How to Start an Investment Portfolio While You Are Paying Off Debt

This economy has been difficult for most parts of the world. Most have racked up credit cards in an effort to stay afloat, and a lot of people have had to take out personal loans as well. But is it best to get yourself out of debt first, or perhaps take some of that spare money from your paycheck and invest, while still maintaining your debt with minimum payments?


Common sense says to pay off debt, but what if you invested some of that money you were going to use to pay off your debt, and became much more financially stable in the interim? Wouldn’t it be much easier to pay that debt? It’s a very difficult strategy because if you lose that extra money, you’re back right where you started when you got into debt in the first place. But, it might be worth looking into.
Here are some thoughts on the matter
Budget
If you begin a budget, you can actually see where your cash flow is, and if you even have anything left over to invest. Make sure you reserve enough for the minimum payments on credit cards, because getting behind can ruin your credit rating.
Build a nest egg

Since you are working and earning money, look back at the times when money was tight and it was difficult to pay anything. This should inspire you to create an emergency fund, or nest egg. Just in case that job doesn’t pan out as you thought it would, or heaven forbid, you lose the job.
Stick this money in a very safe money market fund, or savings account. A Certificate or Time deposit, or mutual fund that won’t allow you access without penalty.
Devise a plan
Yes, it is important to pay off that dreaded debt, but there are exceptions to paying it off with a high level of attention. If you can get a guaranteed return of 50 percent or higher on your money, you could use the return on your money to pay down debt. A 401(k) might be just the ticket because if you add in the employer contribution, it could bring you up to where it would be feasible to sock some money away, before getting serious on debt.
Refinance the debt
If your debt is just overwhelming, think about consolidating into one monthly payment, lowering your interest rates on credit cards, auto loans, etc. If you own a home, this might be the perfect time to refinance and pay off all of your debt, as well as lower those horrific monthly payments. This will allow you to put some money aside for your nest egg, and then your investment portfolio.
Consider tax ramifications

Remember, in all of this investing and debt reduction there could be something you’re over looking. Is the interest rate on your investment going to be taxable, and if so, by how much? Taxes can make the investment and debt picture look differently so make sure you speak with a qualified tax accountant or investment advisor that is privy to the tax situation you might find yourself investing into.
Remember that mortgage payments are tax deductible, and some investments are tax deferred, such as a 401 (k), IRA and might even lower your taxable income, making the return on your investment even better.
Make sure you understand the tax situation before going any further.
Above all, do the math – consider the interest rates of your investments as a return on your money and the catalyst to paying off your debt. As long as you invest wisely, and use a financial or investment advisor that you trust, and is certified – and has a good reputation and background, you should be on your way to becoming debt free while building yourself a pretty nice nest egg- and investment portfolio.

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