If suddenly you have money, should you invest or pay your debt first?
Granting that you received an unexpected money, what is the best financial move you can do, invest or pay your debt first?
Even though it is not exciting, you should certainly pay your debts first. I don't think it would be a good idea to take out a loan to invest, but that is basically what you would be doing if you invested before paying off your debt. For instance, if you are currently paying 13% on a credit card, you would need to earn more than that in your investments to offset what you are paying on your credit card. (If you find that investment, please let me know!) If you pay off your debts first, you can then take the money that you were using to pay your debts each month and use that to invest.
I have no debt other than the house, but that would be my first payment. Then I would find a professional fee-based financial consultant and go over options and safe investments.
Always eliminate debt whenever you can. If you get a cash settlement of some kind, pay off as many debts as you can. There are several ways of paying an extra house note each year (total amount goes to principal) that will reduce your debt quick. Pay off credit cards as quickly as possible. When I lost my job two years ago, I took part of my 401K and paid off my house (less than a year left) second mortgage and car note. My monthly bills are more manageable.
It depends on the type of debt. Some debt is used as leverage, such as a mortgage, and frees up your income to do other things, including investments. Debts from credit cards, medical bills, and student loans should definitely be paid off as soon as possible. Some people believe that paying off your mortgage means that you now get to live for free and that's just not the case. You still need to pay property taxes and insurance and depending on where you live, that can be quite costly. I would suggest investing in something that will create more income, either a business or vacation home that you can rent out and not on tangibles that may or may not increase in value over time.
I would pay off the debt first, just because the worry of being in debt is killing me. I would like to have that burden lifted off my shoulders.
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