How to manage your debt and invest for your future
A successful strategy requires the right balance for you.
Simple math suggests it’s wise to pay off your high-interest credit cards before you invest.But what about car loans?Or student or home equity loans? Should you be totally debt-free before you invest?Finding the right balance between investing for the future and paying down debt requires that you do something few investors typically do:think strategically about debt.“People fixate on the asset side of their personal balance sheet,devoting their time to looking for the next blockbuster stock,”says Nevenka Vrdoljak,director,Investment Analytics,Merrill Lynch. “However,they fail to realize that refinancing their mortgage could save hundreds or even thousands of dollars a year.Or that if they pay off a credit card that charges 15% interest,that’s the economic equivalent of earning a 15% investment return.”Vrdoljak proposes taking a more comprehensive approach to managing debt,one that accounts for both the asset and liability sides of your balance sheet,and uses debt strategically to build wealth.
Good debt, bad debt
Debt can be an effective financial tool.For example you might use a home equity line of credit (HELOC)to cover a short-term unplanned expense without having to tap into your retirement funds.A low-interest loan can also help you pursue a variety of long-term goals,from owning a home or starting a business to paying for college or graduate school.