Pay off debt or invest in stock market
Deciding how to tackle debt while trying to invest can be overwhelming. In some cases, this may even mean some people should not invest with us, at least not just yet. Our five-step action plan is intended to help you maximize every dollar for debt payoff, safety net funds, and long-term investing.
Should you invest your money or use it to pay off existing debt? With this in mind, it may be prudent for some of our readers not to invest with us—at least not just yet. So, where to start? You can follow our five-step action plan to develop a solid debt payoff and investment strategy:. You should prioritize paying at least the minimum amounts due on your required debt payments on time.
Not doing so can lead to penalties, extra interest, and higher finance charges, in addition to ruining your credit score. Negative information, such as excessively late payments or collections, generally stay on your credit report for up to seven years.
If you are having trouble staying current on all of your debts, consider consolidating or restructuring to make your payments more manageable.
Check to see if your company offers to match any percentage of your contributions to an employer-sponsored retirement plan, such as a k. Match programs generally work like this: Keep in mind that matched contributions come in various shapes and sizes. After continuing to make timely bill payments and evaluating your eligibility for matched retirement plan contributions, your third goal should be to pay off high-interest debt. For most people, the most expensive debt is associated with credit card or unsubsidized student loan debt.
This high-interest debt is an emotional burden and drag on your finances, which is why eliminating it from your balance sheet is a top priority. Others may use a higher number e. Start with the highest-interest debt first.
After your high-cost debt is gone, you should begin building a safety net fund for financial emergencies. We recommend saving three to six months of living expenses , including your monthly housing payments, bill payments, utilities, and other recurring monthly bills.
A safety net can provide a financial buffer and prevent you from turning to your credit cards or tapping into your home equity for a line of credit when unexpected expenses occur. A safety net also provides some wiggle room in case your income is interrupted as a result of job loss or medical emergencies. After paying your regular bills, see if you have any cash left over to allocate toward a savings account. Any amount saved can go towards building a solid safety net fund.
With your high-cost debt eliminated and safety net in place, you are now ready to invest for the long-term. Here are some points to consider:. RetireGuide also takes into account when and where you plan on retiring, as well as your current and anticipated income for example, Social Security benefits.
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Knowing how much you need and actually investing to reach that goal requires follow-through. Make investing for your retirement a priority and be careful not to sacrifice funding it through wasteful spending that can restart the debt cycle. However, we suggest you stay the course and be diligent with our five-step framework. With a Betterment account, you can sync all of your accounts to make our five-step plan even easier to follow.
You can easily sync your accounts including savings accounts, retirement plans, and debts to view all of your finances in one place. This way, you can see as your net worth increase as you get closer to reaching your goals. We make it easy to automate deposits, create new Individual Retirement Accounts IRAs , or roll over existing retirement accounts.
Our customer support team is also available seven days a week to answer any questions. However, that return is not guaranteed and fluctuates from year to year. When you pay off your high-interest debt, that interest savings is guaranteed.
It is the guaranteed savings that makes paying off debt so attractive, even if the rate is slightly lower than what you might expect from investing.
This article is intended for educational purposes only. The information provided is educational in nature, and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions, or be relied upon as financial advice.
Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Past performance does not guarantee future results, and the likelihood of investment outcomes are hypothetical in nature. Betterment takes advanced investment strategies and uses technology to deliver them to more than , customers across its three business lines: Nick enjoys teaching others how to make sense of their complicated financial lives.
Nick earned his graduate degree in Financial and Tax Planning and has since helped countless individuals and families achieve their goals. This website is operated and maintained by Betterment LLC, an SEC Registered Investment Advisor.
How Betterment calculates " better returns ". Unless otherwise specified, all return figures shown above are for illustrative purposes only, and are not actual customer or model returns. Actual returns will vary greatly and depend on personal and market circumstances.
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Overview Our Portfolio Tax-efficient Investing Security Team of Experts Our Mission. Investing Advanced Investing Personal Finance Retirement Inside Betterment Research Tools and Calculators. Should You Invest, Or Pay Off Debt? You can follow our five-step action plan to develop a solid debt payoff and investment strategy: Our 5-Step Action Plan: Always Make Your Minimum Debt Payments on Time Take Advantage of Your Employer-Sponsored Retirement Plan Pay Off High-Cost Debt Build Your Safety Net Save for Retirement 1.
Always Make Your Minimum Debt Payments on Time First things first: Take Advantage of Your Employer-Sponsored Retirement Plan Check to see if your company offers to match any percentage of your contributions to an employer-sponsored retirement plan, such as a k. Any match is free money, and that return beats out many investment alternatives. Pay Off High-Cost Debt After continuing to make timely bill payments and evaluating your eligibility for matched retirement plan contributions, your third goal should be to pay off high-interest debt.
Build Your Safety Net After your high-cost debt is gone, you should begin building a safety net fund for financial emergencies. Save For Retirement With your high-cost debt eliminated and safety net in place, you are now ready to invest for the long-term.
Here are some points to consider: How Much to Save: To get this number, you need to consider factors such as when you want to retire, your future Social Security benefits, inflation, taxes, and estimated investment returns. Where You Should Save: To optimize to which accounts you want to direct your money, you should factor in your future tax bracket and investment account fees.
Get Started with Betterment With a Betterment account, you can sync all of your accounts to make our five-step plan even easier to follow.
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