting the maximum that you can away. Paying down your mortgage is not as beneficial to you as is preparing for your future. If you have extra money to do both, then by all means do, but if it is going to take away from money you would have put towards your future, invest in that first. ■