If You Have Credit Card Debt Don't Invest

If You Have Credit Card Debt Don’t Invest

by bigcajunman last updated on April 25, 2020

This is one of the great “to the point” statements about investing in a Business Insider’s article that Michael James sent me. Debt is the best investment to put extra money in, and it usually pays back very well too.

The clarity of that one statement is astonishing to me, it cuts through all the garbage and gets to the actual point. So the real quote is #35 on the list:

“If you have credit card debt and are thinking about investing in anything, stop. You will never beat 30% annual interest.”

Read more if you wish.

Is that just so stunningly clear that it can’t be ignored? It is for me.

I can hear the nay sayers with their commentaries already:

No Credit Card charges 30% right now, most only charge 20% or less. So what? That just means you are earning a little less when you invest in paying the debt down (and it should pay down faster).
The Stock Market is paying over 8% a year, you’d be a fool not to take advantage of it. Pardon my arithmetic, but 8%, 10% or even 18% is not 20%, now is it?
If you don’t put money away now, it won’t have time to grow. Conversely if you pay down debt now, it won’t have time to grow, now will it?
You always need an emergency fund, why not invest it? Wow, that’s astounding, an Emergency fund is to be there if you need it, investing it is just not a good idea (IMHO). Why not “invest” that money in having no debt, so when the Emergency happens, you aren’t worrying about paying off debt at the same time?

Why don’t investment professionals espouse paying down debt first? I have heard some actually do (or at least send people away), but honestly there is no money for an investment professional telling anyone to pay down debt (unless they get paid by the visit).

I await the comments of how I am being simple (or worse obtuse), have at it commenters.

originally published on December 2, 2013 { 15 comments }

gs December 4, 2013, 9:11 PM

I have good? debt its an income property and the rent covers most of the cost.
Did this when interest rates were 18.5% its now paid off and interest rates are a lot less
so I can reborrow against it and invest (just prefer to bank it now…)

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[email protected] December 2, 2013, 10:32 PM

Totally agree, I would also add that if you have credit card debt with a ridiculous interest rate consider looking at a credit union credit card. They often have much lower interest rates and if you can transfer your balance onto one you can save big on interest payments.

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- bigcajunman December 3, 2013, 6:04 AM
  
  How about not rolling up that debt in the first place ?
  
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Bet Crooks December 2, 2013, 4:53 PM

I think your article is more acute than obtuse. (i.e. sharp and pointed)

I can only think of one investment that would trump debt: investing in yourself by educating yourself. Jane, who commented above, did that. But she didn’t do it using credit card debt at some astronomical interest rate.

For 99.9999999% of people, the statement is completely true.

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- bigcajunman December 2, 2013, 6:02 PM
  
  Yup, just don’t fall in love with your debt (or worse learn to live with it). Learn to HATE it.
  
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Matt December 2, 2013, 2:10 PM

Amazing advice that most of us will ignore, we have become a society of credit card users. We even start kids with prepaid cards so they can buy things online. Personally I’m carrying credit card debt right now but this will hopefully be temporary; I’ve learned my lessons the hard way about how much of a burden credit card debt is both financially and psychologically. Sadly too many people will simply miss this lesson.

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- bigcajunman December 2, 2013, 6:01 PM
  
  Sometimes the best lessons learned, are the hardest ones.
  
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Edward December 2, 2013, 12:51 PM

Amen to this! What people won’t (and never will admit) is that investing (and therefore talking/bragging about it) is a lot sexier and more fun than paying down their debt.

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- bigcajunman December 2, 2013, 1:06 PM
  
  Agreed, and Amen too Brother!
  
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- Matt December 2, 2013, 2:06 PM
  
  Most people don’t even want to admit they have credit card debt and as you get older you’re supposed to have investments. Its a frightening cultural taboo.
  
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  - bigcajunman December 2, 2013, 6:00 PM
    
    Very true, it’s like trying to find bad drivers, no one admits that they are one.
    
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Jane Savers @ Solving The Money Puzzle December 2, 2013, 8:42 AM

While I agree (I don’t have credit card debt) I find that people with credit card debt will always have credit card debt and they might as well save and invest something in case one day they come to their senses and quit charging stuff.

I have $24,100 in debt. I am going to eliminate the $12,100 in HELOC debt and take my time with the $12,000 in car payments. When the HELOC debt is gone I will throw all that money at savings. If I keep working at debt and never save I will never accumulate wealth.

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- Chris December 2, 2013, 12:48 PM
  
  “If I keep working at debt and never save I will never accumulate wealth.”
  
  Debt is negative wealth. If you pay down debt, you are wealthier just for having less debt. A person with zero debt and zero savings is exactly as wealthy as the person who has $100,000 in investments, but owes $50,000 against a line of credit, $20,000 on credit cards and $30,000 on a car loan. In fact, all things being equal, the first person will be wealthier than the second in a year.
  
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  - bigcajunman December 2, 2013, 1:07 PM
    
    Hallelujah brother, another soul saved 😉 Sorry, got a little religious there for a second.
    
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Robert_m December 2, 2013, 7:41 AM

This is one of those things that is easy to say but hard to do. While it is a no brainer wrt credit cards, how many of us have a personal line of credit?

There is a psychology at work where credit is not real money, but a convenience that can always be put off into the future. No one, and I certainly don’t, calculates the amount of time and money required to pay back the loan even at 0 percent interest.

Part of the problem may be that we are running too close to the line. The better approach should be to significantly live below our salaries. That way, we have the slack when we need it.

Another statement that is easy to say but hard to do.

While there is a valid case for good debt, debt always costs more than we expect.

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