Should people invest their money when they have debt?

Question

Is it possible to invest with little money? How?

Answer 1

It depends on the interest rate you are paying on the debt, vs your expected annual rate of return on the investment.  If you have a credit card carrying an interest rate of 20% and you invest in:

the stock market which has an average return of 11% annually or

Real Estate which has and average return of 6 or 7% annually or

Government bonds that carry about 5% right now,

it doesn't make any sense, does it?

You should pay your debt first--you will be ahead.

If your debt is interest free, because it's like, from your Dad or something, you should still probably pay him back first but if he doesn't mind, you might consider indexed mutual funds, that you can start with $200 or so.  Or Series II US savings bonds that you can buy from your local bank for $25 and up.

Answer 2

Yes it is possible to invest money in start up businesses to double, triple, and etc, your money, as long as you invest in things that have a good return of investment.

Answer 3

You asked two separate questions. I will answer the second first.

I have seen some mutual funds that will let you open a fund if you have a monthly automatic depost to the fund of at least $100. Otherwise you need to save up like $3,000.

But SHOULD people? Basically no.

It is hard to make more investing than the interest charges cost you. One exception is the home mortgage. That cost, with the tax benefit, means some people are paying less than 4% for the money after taxes.  4% is not hard to meet or beat rather safely by investing.  

I started out with no money and was making little. But I could see it took money to make money.

So I cut my expenses to the BONE. I even read the newspaper a day late I got from my neighbor to avoid paying that 25 cents a day.

I paid off ALL debt first, didn't own a home.

That gave me a "little" money to invest. Then I used what my investments produced to buy back what I had given up. That way I became richer every year of my life.

That is how I did it.

But most people are not willing to give up now to be richer later. But they are poorer in the long run.

Answer 4

I've read somewhere that 6% is a magic number of sorts:

More than 6%, pay the debt off first.

Less than 6%, pay the minimum towards your debt & invest the rest.

Either way, build up an emergency fund first (if you haven't already).  That will keep you from taking on even more debt if something bad happens.

Answer 5

Basically I agree with everything Thor said except paying all of your debt off : Debt also builds credit which can make your future interest rates lower ie saving you money : however your interest rates would be higher than your profits from any investment but what exactly are your interest rates from student loans if under 4% and you can make payments dont worry about paying that off too quickly that should have a return on investment all unto its self. the problem with paying all of your debt off is your living too much for the future and not enough for now you need to fin. fit now and later and happy now and later. also how are you going to know about investing by just reading about it you need to put some money on the market for it to be real : depending on how much free cash vs debt (payments) you have : i believe that doing conservative or perservative investments right now could be 25% of your payments to your debts ie: for every 100 dollars you pay out put 25 in a money market or cd to build a safety net and then put extra Unexpected money OT on riskier things like stocks

Answer 6

Absolutely yes.

Answer 7

under 10% doesn't tell me much to decide for you

Answer 8

They have that jackass on TV from time to time...Matthew Lesko.  He provides the resources.  For the most part, I am going to say no.  Nobody is going to take a risk on someone with no money and no collateral.

Answer 9

be careful....

Answer 10

Generally, no.  The interest on debt is (usually) much more expensive than the return on an investment.  So it's usually better to pay debt off before investing.

That could change if you have a great investment opportunity, or great interest rates for borrowing.  For example, if you have a chance to buy a business that should give you a 33% return on investment and can borrow at 8%, go for it.

But if you have credit cards at 20% and are looking to get 11% from stock investments, stay away.  Get the debt paid off first.