It always amazes me that people want to invest their money in stocks when they are carrying credit card debt with double digit interest rates. Except for a few people that credit card arbitrage, almost everyone is better of investing their money into paying off their credit card debt than trying to invest somewhere else. There is a simply way to determine this by asking five simple questions:
- What is the risk?
- What type of return can you expect?
- What type of tax implications are there?
- What type of fees are there?
- How long until you receive your return?
When you place these five questions to any investment you are considering making and also to paying off your credit card debt, the advantages of paying off of credit card debt become crystal clear.
While paying off your own debt may not be as sexy as other financial options, it’s usually the one that will help out your bank account the most.
Hi,
I came across your site last week and ever since I have read all your articles, they are very helpful to me as I’m new to pf management.
I have a question for you.
I have a 0% credit card, the 0% expires in june and i just got my tax refund, should I pay off the credit card and wait until june to pay it. In the mean time I can put that money in ING savings ( how much money will it make in ing direct with 4.5% APY, the principal is $5,000).
Thanks.
A lot depends on what your interest rate will revert to in June, but with the information you have given thus far, that sounds like the right move to make.
My interest rate on cc after june is 13.99%.
So you think I should pay off the CC?
Thanks
It seems you know the answer. Are you going to get 13.99% interest any place else? Of course you could roll it over into another 0% card, but that is just delaying and I’m not a big fan of credit card arbitrage. If you don’t pay off the credit card, what will you do with the money? That should also answer your question pretty easily. If you have the money, I would say pay it off.
Thanks
Creating personal wealth
Step 1: Do not pay to use other people’s money
Step 2: Have other people pay you to use your money
Greg,
Thank you.
Its strange the way people during the hot housing market were taking the equity in the home and investing in the market only to realize now when they cant pay back the equity loan, they dump the stock or whatever financial scheme they’ve got and end up short. I cant even fathom the tax implications and loss.
Response to #6 – LOVE IT – that says it all
Also, what is a credit card arbitrage? I have never heard that term before.
Thanks
what is a credit card arbitrage?
It’s when you take the low rates that some credit cards offer (such as 0%) and invest the money someplace else at a higher rate if return to earn money.