3 ms·
I doubt the people who have significant credit card debts (and are paying 10% interest p/a) are investing. They're probably spending.
by charlesdm 11y ago
I doubt the people who have significant credit card debts (and are paying 10% interest p/a) are investing. They're probably spending.
- pbreit 11y agoThere are tons of people who carry credit balances who also have money in stocks, bonds & mutual funds. They don't equate paying off 15% credit card balances with a 20-25% stock gain.
- logfromblammo 11y agoThey may be investing indirectly, like with their 401(k). People with significant credit card balances may be paying 15%, 18%, 25%, or more on them. Even with the tax advantage of the retirement account, it's better to suspend contributions and pay off debt. Assume you're in the 25% tax bracket. If you have a $100 debt accruing interest at 24.99% for 10 years, you end up owing $931. If you have $133 in a pre-tax account earning at 7% for 10 years, and withdraw it and pay 25% in tax on the $262, you have $196 left. You don't have to be a genius to figure out that still leaves you $735 in the hole, which is far worse than paying the tax on your $133 paycheck up front and using the $100 to pay off your debt instead of investing it. As it turns out, your interest on debt doesn't need to be nearly that high. If you owe at 10% and invest pre-25% tax at 7%, it still makes sense to stop investing entirely until paying off the debt.