Broke? Invest Anyway

Broke? Invest Anyway

It's natural that if you have some money saved or invested, you want to see it grow. There are many factors that can prevent this from happening, but for many people, one of the biggest obstacles is debt. If you have debt to deal with - be it a mortgage, line of credit, student loan or credit card - fear not, you can still learn how to balance your debt with saving andinvesting.

Types of Debt
Generally speaking, having debt can make it very difficult for investors to make money. In some cases, investing while in debt is like trying to bail out a sinking ship with a coffee cup. In other words, if you have a debt on your line of credit at 7% interest, the money you are investing will have to make more than 7% to make it more profitable than simply paying down the debt. There are investments that deliver such high returns, but you have to be able to find them knowing you are under the burden of debt.

It is important to briefly distinguish the different kinds of debt here:

1. High-Interest Debt - This is your credit card. High interest is relative, but anything above 10% is a good candidate for this category. Carrying any kind of balance on your credit card or similar high-interest vehicle makes paying it down a priority beforestarting to invest.
   
   
2. Low-Interest Debt - This can be a car loan, a line of credit, or a personal loan from a bank. The interest rates are usually described as prime plus or minus a certain percentage, so there is still some performance pressure from investing with this type of debt. It is, however, much less daunting to make a portfolio that returns 12% than one that has to return 25%.
   
   
3. Tax-Deductible Debt - If there is such a thing as good debt, this is it. Tax-deductibledebts include mortgages, student loans, business loans, investing loans and all the other loans in which interest paid is returned to you in the form of tax deductions. Because this debt is generally low interest as well, you can easily build a portfolio while paying it down.

The types of debt we will cover in this article are long-term low-interest and tax-decductible debt (like personal loans or mortgage payments). If you don't have high-interest debt or, better yet, all your debts are tax deductible, then read on. If you do have high-interest debt, you'll need to pay it off before you begin your investing adventure. (To learn more, readDigging Out Of Personal Debt and The Indiana Jones Guide To Getting Ahead.)