You’ve been keeping up with your credit card payments and bringing that debt down. Along with that, you’ve also managed to set aside some money for emergencies and more.
At this point, you might be wondering if you should begin investing that money so that you can start getting a return on your extra money.
Invest vs. Paying Off Debt
First, you need to figure out whether that is a good idea. Take a look at how much you are able to invest. Don’t include your emergency fund in that, because you want to make sure that money is easily accessible for emergencies. When considering different investment options, figure out how much you will likely earn on each.
In a lot of cases, you may end up earning less on your investment than what you are incurring in interest charges on your credit card debt. In that case, you may be further ahead to use that money towards paying off your debt so you can get that reduced, thus being able to pay off the full debt sooner.
You only want to invest that extra money if it will earn you more money than you will lose with interest charges on your debt. In a way, you can look at paying down your debt as an investment, because it may help you reach financial freedom sooner.
If it makes sense to invest while still in debt or if you’ve paid that debt off, then you can examine some of your options.
Savings Accounts, CDs and Term Deposits
Most banks offer these. The return may be low, but the risk is low as well. You could even stick your emergency fund into a savings account, because, in most cases, the money will be easily accessible. (But, it still may be a wise choice to keep some cash on-hand for emergencies, just in case you have a situation where you need money and the bank is closed.)
Stocks, Bonds and Mutual Funds
A bond is kind of like a loan, where you are loaning money to a company in exchange for interest on the investment. Governments can also issue bonds. A mutual fund is a pool of investments from various issuers. And, stocks are part ownership in a company, which is referred to as a “share”. Shares are usually, but not always, traded on one of the major stock markets.
Typically, bonds, especially government bonds, are considered the lowest risk and stocks a higher risk. The risks of mutual funds will vary depending upon the types of securities involved. Risks can be mitigated by diversifying. Before making investments of this nature, you should discuss it with a financial advisor or other financial professional.
Precious Metals
Precious metals, such as gold and silver, can also be investments. Most people think of investing in precious metals as buying a bunch of bars (or coins) of the metal and keeping them locked in a safe somewhere. The physical metal in such forms is called bullion. However, you can also invest in precious metals by buying shares or certificates. The metal is stored elsewhere and you have a certificate of ownership.
Real Estate
If you have a lot of money to invest, you could look at investing in residential or commercial properties, and then leasing them to individuals or companies.
The Bottom Line
Any investment carries some risk. Before investing, you should research to make sure that you are better served by investing money than using that money to pay down your credit card debt. If your debt is paid off or investing makes financial sense, do your due diligence in finding an investment that is right for you and your situation. For anything riskier than a savings account, you would be well advised to seek assistance from your accountant, financial planner or other finance professional.