Whether it’s mortgages, personal loans, credit cards, or all of the above, more and more people are saddled with debt, and for those with enough income to float, it may seem like the only logical option. repay debts as soon as possible. But wait. Is this still the best financial plan? Being debt-free is certainly a good thing, but in some very rare cases it may be better to retain debt (i.e. pay minimum loan repayments) and invest your excess funds. Fortunately, there are some basic principles you can use to decide whether to invest or pay off your debt.  search source X
Learn the difference between “good” debt and “bad” debt.
Make a list of all your appointments. Gather your financial statements and make a list of all your debts. The list should include:
The name of the company the money was lent to.
Minimum monthly payment.
Estimated date of total amortization of the loan.
Make a list of everything you bought with borrowed money. You may have spent most of your debt on purchases. Make a list of everything you paid for with your loan. If you don’t remember all of your credit card purchases, type “Credit Card Purchases “.
Combine two lists. Create a master list that links debt and purchases.
For example, if one of your debts is a Visa credit card, list purchases made with that credit card under the heading.
If you purchased your home with a mortgage, list your home under the mortgage title.
Anything described as “credit card purchase” in the steps above is considered a bad debt. People rarely use their credit card to buy things that increase in value over time.
Separate the good debts from the bad debts. All debt falls into one of two categories: good debt and bad debt. It depends on the following criteria:
In general, this is good debt for purchases that increase in value over time. Homes, college education, renovations, and works of art are examples of good debt.
When you use your credit card or other debt to create or maintain a lifestyle that you couldn’t otherwise afford, you accumulate bad debt. Purchases that you no longer remember or use, such as entertainment, travel, or basic living expenses, are examples of bad debt and living above your cost of living . Going into debt to buy a new car is considered a bad debt because it can depreciate quickly and interest rates can be very high.
Investment report or debt payment
Eliminate all bad debts before investing. The reason you should get rid of bad debt before you start investing is simple. This is because there are duplicate counts associated with bad debts.
Buying bad debt involves items that depreciate over time, so you lose money when those items depreciate.
Purchases made with a bad debt can attract high interest rates, so you lose money by paying interest. For credit card debt, these costs can be quite high. However, the absence of interest does not make it a good debt. Interest-free loans to individuals or key accounts may be bad debts.
If you invest while you still have bad debts, you are risking money that could add to the losses you are already incurring.
Consider investing when you have enough debt. If all the debt you have is good debt, you can invest because you will generally see the things you buy with debt go up in value.
Buying a home with a mortgage generally increases its long-term (unsecured) value. This increase in value will somewhat offset the interest you pay on your mortgage.
If you still have student loans, you are investing in your career. As you gain experience or are promoted, your salary should increase.
Be aware of your investment risk. Remember that even without a bad debt there is always a risk in investing and you need to weigh the potential risk against the return of an investment. Consider, for example, that good debt does not always give you the desired return. The real estate market has proven not to be as stable as once thought, and more college graduates are finding that their degrees don’t guarantee good returns. work. You should see a good cost of debt relative to the expected return on investment.
For example, if the potential return on investment is less than the interest on the debt, it may be better to pay off good debt at a higher interest rate.
Once you start investing, make sure you don’t incur any more bad debts. You have to liquidate some investments to buy an item that is depreciating in value. But make sure you don’t incur more bad debt with losses that will offset the gains on your investment.
For example, a car may become a necessity for your place of residence or your lifestyle. But going into debt to buy the newest, shiniest car is considered a bad debt. Expensive, it depreciates quickly and the interest you pay is a waste of money. To avoid this, buy a reliable used car for cash or get a cheap car that you can pay off fairly quickly with a low-interest or no-interest loan.
See the full picture. Debt can be scary and stressful, and in most cases it’s best to get out of debt completely as soon as possible. However, paying off some debts isn’t always the best long-term decision. Don’t get so obsessed with paying off your debts that you don’t see the big picture.
Sometimes it’s best to keep a mortgage for tax benefits. For example, taking money out of your retirement plan and paying it all off for a second home might be ideal because you have zero debt. But in reality, you have to pay taxes to withdraw money from your retirement plan. In fact, you’re better off using your home as collateral for a mortgage and tax benefits.
Plan your retirement carefully. Most people retire with debt. As long as you plan your money carefully so you can pay off those debts after you retire, you’re fine. Experts recommend creating a spending plan that includes your ability to pay off your debts after you retire. This may mean that you will have to work a few more years than you would like, but it will save you stress and financial difficulties in the long term.
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