Pay off debt or invest?
Debt can feel overwhelming, and sometimes plain embarrassing. The one thing to remember is not all debt is created equal. In fact, there’s a whole heap of debt out there that’s beneficial when used correctly.
We often hear from new clients that they were struggling away to manage debt before bothering to talk to an investment advisor.
Managing debt is all part of the investment journey.
Plus, an advisor may be able to help structure things so we end up cutting through that debt at lighting speeds compared to chipping away at it yourself.
Here’s our top tips on how to look at debt:
Focus on paying high interest debt
Think credit cards and personal loans. These guys will inflate everything you’ve already paid for and make finding spare cash for investing pretty tricky when you’re forking out for fees and interest. It’s really important to make sure you pay the minimums each month.
Credit cards are huge fans of smacking on fees and interest charges when you forgo your minimum monthly payment. Canstar says (Jan, 2017) about 63% of credit card spending ends up incurring interest, with an average interest rate of 19.24%. As this is a high interest debt (we class this as anything over 5%), you will end up paying a whole heap more than you need to. Make this your priority. Meet your monthly payments and try to wipe this debt as quickly as possible.
Not on Kiwisaver? Get on board!
A retirement savings initiative that gives you contributions from your employer and the government is worth doing. If you are struggling to find spare cashflow to get started with investments, you can still have kiwisaver ticking along in the background and building some wealth for retirement while you work on cutting through your debt. It’s basically free money! Wahoo!
Knowing where you’re going will make things a whole heap easier to work towards. Our team can set you some short term and long term goals. It’s rather hard to figure out how to get somewhere new without a map. Having a session with an investment advisor will do wonders for keeping you on top of those debt payments since you’ll be able to see how the little steps are progressing you to your bigger picture.
Not all debt is created equal. Every loan and credit card has different terms and interest rates. Our team can help you figure out the best way to structure your debt to suit your unique position.
Contact us to book a chat about your financial goals and get started on your plan today.
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