Should I invest or pay off my credit card?

Should I invest or pay off my credit card?

Should I invest or pay off my credit card?  There are always many demands on your paycheck, but a big question is whether to focus on today (credit card debt) or tomorrow (saving for retirement).  The answer involves balanceā€¦

It's not as old as the chicken-and-egg riddle, but the question of whether to pay off your credit card or invest your cash can seem nearly as confounding. The good news is you don't have to go all-or-nothing. A measured balance may be your best approach.

It's usually a smart idea to pay off your credit card before anything else. This is generally the most dangerous kind of debt as the longer it takes you to pay it off, the more money it is costing you. That's because the interest rate charged to you on a credit-card balance is almost always excessive-sometimes it can be close to 35%. With interest rates that high, debt can become an endless treadmill of payments unless you act decisively. That doesn't mean you have to pay it all off at once: Just make sure you come up with a plan to start reducing your debt, and then stick with it.

In addition, you may want to consider using all of your "windfall" money--such as bonuses, gifts, and tax refunds--toward your debts. That not only will speed up the process of paying off your debt, but it also gives you a psychological boost as you start to gain control over your debt. Some financial advisors also recommend that you pay off your smaller debts first as those successes help you stay motivated.

It also may make sense to call your lenders and ask them to lower the rate on your card; if the lender declines, you can transfer the balance to a card with lower rates. It's also a good idea to consolidate all your credit-card balances on the lowest-interest card you can find.

But just because you're working to pay off your credit card doesn't mean you shouldn't invest at all. It may take you longer to pay off the debt than you think, and you don't want to wake up years from now and find you have no retirement savings. It's wise to put at least a small, regular amount aside in a retirement account. This is especially true if your company offers a match on your contribution; you don't want to turn down free money.

Work hard to throw off that anchor of debt while putting aside a little for investments, and you'll truly be able to coast into your financial future.

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