Should You Pay Back Debt Or Invest?

By - IndianMoney.com Research Team     06 December 2016

Debt and investments are two important elements of personal finance, which help you meet your financial goals. Debt allows you to increase your financial capacity by borrowing, so that you can meet your financial goals. Through investment, you can increase your capital and achieve your financial goals. It is always important to maintain a right balance between debt and investment.

Why do you need a loan?

Availing a loan to buy things you don’t really need, is quite dangerous.  Availing a loan helps you, only if you invest in appreciating assets. Is it a good idea to avail a home loan when you are young and just started working? Yes, availing a home loan is good, as you are buying a house/property, whose value would appreciate (rise) with time. Home loan is a very good loan as it also gives you tax benefits.

Why invest?

Investing money is very important, as the money you invest, helps create more money. Investing money helps you achieve your financial goals, by beating inflation. If the inflation rate is going to be around 4% in the coming year, you need to invest in financial instruments which give you returns higher than 4%. You can invest your money for the short-term, medium-term or even long-term, to meet your financial goals. Always make sure you start investing your money as early in life as possible. If you don’t invest your money at the right time, you might lose the chance of getting good return on investment (compounding benefit or return on return).

Pay off loan vs invest

It is always necessary to give importance to repaying your loan, as it has a great impact on your credit score. If you do not repay your loan at the right time, you may become a defaulter and this will badly affect your credit score. You need to balance both loan repayment and investments. Never avail a loan for unnecessary expenses.

If your monthly income is INR 60,000 with expenses of INR 25,000 and you invest INR 10,000, you have a repayment ability of INR 25,000. Balance your loan repayments so that your investment is not affected.

Always do a cost benefit analysis. Interest you repay on the loan is the cost. Rate of return you get on your investment, is the benefit. If you are struggling to repay your loan because of its high interest, shift a part of your investment towards loan repayment. If return on investment is higher, focus on investment, instead of loan repayment.

Knowledge is power. You want to get the maximum benefit from your investments? First learn how to pick the right investment which suits your needs. We at indianmoney.com help you make the right choice… Yes, the best investment to match your financial goals. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice / education to ensure that you are not mis-guided while buying any kind of financial products. Be Wise, Get Rich.

Under : Financial Planning