Should you pay off credit card debt before investing? This is a question I’ve asked myself many times for many years before I decided what to do. Now, I’m not a financial advisor; my situation is only my situation. A few years ago, I started to be very aggressive with my stock investments. I researched and listened to audiobooks with anything that dealt with investing in the stock market. I was in it for the long haul and up around +21% for the life of my small portfolio.
Well, this changed rather quickly. One day I decided to add a column to my bills spreadsheet and added the interest rates of credit cards, loans, etc. Then I decided to actually look at the monthly interest I was charged for any credit card with a balance, especially the larger balances. Well, no wonder some of the balances were going down slower than I thought. The monthly interest was killing me and I thought I was doing something by paying more than the minimum. I knew I had to come up with a plan to pay these balances off quickly.
So, remember I mentioned the +21% for the life of my small portfolio? Well, I knew that wasn’t going to be that high for the long haul. My wife and I decided that we would rather pay off the high-interest credit card debt first and not be as aggressive in the stock market until all was paid off. It just wasn’t making sense to us, having credit card debt and investing with a smaller return than the interest rate on our credit cards.
This was the best decision that we’ve made financially. Each time we paid one card off we simply took what we were paying on that card and repeated the process for each card. I realize each individual situation is different for everyone, so do your research and find a financial advisor if you have to. I personally think that the most significant benefit of all of this is the darn credit scores continue to go up as well. Go figure-Less debt is related to higher credit scores and you pay less for the larger debt items like cars, homes, etc.