What's the Best Way to Use Your Limited Funds?

On the one hand, you have expensive debt that is bothering you and costing you money. On the other, you have an opportunity to invest in business that can earn you much more and solve the debt problem.

What should your priority be? Let's examine this on a few levels.

Take the Guesswork Out Of How to Use Your Money

Damned If You Do and Damned If You Don't?

Clearly the optimistic way is to invest in the business, earn a ton of money and completely erase that debt. But, as we know, the one sure thing is that there is no sure thing. There is no guarantee that your investment will work, and then you may be deeper in debt.

Much closer to a sure thing is the fact that allowing a debt to remain is going to cost you lots of money. So if you make the calculation simply on the basis of what is more likely, paying off the debt now, while you have more ability to do so, would be the right choice.

Never Underestimate Momentum and Psychology

When you get out of debt, you are in a much stronger psychological position to succeed in your business investment. Debt slows you down. When you take the money that could reduce your debt, you may not feel the freedom to make the necessary investments. And sometimes, a good investment idea can fail if you do not invest sufficiently.

Waiting till you are more optimistic and have more funds available is often smart investing.

It Certainly Does Depend upon the Investment

If, however, the business investment is one that promises immediate gains, that may be different. For example, if you need to pay something to open your business doors, then by all means do so. And if you need to purchase advertising to drive short-term business, that is also a well justified investment.

But if you are investing for the long term, and your business is currently operating, removing the debts chains before pursuing that growth should be your aim. In short, a business investment that will immediately bring in profit can be prioritized, whereas a deferred profit is less important than getting rid of your debt.

Solving Your Debt Enhances Your Business Investing Ability

In all likelihood, if your business investment is a long-term one, you will want to secure external funding. The amount is too much for you to do yourself, I assume. Therefore, your credit score now becomes part of the equation. Carrying a debt may keep your score down, preventing you from getting the capital you need at the best rates. For that reason, if you can solve your debt problem now and boost your credit score, you will be able to make a better investment afterwards.

So, in Most Cases, This Is What You Should Do

Get out of debt. Give yourself psychological freedom, improved credit score, and more free funds for better investing. The only investments that should come first over debt payments are those necessary to immediately bring in money. If you need to pay to open the store, or to advertise to bring in traffic, then do that.

Otherwise, solving your debt problem first is the best policy.

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