Saturday, August 14, 2010

Paying off credit card debts is the best investment you can make

If you have credit card debts on hand, the best investment you can make is to pay off the debts. Guaranteed!

The typical annual interest rate for credit cards is around 20%. If you pay off this high-interest debt, it is as good as making a sure-win investment gain of 20%. Even Warren Buffett cannot guarantee you such a performance.

If you prefer to let the credit card debts to rollover, please go back to school and study compound interest. At 20% compound interest, even a tiny amount of debt can wreak severe damage to your pocket over time. Don't believe? Use a spreadsheet and calculate the amounts you will have to pay over the years. This is the best way to appreciate the power of compounding.

A good understanding of compound interest has convinced me to avoid all high-interest loans like unsecured personal credit lines and credit card debts. On the other hand, I have been encouraged to save and invest hard to reap the power of compounding to my favor.

10 comments:

  1. Living with the debt is awful. It’s hard to set goals and reach them in case you have a debt which doesn’t let you to go ahead and improve your financial situation. So I’m totally agree that paying off the credit card debt is one of the best investments it’s possible to make. Credit cards can be helpful is some occasions but it’s not worth to put all the expenses on plastic or payday loans no fax. So if you have a credit card debt then it’s necessary to consider the way you can reduce your expenses and save money to eliminate the debt. I think that it’s worth to make payments on high interest rate cards first and then start making payments on those with lower interest.

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