Invest or repay debt

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It’s a dilemma worthy of Hamlet, did his story take place in modern times: to invest or to repay a debt?

The decision depends on your financial goals, net worth, cash flow, time horizon, and attitude towards debt and risk. It also involves assumptions about investment returns and the direction of interest rates.

With so many factors to consider, it’s wise to ask a qualified financial professional this important question. Yet many Canadians are reluctant to do so. Why? Probably because they think of their financial advisor when it comes to invest, but they don’t necessarily think of themselves when it comes to debt management.

To set the record straight: investing and debt management are two areas we should discuss and incorporate into your financial roadmap.

Here are three key areas that I would like to discuss when we meet:

Assess your debt

What are your outstanding debts and what is the total? For each of your debts, what are your monthly payments? Of these amounts, how much is interest and how much is principal? Does your income allow you to comfortably manage payments? With a handle on the big picture of your debt, I can make specific recommendations.

Set priorities

If you have high-interest debt (like credit card debt), it probably makes sense to deal with it first. We may look for ways to reduce your interest payments. For example, it may be possible to consolidate it into a lower rate option, such as a home equity line of credit. With lower payments, you’ll have extra money to spend on other financial goals.

While many people prefer to prioritize paying off debt, a strategy that balances investing and paying off debt is worth considering. Today’s low interest rates reduce the burden of some debt, and investing earlier in a well-diversified portfolio will allow you to harness the power of compounding over time.

Set goals and timelines

I can help you create a financial roadmap with achievable goals and reasonable timelines. A consistent and disciplined approach will keep you on track. When you have debt, discipline is imposed by the need to maintain minimum monthly payments. Why not treat your investments the same way? Set up regular contributions to automatically transfer money each month from your bank account to your investment account.

So if you’re struggling with the issue of debt repayment versus investing, make an appointment with me.

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