It’s a dilemma worthy of Hamlet, were his story set in modern times: to invest, or to pay off debt?
The decision depends on your financial goals, net worth, cash flow, time horizon, and your attitude towards debt and risk. It also involves assumptions about investment returns and the direction of interest rates.
With so many factors to consider, it’s wise to bring this important question to a qualified financial professional. Yet many Canadians hesitate to do so. Why? Likely because they think of their financial advisor when it comes to investing, but they don’t necessarily think of them when it comes to debt management.
To set the record straight: investing and debt management are both areas we should discuss and integrate into your financial roadmap.
Here are three key areas I’d like to cover when we meet:
Assess your debt
What are your outstanding debts and what is the total? For each of your debts, what are your monthly payments? Of those amounts, how much is interest and how much is paying down principal? Does your income allow you to comfortably service the payments? With a handle on the big picture of your debt, I can make specific recommendations.
If you have high-interest debt (such as credit card debt), it probably makes sense to deal with it as a first priority. We can look for ways to reduce your interest payments. For example, it may be possible to consolidate it into a lower rate option, such as a home equity line of credit. With lower payments, you’ll have extra cash to put towards other financial goals.
While many people prefer to prioritize debt repayment, a strategy that balances investing and paying down debt is worth considering. Today’s low-interest rates make carrying some debt less of a burden, and investing sooner in a well-diversified portfolio will allow you to harness the power of compounding over time.
Set goals and timelines
I can help you create a financial roadmap with achievable goals and reasonable timelines. A consistent, disciplined approach will keep you on track. When you have debt, discipline is enforced by the need to maintain minimum monthly payments. Why not treat your investments the same way? Set up regular contributions to automatically move a set amount of money every month from your banking account to your investing account.
So, if you’re wrestling with the question of debt repayment versus investing, book a date with me today at 250-787-0365
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