Possibly you’ve asked yourself the question whether you should pay off your debt or start investing your money. Maybe you’ve had this question after speaking to a financial planner, having a conversation with a friend, or seeing the ever-increasing problems people are having with balancing their finances.
Debts range from student loans, to car loans, to mortgages, to credit card bills. We all have debts, and many of us struggle to pay them off. Paying it off sooner is better than later, as the longer it takes, the more interest you’ll have to pay. However, there is also the problem of having money saved up for later for other things you need to spend money on or retirement. You might also find that you need to save for certain emergencies, like fixing your car after an accident or a necessary medical procedure. It’s a problem, however, that can be solved with the application of a little bit of math.
This is how much you are paying in interest for each debt you have.It is essentially a charge you have to pay for using borrowed money. The interest rate can vary, depending on your lender. The amount of interest is also dependent on what kind of loan you’ve taken out. If you have a subsidized loan, then the federal government pays the interest. If you have an unsubsidized loan, then you pay the interest each month from the date of the first loan disbursement. You can choose to pay the interest as it accrues, or you can wait and have the entire amount added to the principal of the balance of the loan.
This is the amount of return you receive from your investments after accounting for inflation and taxes. This is different from his nominal return, which is the amount received before inflation and taxes are applied.
The reason for considering the interest and rate of return is that if your after-tax return on your investments is higher than the after-tax interest rate expense on your debt, then you should invest. If not, then you should focus on paying off the balance of the debt.
There are two kinds of debt that affect whether you should invest or pay them off. There is high-interest credit debt, such as credit cards. You should try and avoid accruing these kinds of debts, and they may become more difficult to pay off over time. There are also low-interest debts, such as mortgages or student loans. The interest on these kinds of loans are usually tax-deductible, which makes them a more attractive option.
Having a car or a house right away after college isn’t necessary. By saving some money here and there through using public transportation or living in an apartment with other people to help pay the rent, it will help you save month in the long run. Your financial difficulties will improve because you will have more money to work with in paying off your debts. Once your student loans are paid off, then you will be able to buy all the big purchases you want without the hassle of worrying about your other debts.