Sunday - Nov 18, 2018

Importance And Types Of Investments To Choose If You Are In Debt


Everybody wants financial security irrespective of their low or high income level, being in debt or out of it. This is perhaps the most important thing that people keep looking for throughout their life. To some people achieving this feat is a big thing in itself while for others it is just a part of their financial planning and management.

People looking for financial security do several different things and amongst these saving and investment are prime and the most common ones. Ideally, savings and investments are the best known and most effective ways to grow your money.

However, being in debt or multiple debts can be a big hindrance to your savings and investment venture. These debts can be of many different forms such as a mortgage, line of credit, car loan, credit card, student loan, home loans and even personal loans.

People in debt generally do not think to invest money being in debt is a good idea, but this is simply a misconception that persists across all age groups. They think that one should clear all their debts first and only then start contemplating about making any investment.

However, the more important aspect that should be considered is the tenure of such loans. Usually, a few loans such as home loan, education loan and a few personal loans will have long repayment tenure. Therefore, the natural question that arises is whether or not it is a good idea to invest during this duration.

Understanding your debt

To make safe, reliable and high yielding investments, you must first understand the terms and condition of your loan, your financial, and affordability. Ideally, debt elimination will take a long term capital and a considerable amount of money. All loan repayments will always and typically sum up to become much more than the actual amount you borrowed. This is because you will have to pay a considerable amount of money as interest for your borrowings to the lender.

This rate of interest is applicable always at a compound rate in which you pay interest on the interest accrued. That means it will sum up to be a significant amount by the time you have fully paid up your loan. No borrower can escape making such extra payment to their creditors. That means this high amount paid as interest leads to loss of your money during the entire loan tenure.

In the money market, there are lots of investment instruments that will allow your invested money to grow as these too provide interests on your money at a compound rate. This eventually means that if you can make proper and well-researched investments on such instruments that will pay you more than or at least as much as you pay money in the form of interest to your creditors, you will be better off. This will prevent the loss incurred by making the extra payments as interest. Hence, it is prudent to make smaller investments during the loan repayment tenure.

  • This will help you to minimize your losses incurred during your loan tenure or overcome it eliminating the need for going through debt consolidation reviews and apply for it.
  • Apart from that, making small investments will reduce your debt burden and therefore you will not face any continued shortage of money each month. Starting your investment venture with a small amount will pay you off more in the future.
  • You also get another added benefit with an investment that is you do not have to invest in bulk but can invest in smaller chunks. This small amounts invested will not even affect your loan repayment schedule as well.

Different types of investment avenues

You can invest in different types of instruments such as:

  • Mutual funds – Known as SIP, commonly investing in Mutual Funds is a very good option. It will help your money to grow, but the most significant attribute of these types of instruments is that you can decide the amount to invest in these schemes on your own. Though these Mutual Funds are subject to market risks, these are often considered to be a far better option as compared with other investments such as recurring or fixed deposits. All you have to do is read the terms and condition that apply carefully before choosing anyone.
  • Investing in insurances – You can also invest in different insurances such as health and life. It will also provide you with protection during your financial emergencies. Apart from that, it will also provide you with returns. You can choose one from so many life and health insurance plans according to your need, affordability, the premiums and the coverage provided.
  • Invest in gold – Just as the common proverb goes ‘old is gold’ the meaning is quite understandable. The proverb means old things have considerably more value and as it is compared with gold this value is extremely high, if not the highest. Gold is not only a precious metal but is also everlasting. Apart from that, the price of gold keeps on increasing continually making your investment safer and much higher yielding. Apart from the never decreasing value of gold, there is another factor for which you must invest in gold. You will be able to avail gold loans easily which are much more secure than other loans and deal with your tough times.

Investing for regular monthly income is another feasible option when you want to grow your money being in debt. However, you will have to make your choice according to your tolerance for risk when you want to invest in being in debt. If you are wise to choose investment opportunities that contain low risk, then you will prevent the chances of falling deeper into the debt hole.

As per the experts, if you are in debt then investing in any long term instrument will be unwise as that will not reduce your risk. On the contrary, you should look for more secure and safer options such as peer to peer lending with the involvement of a financial organization. Choosing your investment plan wisely is the key to success.