Paying Off High-Interest Debt Might Be Your Best “Investment” Strategy

By the Securities and Exchange Commission’s Office of Investor Education and Advocacy

No investment strategy pays off as well as, or with less risk than, eliminating high interest debt.

Most credit cards charge high interest rates – as much as 18% or more – If you don’t pay off your balance in full each month. If you owe money on your credit cards, the wisest thing you can do is pay off the balance in full as quickly as possible. Virtually no investment will give you returns to match an 18% interest rate on your credit card. That’s why you’re better off eliminating all credit card debt before investing. Once you’ve paid off your credit cards, you can budget your money and begin to save and invest.

Here are some tips for avoiding credit card debt:

  • Put Away the Plastic  – Don’t use a credit card unless you know you’ll have the money to pay the bill when it arrives.

  • Know What You Owe – It’s easy to forget how much you’ve charged on your credit card. Every time you use a credit card, track how much you have spent and figure out how much you’ll have to pay that month. If you know you won’t be able to pay your balance in full, try to figure out how much you can pay each month and how long it’ll take to pay the balance in full.

  • Pay Off the Card with the Highest Rate –  If you’ve got unpaid balances on several credit cards, you should first pay down the card that charges the highest rate. Pay as much as you can toward that debt each month until your balance is once again zero, while still paying the minimum on your other cards. The same advice goes for any other high-interest debt (about 8% or above), which does not offer any tax advantages.

Learn more about saving and investing at Investor.gov, the SEC’s website for individual investors. Members of the military can also find additional resources at the Investor.gov Military page.

 

 

 

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