Paying Off Credit Card Debt–A Great “Investment” You Can Make
We all know that investing money is a good idea because it typically grows over time, leading to long-term profits. When someone says “investments,” we usually think of stocks, bonds and mutual funds.
Paying off your credit card debt may not seem like an investment, but if you are carrying a balance from one month to the next, it actually provides a significant “return” on your money. Before you sink your funds into the stock market, you may want to focus on paying off your credit card debt. That could save you a tremendous amount of money and become the best investment you make this year.
If you are carrying a $2,000 balance on your credit card account with a 15% APR, you will be paying an estimated $300 in interest penalties over the course of a year. If you were to pay off that balance rather than investing $2,000 in the stock market, you’ve essentially saved $300 for the year which is equivalent to a 15% return on your investment. There are very few stocks where you can get that kind of guaranteed return.
There are some other benefits to paying off this credit card debt. You are not taxed on these savings, unlike gains in the stock market. Your credit score will likely increase since you will be lowering the amount of debt you have. This can help lower your interest rate on future loans. And there is no doubt your personal stress level will decrease as your credit card debt disappears.
Of course, investing money in actual profit versus debt payoff is still a good idea. If you can manage to do both successfully, you’re in good shape. The information above should underscore that paying off your debt quickly could lead to better investment opportunities in the future. Keep that in mind the next time you assess your bills.