MrKlean187

According to Suze Orman, its best to pay off all credit card debt 1st while making the minimum payment on any medical debt and low interest debt. After the CC is paid off then you can start paying off other debt or invest. My question is if you are young and invest early wouldn't that investment be worth more down the road than the amount of interest you have to pay for certain kinds of debt? Which is better pay off all debt or invest when young while possibly paying off debt, as well?

Mr White

I hate to be THAT guy..but read the first sticky in this section. First rule is pay off all debt.

Don't bother investing it before paying off debts..IMO (i am not a financial adviser) pay off the debt, because in order to come out positive on an investment while paying interest on debt; it is going to be a higher risk investment.

magician

It depends on the respective interest rates.

If you can borrow at 2% and invest at 4% (after taxes), you're better off investing and not paying off the debt.

If you can borrow at 12% and invest at 6% (after taxes), you're better off paying off the debt.

For most people, the latter is true.

magician

It's going to have to be a higher-return investment. That doesn't always mean higher risk.

Mr White

But generally speaking it does.
OP is talking about CC debt. Avg apr is 14.9%...if you can make more than that with minimal risk consistently you should look into starting a hedge fund.

magician

But generally speaking it does.[/quote]
This is true for what would be called efficient investments, but not necessarily true (even generally speaking) for inefficient investments; most investments are inefficient. (If you know modern portfolio theory, you'll know what I mean; if not, we should take this discussion off-line, as it will get far too involved for this thread.)

Jmays2k

I put both before I read that it was CC debt so disregard my vote LOL pay of the CC debt first no doubt has it been low interest I would say do both.

MrKlean187

I was including cc debt, but was more talking about debt in general.

Mr White

But generally speaking it does.[/quote]
This is true for what would be called efficient investments, but not necessarily true (even generally speaking) for inefficient investments; most investments are inefficient. (If you know modern portfolio theory, you'll know what I mean; if not, we should take this discussion off-line, as it will get far too involved for this thread.)
[/quote]

I understand modern portfolio theory to a certain point, but not the difference between efficient/inefficient investments. I have an idea..but please enlightenment me. Feel free to pm me if need be. Not trying to start an argument, just looking for free education

vader1

I would differ from Suze on this point, don't leave money on the table.

If your employer matches some contributions, max those out, then put everything else into debt retirement on high interest debt like credit cards or crappy student loans.

It makes no sense to put $100 into credit card debt retirement at 21%, instead of investing that $100 that is first doubled to $200 by an employer match and then earns a return. Always include any employer match in the cost benefit calculation before assuming "debt first".

Free money first, high interest debt second, invest third, debt that is lower than the return you can earn last.