Is it Better to Pay Off Loans Or to Invest?

What to do with your money is always a temptation. Is it better to pay off loans or to invest your extra cash is often the question whenever a person comes into extra income. It is hard to sit on the sidelines and watch others take advantage of low stock market and real estate prices while you plug along slowly chipping away at your own mountain of debt.

The goal of becoming debt free is admirable. Just think of the opportunities you would have for investments if you did not have to sink most of your available cash into old debts. You probably wonder every month whether it is better to pay off loans or to invest any extra cash you have earned.

Here is the quandary that arises when you try to balance reasonable actions with the dreams of getting rich through investments. The thing holding you back are old debts. You must use today’s money to pay off things you may no longer even have, like all those expensive dinners out or clothes that are now out of fashion.

Most financial advisors would tell you that the answer to the question of whether it is better to pay off loans or to invest is to pay off loans and old debt as fast as you can. There are fast plans to reduce debt, and best-selling books on the subject of debt freedom are everywhere. The main point to paying off old debts, besides meeting your legal obligations, is that once you are fully paid off on those debts, your money will be all yours. You can do with it whatever you want, rather than paying your future income to others. If you have loans, you have promised future income to others, like the bank.

Most of the debt free program advisors will tell you that you need to clear the deck of loans and other bills prior to even thinking of investing. But here comes the rub. A good part of investing is timing. If you miss the big opportunity to get in on the investment before it moves upward, you miss the big chance to make money on that investment. No one wants to get in at the top, they want in at the bottom to make the investment profitable.

Recent economic hard times and the stock market downturn may cause some people to rejoice that they had decided to pay on debts instead of investing while the investments were turning downward. They are ahead of the game and will be ready to jump on board when the investment train goes back uphill again as it always does.

In bad times, it is better to pay off loans than to invest. Keep an eye on investments, and do research so that when you are loan free you have money saved and ready to invest and know where you want to invest it. Live life on a cash basis and never get caught in the loan/debt trap again.