For most people, the answer to our titular question is common sense: pay off your debt and then put money into investments. This is probably because investing is largely seen as optional. Really, though, there isn’t much that is optional about investing. If you fail to invest and save, there won’t be anything on which you can live when you are ready to retire.
The solution then is that you have to find a way to both pay down your debt and invest for the future. Here is how you do that.
1. Look Into Debt Consolidation
If you are carrying a large amount of debt and that debt is spread across a lot of different loans and credit cards, debt consolidation can be a lifesaver.
Doing It Yourself: The best way to consolidate yourself is to transfer smaller balances into a single card, preferably with a good interest rate. Moneyning.com, for example, has a list of cards that offer 0% interest on balance transfers-- so there's
no need to pay fees or interests no matter what the balance with these credit cards (provided you pay off your balance within the promotional period). The best way to use these cards is to only transfer as much as you know you can pay off within the promotional period. They are a particularly good way to pay off low balanced store cards.
Hiring a Professional: if your debt situation is dire, you can hire a professional debt consolidation company to help you get your bills under control. Look for not-for-profit companies if you want to use this method of eliminating your debt. Not-for-profit companies rarely charge exorbitant fees.
2. Create a Realistic Budget
There are many great tutorials online that will teach you
how to build a solid and realistic budget. In addition to lines for your bills, your groceries, your mortgage, etc. make sure that your budget includes lines for your savings account and a few investments. This way you’re investing and saving while also working on your debt.
3. Start with Small Investments
The best places to start investing are high interest savings accounts and retirement accounts.
The easiest types of high interest savings in which you can invest are CDs. CDs are basically savings accounts that cannot be touched for a predetermined period of time. In exchange for agreeing to not touch that account, the bank holding the CD offers a
high interest rate on the funds. Some people, once their CD matures, take the interest earned and roll that into a second CD.
A basic retirement account is also vital.
The simplest type of retirement account to open in the US is an IRA. You can take two approaches to your IRA. You can either contribute money to your IRA after taxes have already been taken from your income (which turns it basically into another bill) or before taxes are taken from your income. There are benefits and drawbacks to each approach.
4. Roll Your Debt Payments into Your Investments
As you pay off your credit cards and other debts, it is important that you not see the money you would have spent on those debts as “free” money or “extra” money.
Instead, split each payment in thirds. One third gets evenly distributed across your remaining bills (to increase the rate at which you’re paying them off). One third should be put directly into savings. The final third can be used for other types of investments like mutual funds, stocks, bonds, etc. This approach allows you to test the waters
different types of investments without worrying about losing your livelihood if an investment goes south.
Are you splitting your priorities between debt payments and investing? How are you doing that?
