SHOULD I SAVE MONEY AND INVEST OR PAY OFF MY DEBTS FIRST?

I got the decent pursuit in the gas attention as well as I’m seeking for the little insight. I’m meditative about investing in certificates of deposition or maybe the couple of bonds though I have about twelve grand in debt with my automobile as well as dual credit cards. Should I save all my money, compensate off the credit cards, as well as afterwards have the smallest remuneration upon my automobile any month afterwards save to deposit or should i go all in upon the debt as well as compensate it all off prior to even meditative about saving for investments? What would produce the most appropriate profit? I need the little receptive to recommendation advice.

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{ 8 comments }

Whatidesired Tosay July 6, 2011 at 11:23 pm

depends on the rates of return(ROR) on the investments and the interest rates on the debt. If the ROR exceeds the interest rate on the debt then go with the investing. If not, then pay of the debt first.

John B. July 7, 2011 at 12:11 am

The safest way would be to save and pay off the credit cards first, then save to invest while making minimum payments on the car. That way you are playing around with money that you actually have and not owe. If it happens that you lose money it’s not a big deal because you are debt free…the car loan you can work with. If you end up getting a return on your investment, pay off the car, and invest again up to 50% of the return.

Frank July 7, 2011 at 1:10 am

Pay off your credit card debt first. Then cut them up. Maybe save one for an emergency. (A sale at the store is not an emergency.)

You are almost certainly paying more interest on your credit cards than you would earn on any investment.

Your car loan also charges you more interest that a CD earns.

When those are both paid off, start saving for a down payment on a house. If you invest in stocks, choose a good mutual fund or a broad index ETF. Don’t start trying to pick stocks yourself. Let the pros do it with a mutual fund, or use an index ETF to get a diversified investment in a broad portion of the market.

Some people believe that a skilled mutual fund manager can outperform the market and are worth the fee they charge (a small part of the profit from the investments they keep). Some people believe that mutual fund managers cannot consistantly outperform the market, and it just seems like they are good if you only look at the people who happened to do well in the past by chance, and so they invest in index funds which have lower expenses since you can’t predict which manager will happen to do well in the future by chance.

Then there are the people who think they can pick stocks better than the professionals. I don’t suggest you become one of them.

Stephen July 7, 2011 at 2:01 am

Making minimum payments on credit cards will take a long time to pay off. I would suggest not using credit cards, paying off the credit cards as soon as you can, starting with the smallest one to get rid of it then the amount you were paying on that you add to the payment for the next one and gradually erasing that debt too. not a lo0tm of point in saving at 2 or 3 % if you have credit cards at 10 and 12 or 13% (or likely more)

Jake Sulley July 7, 2011 at 2:13 am

Without knowing your credit card rates I am still fairly confident that paying off your loans and becoming debt free should be your initial goal.

Have you seen the rates on COD’s lately? Compare those to the rates on your lines of credit and it should be pretty obvious that if you are making 2.5% on a COD and paying in 9.5% on your lines of credit you are net losing 7%.

Pay off the debt first then look to invest.

clayjar_azn July 7, 2011 at 2:55 am

Always get rid of debts. They destroy much or all of your gains and makes your losses even worse. So concentrate on paying off your credit cards since their interest is like 20% these days and getting 20% gain in investments is very difficult to do.

Once you get a clean slate, you can invest and pay off your car at the same time. But pay off more than the minimum since the car payments interest also eats into any gains or makes your losses even worse.

Thor July 7, 2011 at 2:58 am

Good advice so far. Yes, pay off the credit cards first. You won’t make more in CDs than any debt you have.

BUT, I wanted to add that I read if you financed your car through a dealership and not directly with your bank they often have a large penalty for paying it off early. It has to do with payments to the dealer for the financing. So often there is little interest saved by paying off a car loan early.

Good Luck.

963 July 7, 2011 at 3:24 am

Pay off your debt and be debt free then invest like a mad man.

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