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Why should people pay off high-interest loans and credit before starting long-term investments? |
Why should people pay off high-interest loans and credit before starting long-term investments? easy. so that the interest paid doesnt surpass the interest gained. think about it this way... you are paying 18.99% on your credit card. you are earning 8% on an investment. what is going on? you are losing money to the credit card. if you have extra money, the first thing is to eliminate the debt so you arent throwing away investment earnings. once the debt is gone, then your extra money can go to investments... the more money you can put in, the more your wealth will grow exponentially. because you will pay more in interest than you will the actual loan Investing money in low return investments when you are paying high interest on loans is counterproductive. You are going to make less money from the investment than you are paying out in interest on the loans, so your best investment would be to pay off the loans first. because you pay out more money in interest than you can earn in investments in the same anmount of time One-questioner, I am NOT a financial advisor but I do know that by paying off the high interest debt you will get ahead quicker. The high interest debt will eat away at you quicker than the interest rate that you are likely to get on any investments. You will also be able to invest a larger amount regularly which allows the compounding to be greater. Have a wonderful day and a glorious LORD's DAY! Thank you, Eds . Fatty & Marti, You have done an excellent job of explaining this! Thanks... . Mathemetician and Insurance Professional Because the interest rate on the credit cards and loans exceeds the return you can get on the long term investments. So let's say you are trying to start a long term investment and you will probably get a 10% return on that, whereas you still owe on your credit cards where the interest you pay might be around 20%. |
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