What Comes First: Debt or Investment?
There are a few schools of thought when it comes to tackling debt while building a healthy financial future.
Paying down debt first
In this approach to money, people will use as much of their income as they can on only paying down debt, prioritizing paying it down before anything else, including investing or new purchases. The biggest argument in favor of this is the potential success that could come with the razor sharp focus it calls for.
This method takes on lots of strategies, from choosing the largest balance to the highest interest rate to pay down first; but ultimately, it’s the first step toward financial wellness and is the only step until it’s completed.
While many people have found success focusing on getting out of debt before building a portfolio or large savings, there are also people who advocate for investing alongside your debt efforts.
Starting with investment
Albert Einstein wrote that compound interest is the “8th wonder of the world.” This applies nicely to investing, specifically, because logically, the sooner you start, the longer you have time to potentially earn and grow that investment.
If you wait, you could lose out on years of potential earned interest. In essence, by starting to invest even a little bit at a time earlier, you could build a potential nest egg for your future that might be able to protect you from debt-risk situations in the first place.
However, nothing is a guarantee. But it’s possible that investing earlier could jumpstart the financial habits you want to keep in place for a long time.
Choosing the Right Path
Financial wellness, in the present and the future, comes down to good habits and behavior. It’s not all about income or debt levels. Before you commit to any financial plan for your future, sit down with a wealth management specialist and talk about your options to find what’s truly right for you. While financial planners do not specialize in debt planning, they can help determine what a financial future with investing looks like versus without.
Kat’s Money Corner is posted in the Kansas City Star every week. Kat Hnatyshyn, when not blogging or caring for her little ones, is a manager with CommunityAmerica Credit Union. For more financial chatter, follow us on Twitter @CommunityAmerCU.