What ’ s Smarter -- Paying Off Debts or Investing ?
This article was written by Edward Jones for use by Brian Callaway , Financial Advisor
If you ’ re just starting out in your career , you will need to be prepared to face some financial challenges along the way – but here ’ s one that ’ s not unpleasant : choosing what to do with some extra disposable income . When this happens , what should you do with the money ? Your decisions could make a real difference in your ability to achieve your important financial goals . Under what circumstances might you receive some “ found ” money ? You could get a year-end bonus from your employer , or a sizable tax refund , or even an inheritance . However the money comes to you , don ’ t let it “ slip through your fingers .” Instead , consider these two moves : investing the money or using it to pay off debts . Which of these choices should you pick ? There ’ s no one “ right ” answer , as everyone ’ s situation is different . But here are a few general considerations : Distinguish between “ good ” and “ bad ” debt . Not all types of debt are created equal . Your mortgage , for example , is probably a “ good ” form of debt . You ’ re using the loan for a valid purpose – i . e ., living in your house – and you likely get a hefty tax deduction for the interest you pay . On the other hand , nondeductible consumer debt that carries a high interest rate might be considered “ bad ” debt – and this is the debt you might want to reduce or eliminate when you receive some extra money . By doing so , you can free up money to save and invest for retirement or other goals . Compare making extra mortgage payments vs . investing . Many of us get some psychological benefits by making extra house payments . Yet , when
Call or stop by our office for more information or to schedule a complimentary portfolio review .
Making Sense of Investing . Brian Callaway
Financial Advsior 863 Flat Shoals Road , Suite 300 , Conyers , GA 30094
770-918-0725 • www . edwardjones . com
Member SIPC you do have some extra money , putting it toward your house may not be the best move . For one thing , as mentioned above , your mortgage can be considered a “ good ” type of debt , so you may not need to rush to pay it off . And from an investment standpoint , your home is somewhat “ illiquid ” – it ’ s not always easy to get money out of it . If you put your extra money into traditional investments , such as stocks and bonds , you may increase your growth potential , and you may gain an income stream through interest payments and dividends . Consider tax advantages of investing . Apart from your mortgage , your other debts likely won ’ t provide you with any tax benefits . But you can get tax advantages by putting money into certain types of investment vehicles , such as a traditional or Roth IRA . When you invest in a traditional IRA , your contributions may be deductible , depending on your income , and your money grows on a taxdeferred basis . ( Keep in mind that taxes will be due upon withdrawals , and any withdrawals you make before you reach 59½ may be subject to a 10 % IRS penalty .) Roth IRA contributions are not deductible , but your earnings are distributed tax-free , provided you don ’ t take withdrawals until you reach 59½ and you ’ ve had your account at least five years . Clearly , you ’ ve got some things to ponder when choosing whether to use “ extra ” money to pay off debts or invest . Of course , it ’ s not always an “ eitheror ” situation ; you may be able to tackle some debts and still invest for the future . In any case , use this money wisely – you weren ’ t necessarily counting on it , but you can make it count for you .