Debt vs. Investment

There are times when paying off mounds of credit card debt is like digging a hole in the surf: as soon as you make headway, the ocean rushes back and refills the empty space.

Conventional wisdom tells us to pay off high-interest debt before even considering investing discretionary income. That’s because paying up to 18% interest on a credit cards is typically more than you’ll be earning with most investments.

If Bill Gates and Donald Trump listened to conventional wisdom, they’d probably never have made it onto any “World’s Richest” lists. It’s actually all right, in fact advisable, to split up your money between paying off debt and investing. Here are a few tips to help you get started:

  • Participate in your employer’s qualified retirement plan, if one is offered. Your contributions will come directly out of your paycheck-before taxes are taken out-and if you start with small deductions, you won’t even miss those few dollars.
  • Increase your contribution every time you get a raise.
  • Pay more than your minimum credit card payment each month.
  • Pay off higher interest rate cards first.
  • Consolidate debt as much as you can onto one low-rate card.
  • Apply all work bonuses, tax rebates, and any other cash windfalls to your credit cards.
  • Stop making charges to your credit cards, period.

Watching your invested assets increase while your debt decreases can have a wonderful affect on your psyche. That’s what happens when you see how money compounds–the more success you have, the more you crave.