Erickson Financial Solutions Blog
Should I pay down my debt or invest?
See 1-minute video: Should I pay down my debt or invest?
Debt itself is not bad. We often use debt to buy a car, buy a home, or pay for college. Debt is a problem when you have too much debt especially high interest rate debt found with credit cards. So, when looking at your debt, do you have a lot of debt relative to your income? Is the interest rate on the debt relatively high? If you answer yes to either of these, then reducing your debt may be the better path.
If your debt is under control, and you have no credit card or high interest rate debt, then the answer may be to invest the money. But before you invest for the long-term, make sure you have an emergency fund to cover likely unexpected costs. It can be expensive to pay down debt or invest and then have to change course because you lacked enough in an emergency fund.
There may tax benefits depending upon your situation. You might be giving up a tax deduction if you pay down a debt. Similarly, you might not get a deduction if you pay the debt and do not invest in a retirement plan that provides a tax deduction.
Paying down debt and investing both have risks and rewards and it is best to look at the big picture before acting.
This video and text is for information use only and is based on information believed to be true. Much of the information is readily available, but some is drawn from Advisor Products and FAClient articles. The reader acts on these ideas at their discretion and should consider consulting an accountant, financial advisor, or attorney. No promise is made that an idea or concept is appropriate or would work well for the reader. This is not an offer to provide legal advice or act as an attorney.