Investment Benefits

• Investment is an effective financial tool because of compounded interest that, over time, increases the overall value of the initial investment and contributes to your wealth. Having investment as a goal can deter you from mindless spending, since you'll want to conserve funds to contribute to investment portfolios. Investments can also act as safeguards against financial disaster; in worst-case scenarios, you may be able to liquidate investments to pay off unexpected medical bills, circumvent a family financial emergency or avoid losing a home. For these reasons, it can be tempting to remain in debt in order to continue contributing toward investments.
  
  

Interest

• The problem with remaining in debt while continuing investing is that the interest rates earned on your investments may be nowhere near the steep rates you're paying on debt. This is especially true for credit cards, which can carry double-digit interest rates that significantly add to your overall debt load. Investment interest rates may be more modest, since the goal of many safe investment options is to add modest interest that, over time, compounds to create more significant returns.
  
  

Snowball

• Getting out of debt can help you invest more effectively by eliminating drags on your income -- especially because these investment roadblocks can carry high interest rates. One way to eliminate debt is to take the "snowball" approach, paying off your lowest balances or highest interest rate debts one at a time, then funneling money saved from each eliminated monthly payment into payments for your next targeted debt. Working to eliminate one specific debt helps focus your payments rather than making scattered minimum payments that don't effectively chip away at balances. Once high-interest debts are eliminated, investing becomes your next financial priority.
  
  

Exceptions

• Not all debts and investments are the same. In the case of investment opportunities linked with employer matching, not investing can be equated with throwing away money. While you still want to diligently pay down debts, seize the opportunity of employer matching investment to double your investment. While mortgages and student loans are considered debts, it's not necessary to fully pay these important investments off before proceeding into further investment opportunities. Student loans often carry low interest rates, and if you wait 10 years to pay these down before beginning to invest, this could be needlessly reducing investment opportunities. Mortgages represent another debt type, but a debt that leads to a substantial investment: your home. Businesses may use debt as a type of investment to increase overall business, increasing overall profits.