Should I Invest Even if I’m in Debt?

investing and debt

Investing is reserved for private jet owning, caviar-eating Rockefellers, right? There’s no way a middle class person, faced with credit card and loan debt no less, could ever invest money, right?

The popular misconception that investment income is reserved for the financially elite is simply not true. Even in spite of moderate debt, middle-class families stand to compound paycheck income through investing.

Putting money in investments while still making debt payments can feel like whack-a-mole, but diligence to a strict budget and picking the right financial holdings may help you see significant return.

The psychological return of investing

The tedium of paying down debt can give even the most resolute consumer tunnel vision. Debt payment after debt payment can wear you down, and getting right-side up can feel insurmountable. Investments can help you feel a sense of agency, and smart holdings can put a little extra cash in your pockets — a welcome change from the usual debt cycle.

Putting money in investments is a break from the tedium of regular debt payments. Not only will investing help you feel in control of your money but, if done correctly, returns can actually help you eventually pay off that intimidating debt.

Playing the numbers game

The first step to deciding whether or not to invest is to compare projected portfolio return rate vs. debt APR. This comparison helps to assess whether or not investing is realistic in the first place. Crunch the numbers to find out if investments offer a return significant enough to warrant the effort.

For example, if your loan has a 6 percent APR, but you know of an investment that will likely return 8 percent in interest payments, you would make up your loan APR and then some. By putting debt payment toward investments first it is possible to make money while still paying down debt.

Improve interest rates through credit repair

This might sound great in theory, but what can you do if debt APR is too high? Is there a way to reduce interest payments on loans in order to make investing a viable possibility?

High interest rates are basically a way for lenders to make up for the risk of loaning money. Because lenders run the risk of not being repaid, they are compensated for this risk through interest. Logically, if you can prove you are a less risky borrower, you may garner a lower interest rate, which is one reason your credit score is important.

Lenders assess the likelihood an individual will default on a loan through credit score. A credit score is simply proof of your ability to repay a loan. If high loan interest payments are getting in the way of investing you might consider repairing bad credit.

If your credit score is bogged down by identity theft or misleading credit items, a credit repair company can help repair bad credit. Lexington Law offers clients unparalleled credit expertise to help them get their credit score back on track. Over the past year, Lexington Law clients have seen a total of 9,000,000 negative items removed from their credit reports.

Contact Lexington Law to get the help you need for disputing fraudulent or inaccurate information.

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