Paying Off Loans or Investing - My Stand on the Both
Should debt be paid off or should the money be used to invest? This is one controversial topic among people and different people have their different standpoint and what they believe. In this post, I will be sharing my own standpoint and at the end of the post, you can also share your own views about this in the comment.
The Question
A person has $20,000 in cash and has a debt of $20,000 with an annual interest of 6%, will you advise him/her to invest in the stock market for a 10% annual income or pay of their debt?
First, debts are weights or yokes on a person. It might not be seen physically but it is there mentally. Debts causes a lot of emotional stress, and limitation that denies people from doing what they want to do. A lot of people will want to invest their money in some investment so they pay the debt with the interest made from investing and still have something to keep. This is one good way to look at it since you want to have something for yourself while you pay off the loan with its interest at the end of the year but let’s also see it from this angle. What would you do if you had a student loan of 6% to pay at the end of the year and you decide to invest the money into the stock market at the end of 2019, only to wake up in 2020 and see that the market is tanking really hard that shares lost 70% its value and there is a threatened recession since the economy is on a standstill? This is not good you say, it means that the loan interest is increasing and your investment just lost 70% of its value. Trust me, the economy isn’t going to normalize in 6 months (If any government tells you it will normalize, then you are just putting your hopes on lies).
A bird at hand is better than two in the bush
Let me say something straight, Investing is like looking for two birds in the bush while your money at hand is a bird at hand. If you decide to pay off the loan with a bird at hand, you could get a better job with enough time to search the job market without fear of not having money to pay debt, and then make money to start investing instead of taking the money that could have been used to pay the debt to go in search for two birds in the bush (A bird at hand is better than two in the bush).
Don’t live a middle class live even if you are in the middle
The middle class get loans for everything and pay back with percentage from their salaries. The middle class buy cars with loans from business corporative societies, get a house with a mortgage loan, pay their children to school fees with student loan and all this loans are dependent on their paycheck at the end of the month. What happens if you get fired? A bank in my country just sacked 75% of its employee and cut down the salaries of the 25% remaining by an average of 40%. What do you think a person in so much loans will do seeing that we are facing a threatened recession?
