Debt vs Investment

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Everybody should learn that debt is the opposite of investment. The more debt that you accumulate the less likely you will be able to have a secure retirement or a comfortable lifestyle. Therefore changing debt into investment is the first step in successful retirement planning.

 

A debt costs you money while an investment makes you money. Anything that costs you money should be regarded as a debt. It should also be noted that some debts are worse than others. Higher interest debts, student loans and so on are generally more destructive to your long term plans than lower ones.

 

Debt and Investment

Paying off your debts is a form of investment because it eliminates future obligations. When you pay off a debt you are increasing your future income just as you decrease your future income when you take on a new debt.

 

The two best investment decisions that you can make are too incur as little debt as possible and to pay off whatever debts you have as quickly as possible. Obviously this is not as easy as it sounds especially for those who live in the real world and face such factors as taxes, limited incomes, emergencies and unforeseen expenses.

 

Make a strong commitment to pay off your debts and not to incur new ones. A good way to begin is to simply not go into additional debt. For some people this means shredding their credit cards. Others have the self discipline not to use credit. Then once that is done you can start paying off your creditors.

 

Paying off Debt is an Investment

Paying off debts is an investment so start paying them off, even if this means not investing or selling off some investments that you have. Many people needlessly sacrifice their future by mindlessly investing while refusing to deal with debts.

 

A classic example of this is Humphrey; he owns a large house with a mortgage on it, he has a lot of credit card debt and two large car loans. Yet he also invests five to ten percent of his income in an IRA for his retirement. The problem is that Humphrey is earning about 10% on his IRA and paying about 15% a month in interest on his debts. He is actually losing 5% of his income every month so he will have less when he actually retires.

 

Humphrey would be better of taking some or all of that money he’s investing and using it to pay off debts. Nor would he necessarily lose the tax advantage from a deferred retirement investment. Many kinds of loan interest can be written off on your tax return. Some forms of loan payment including mortgage interest and student loan interest are actually deductible.

 

Two Great Investments

Paying off your debts and avoiding new debts are two of the best investments that you can make. Before you start retirement planning or thinking of the great new stocks to buy you should definitely implement a debt elimination strategy.

 

A good way to begin is to stop using credit cards for all but emergency purchases or to start paying off all of your credit card bills each month. Another is to not take out car and other consumer loans and to pay off the loans that you have. One neat strategy to follow is to simply double all of your loan payments each month. Eliminating debt is the best investment that you can make.