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Paying off Debt vs. Investing

Mar 12, 2008
I often get asked the question, "I have some extra money should I pay off my debts or do you think I should put the money into an investment?" I always look mystified as I calmly answer them, "Isn't paying off your debt a smart investment?" Needless to say most people don't get it.

Doesn't it make sense to you, if you keep yourself from paying the interest on a debt, you are making future money. The money is of course a future savings, which by definition is an investment.

A lot of people who invest money would like to see a good return over the life of an investment. Let's say an average return on a moderate mutual fund over a 20 year span has returned 10%. The average Credit Card interest rate is 12.99%. Are you beginning to see where I'm going?

One of the key differences between paying off debt and investing in a stock (investment) is risk. With the debt you are guaranteed to make interest payments over the life of the debt, however, with the investment there are no guarantees.

A large issue with investing in anything is the lack of knowledge the investor has about the investment. We can agree that paying off a mortgage debt quickly can have huge benefits. Much like a stock which makes huge daily gains.

The point I'm making here is this. Paying off your debts quickly is like having an explosive stock. The main question is how does one pay off debt quickly without spending more money?

There are only a few ways. One is to decrease the rate of interest. Another is to decrease the term, which will of course increase our payments, or the final way increase the payment activity and payment amounts.

When you are taught how to use existing lines of credit to leverage your debt, you will then be in a position to accelerate your debt payoff. We have demonstrated in this article that paying off your debt is a brilliant way to invest your money.
About the Author
About the author: Micahel Klein can help you get out of debt. Go to Uwin Financial and get your complimentary financial report and start living your life again debt free.
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