Paying off Debt or Investing your money. Which is better?

People do a lot of things to make sure that they are financially secured in the future. Some save money, establish emergency funds, pay off their debts, and invest. While there are many alternatives to keep your finances stable, paying off your debts and investing are two of the major strategies you should adopt to attain success someday. Debts are undoubtedly a burden to most people and by paying off those loans, you will be relieved to spend the rest of your days without worrying about your monthly amortization. Investing, on the other hand, allows you to grow your money without exerting too much effort.

Paying off debts and investing are must-have financial strategies. But, what if you can’t do both? What should you prioritize? Paying your loans or putting your money in investments?

Is it better to invest or pay off debt?

The answer to this question depends on several factors. If you wish to know which is better of the two so you know what to prioritize, here are some points to consider.

Pros of paying off your debts

Paying off your debts has good benefits. First off, you will lessen your expenses every month by paying your outstanding debts. Having a loan is a burden, especially if you are struggling to budget your income every month. If you don’t manage your loans well, you will end up living paycheck to paycheck. So, one way to get rid of your financial burden is to pay off your debts.

Next, you will have good credit records if you pay off your debts regularly. Credit records are used in many things, such as getting a home mortgage, car loan, insurance, and so on. If you see yourself borrowing money again from banks and other financial institutions in the future, you will need to have a clean credit record and to maintain your record’s positive standing, you need to pay your outstanding loans on time and without default.

Finally, paying off your debts will lead to better budget management. This is because you are minimizing the principal and interest that you have to pay monthly. You can manage your income without the fear of whether it can sustain you and your family for the month. You can avoid getting pressured from lenders, which is great so you can think carefully on where to spend your money. Is it to pay off all the bills or save some of it?

Check out this post to see how you can become debt free in 7 simple steps.

Cons of paying off your debts

Paying your debts has disadvantages too. Initially, you will need a huge amount of money if you want to pay your outstanding loans in full. If you are living paycheck to paycheck, you can’t accumulate a massive amount quickly. It would still be better to pay your loans on an installment basis for more flexibility and convenience.

The second disadvantage of paying off your debts is that you use your hard-earned money to let other institutions earn. Note that every interest you pay becomes your lender’s earnings. So, instead of making your money work for you, you let other people earn by giving them your money.

Also, once you decided to get a loan, you are giving yourself no other options but to pay it. You will be burdened by it until you actually pay it in full. Debts are not always good unless you are using it to earn. But if you are borrowing money for the purpose of paying your bills and other outstanding loans, it becomes a bad decision.

Pros of investing

On the one hand, investing is a better alternative than paying off your debts. Why? Because it allows your money to grow. Paying debts don’t. The ultimate pro of venturing into investments is that it multiplies your money after a while of investing it. For example, if you put €1,000 in stocks, there’s a high probability that it can double after 5-10 years. Can paying debts do that? No, since you are only paying what you previously borrowed.

Another pro of investing is that your money works for you. You don’t work for money. What happens when you put your money in an investment account is that it earns passively, without you having to check it from time to time. Your money can earn when the stock price of the company you bought increases. Your money earns when the company you bought gives dividends. There are many ways how your money can work for you, depending on what type of investment portfolio you choose.

Lastly, investing helps you build financial security, which is a long-term benefit. Paying off your debts brings temporary results. You might be relieved for now because you got rid of your loan but what happens when you borrow again? The cycle continues. But, with investing, you never have to borrow money from other people again, especially if you have gained enough to buy your needs and wants.

Cons of investing

Investing has no major cons, except when you put your money in volatile investments where there are high risk and high reward. But, if you discipline yourself to stick only to dividend stocks and companies with good fundamentals, you don’t have to worry about losing your money. In investing, you need to choose where to put your money carefully. There is always a risk, yes, but you can control that depending on the level of your risk tolerance.

Paying off debts or investing?

So is it better to invest or pay off debt? If you are looking to growing your money, then investing is a better alternative. Putting your money in investments will help you earn and gradually establish financial stability. Investing also provides an additional source of income. It’s a better choice if you don’t want to work for money anymore. However, like paying off debts, it takes patience and discipline to achieve the amount of investments you want. It can’t make your rich overnight if you are not dedicated to learn and grow. Coupled with discipline and willingness to learn, investing your money can help you attain success.

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