Saving and investing while getting rid of debt may seem like walking a tightrope. However, if you work in a systematic way, tackling first things first, you can manage to save and invest, while you clear your debt. Debt can take many forms, and exist due to several reasons. It is all too common today. Whether you have run up amounts of debt due to your online trading activity, or failed to pay your credit card bills, debt isn’t good to have.
There is a variety of debt. You may be working hard to pay this off, and yet, attempting to keep some of your savings intact. Debt should be avoided for this very reason, being that you cannot pay it off with ease. Moreover, if you have a corpus of savings, yet have debts to settle, you may have to plunge into your hard-earned savings to pay off your debts. It can be stressful to juggle several of your competing priorities, especially if you are not certain how to focus attention on these. There are some ways to tackle your debt and still save.
Settle Your Minimum Due Payments
This goes without saying, because the minimum that you owe for any settlement should always be paid off quickly. This is the least amount you pay, either on your credit card bill, or any other settlement. It ensures that your credit score is maintained. Additionally, if you miss payments in their entirety, you could be faced with penalties that result in you paying even more. These could include late charges and interest that becomes compounded. Debts have a way of spiralling out of control, and minimum payments make sure you settle the least amounts necessary.
Avoid Impulsive Decisions
The stock market today can be a volatile place if you are not a long-term investor. In case you are thinking of ways to pay off debt and make some money on the side, you may think of trading. This may be an impulsive decision if you are not an experienced and knowledgeable trader. You may think you are getting out of one hurdle, but may only have to cross another. It's better to stop and think of sensible ways to get rid of debt, and try to save money in more tried and tested ways.
A Buffer of Cash Helps
You can run up some amount of debt at any time in your life. If you are a salaried individual, it is important for you to start saving at an early age through a number of investment channels and products. If you want to try online trading, for example, start small and build up your experience gradually. Also, you can allocate a part of your salary to investment products on a monthly basis. This entails a disciplined way to grow a buffer of cash, so that when you are faced with debt, you can use some of this to make settlements.
The idea of saving is that you should be able to forecast expenses in the future and put money in investment accordingly. There are multiple investment products on the market, and if you don’t know where to begin, you can visit a solid broker like Motilal Oswal who will guide you. The first thing you should do is open a demat account, and start investing early. Having cash reserves can help you in times when you have overspent.
Investment vs. Debt
Of course, it would be a great idea to avoid debt completely, but in case you have felt it creep up on you, you have to deal with it. You may have investments already in place, such as a mutual fund investment, stocks, fixed deposits and the like. In case you have debt on your shoulders, it's wise to prioritise your investments if you wish to dip into these to settle your debt. If you have more than a single investment, you may want to think before you act and choose the one that makes the least profit for you at the current time. That way, you can pay up your debt, and save too.
Make Gradual Payments
Your debt obviously becomes more manageable if you have a buffer to fall back on. In case you don’t, you can work on paying off debt in a gradual way. If you are salaried, you can pay off your debt in easy instalments, say if you owe funds to a credit card company, while keeping a portion of your salary to fund regular expenses. Avoid the use of your credit card while paying off debt. It is better to get rid of the debt first than to accumulate more. You can also use a portion of your income to place in an investment product, and this can grow your wealth in the short term. Instead of having cash just lying around, think of short-term FDs or mutual funds to invest in.
The Trade-Off
If you have a regular source of income, paying off debt should not be hard to do. If there is a trade-off between paying off your debt and saving, you must settle all your outstanding amounts before you start to invest. That way, you don’t have any burden to deal with. You may think that, out of your income, by paying off your debt, you may have little left to save. However, as mentioned earlier, you can settle debt in a staggered way, while keeping some of your cash for regular expenses, and some in low-risk investment products to grow your capital. The stock market today, as many people believe, may not be the cash cow you think it is, so less risky fund allocation will help you save more.
Be Free of Debt
You can be free of your debt troubles if you just plan. Debt is not something you cannot deal with, and if possible, you should work to be free of it as fast as you can. Before you even open a demat account and consider other investment products, you should work on your debt issues. You can always visit Motilal Oswal to look at some low-risk investment opportunities to save and grow your wealth.
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