Some financial decisions can be challenging — like whether to use your money to reduce your debt or to invest. If you already have a significant amount of debt and not a lot in savings or investments, it can be hard to figure out which issue should be a priority.
There’s no simple answer, and everyone’s situation is different, but here are a few suggestions for helping you make a good choice: Evaluate your cash flow. If you already have enough after-tax income to meet your monthly living expenses, you might lean toward investing any leftover cash, but if you are just getting by, possibly due to heavy debt payments, then you might be better off using your funds to reduce your debt load.
Build an emergency fund. Paying off your debt as fast as possible may seem like the responsible thing to do, but not having an adequate emergency fund or saving for your future could leave your finances at a permanent disadvantage. It’s a good move to have an emergency fund containing three to six months’ worth of living expenses, with the money kept in a liquid, low-risk account. Once you have such a fund, you could use it, instead of going into debt — or adding to your debt — to pay for unexpected costs, such as a new furnace or a major car repair.
