You could be getting a guaranteed 17+% return on your money right now. It’s a simple investing plan.
Pay off your credit card balances. This is the single most impactful personal financial step you can make.
I am the destroyer of worlds
Americans are especially notorious for carrying large amounts of personal debt. The most expensive debt is credit card debt. The balance carried from month to month, called the revolving debt, on credit cards destroys personal wealth.
According to CreditCards.com, the average APR, annual percentage rate, on credit card debt is 17.57%.
Pay that off and you stop losing over 17% in compounding negative returns. This is the best immediate return on investment you can make.
Pay it off and never carry a balance again. Only use a credit card if you are disciplined enough to pay off the balance at the end of the month.
It’s a no risk, high return investment.
Be respectful of your future self
It’s hard to pay off debts. Being debt-free, or at least credit-card debt free, requires immediate action for your future benefit. Like losing weight, it takes an attitude shift but once you begin to see results it can create a virtuous feedback loop that compels us to stick with it.
We have to find some immediate savings to apply towards the debt.
The cost of not paying off your high-interest debts is brutal.
Let’s look at the typical American household credit balance of around $7,000 and carry it for 20 years at 17%. You end up paying $161,739.
Now let’s say you invested that amount instead and earned 11% over 20 years. The average annualized return of the S&P 500 Index, the US stock market, was about 11.69 percent from 1973 to 2016.
You end up with $56,436.
That is a two hundred grand swing from borrowing to investing the same $7,000.
(If you are interested in how to make these kind of future value calculations, its easy. Check out my book on finance.)
Time is on your side if you invest, the earlier in your life the better. The math advises paying off the credit card debt you carry ASAP.