All of us want to pay down debt quickly and boost our investment returns. The hard part is knowing exactly how to do this in 2020.
Here are a couple of quick tips that can improve your cash flow and help you invest better this year.
How to pay down debt quickly in 2020
Often people struggle with consumer debt like credit cards or personal loans for cars. I would consider these to be "bad debt" in that this doesn't help generate returns for you.
In contrast, "good" debt such as home loans can be a powerful investment tool. You can use leverage to amplify returns which means you may not want to pay these down early.
One of the best ways to clear your bad debt as quickly as possible is to focus on cash flow. If you can work out exactly when and where your cash is going each week, that is a great first step.
A general rule of thumb is to pay off the most expensive debt first. Often this will be a credit card with a 20-30% p.a. interest rates.
Where possible, doing a balance transfer to a credit card with a 0% rate is a great option. In doing so, you can save yourself the interest payments temporarily and aggressively pay down your debt.
One other option is to call the financier and work out a debt repayment plan. This can get you back on track with your finances and help you pay down debt quickly.
Where should you invest your new cash?
Once you've paid down your debt, you might be wondering what to do with all this cash flow.
One great option would be to reinvest it in productive assets. One way to do this is to invest in ASX shares with strong dividends.
I think travel shares like Qantas Airways Limited (ASX: QAN) could be a good buy right now. Qantas has a market capitalisation of nearly $10 billion and a dividend yield of 3.81%.
The recent coronavirus scare has put pressure on ASX shares like Qantas but I think the long-term investment thesis remains intact. If that's the case, Qantas shares could be temporarily cheap right now due to investor panic.
