Pay Off Credit Card Debit or Save For Retirement?

This is not a simple question.

The considerations are these: You are probably paying around 20% interest on your credit card and no investment in the stock market can promise even half that rate of return. Therefore, it might seem that the best bet is to put your money towards paying off your credit card debt.

However, paying off a credit card debt is no guarantee that you will not run up a credit balance in the future. In addition, each year you wait to contribute to your retirement you give up a lot.

Here’s an example that shows the power of compounding interest on your investments: If you are age 35 and start investing $3,000 a year (earning an average of 8% a year) you will have $339,850 when you reach age 65.

But if you wait one year until age 36 before you start investing your retirement earnings will be $27,952 lower. Waiting one year to invest cost you almost $28,000!

Therefore, my advise was to do a little of both; use some of the money to pay off your credit card debt and some to invest for your retirement.

Tom Copeland – www.tomcopelandblog.com

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For more information, see my book Family Child Care Money Management & Retirement Guide.



Categories: Money Management, Money Management & Retirement

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