When you’re young, it’s easy to look at what you hope to be decades worth of time and think, “I have plenty of time to invest, but my debt needs to be taken care of now. I’ll invest later.” Chances are, you’re thinking that way now, or even decades later—and that’s why you shouldn’t wait until you’re debt free to invest in your financial future.
There is always going to be debt, whether it’s your student loans, or a car payment or your mortgage or a credit card or two. There is not always going to be time to invest and see a real return on that investment. That’s right: the longer you wait to start investing, the lower your returns on those investments will be.
This doesn’t mean that you should ignore your debts. On the contrary! What we’re talking about is doing both. Here is how you do that.
1. Take Stock of Your Debt
If you’ve been trying to hide from your debt, now is the time to stop. Gather up all of your bills. Get a copy of your credit report. Verify all of your debts so that you know exactly how much you owe and to whom.
2. Fix Errors
Did you know that credit report errors have a huge impact on your credit score? And according to LexingtonLaw.com, millions of Americans have inaccurate credit reports. Go through your credit report with a fine toothed comb and make sure that any errors you find get fixed. Those debt verification letters you have can serve as proof if the credit reporting agency refuses to fix the mistake.
3. Pay on Time
Most personal finance articles will tell you that you have to pay considerably more than the minimum amount due on your credit statements if you ever want to pay off your debt. They’ll tell you to pay at least the minimum amount due, plus however much you are charged in interest each month. Most of the time they’re right.
If your financial situation is dire, you can get away with paying $5-$10 more than the minimum due each month for a few months while you work to get your finances straightened out and a budget set up. If your debt is freaking you out, you might want to consider something like debt consolidation to help you get your payments under control.
4. Pay Yourself
You’ve undoubtedly heard of the book Rich Dad Poor Dad. The central tenet of this book is the concept of “paying yourself first.” This means taking some money and setting it aside in a savings account every month and then paying your bills. This ensures that you’re saving for the future (and emergencies) while also paying your bills and paying down your debt.
And really—that’s where the heart of investing while paying off debt lies. As you build up money in your savings account and can afford to do so, roll your savings account balance over into small investments like CDs (making sure you leave a good amount in your savings account in case there are emergencies). Then, as these investments mature, you can roll your profits over into other investments.
So many people, when they think of investing, think of pouring thousands of dollars into the stock market or high yield bonds. It’s okay if this is your goal and if you work hard there’s no reason you can’t get there. For now, though, invest directly in yourself with your savings account, CDs and small investments. This way, you’ll have a good start for when you’re ready to retire later.