Transcript:
Investing is exciting. Investing can help you grow your wealth, and investing can set you up for a great retirement. But is now the right time to invest? Hi, I’m Kyle, financial adviser at Base Wealth Management. Today, I’m here to convince you not to invest before you do these things.
First, one of the most common questions I get is how to deal with debt and if they should invest instead because it’s a lot more fun to log in and purchase stocks than it is to pay off some form of debt. One makes you money, and the other doesn’t. Specifically, I’m talking about credit card debt. An extremely worrying report by Bankrate shows that an astounding 56 million Americans have been in credit card debt for over a year, and 49% of credit card holders have month-to-month debt. Now, this isn’t the same as buying your groceries with a credit card and paying it off at the end of the month. Instead, it’s a devastating hit to your wallet, especially considering the average credit card interest rate in 2024 is a mind-boggling 27.94%.
So, should you pay down that debt first or purchase some aggressive investments? Well, if you could find an investment that guaranteed a rate of return well over 27.94%, then sure, invest first. I’ll be waiting for you to find that investment. Remember, it has to be guaranteed because you know what that 27.94% credit card interest rate certainly is guaranteed. Okay, so maybe that’s asking too much. It’s hard enough to beat the market. What if you can just maintain pace with it? One good benchmark is the S&P 500, and there are many index funds that track it to capture its gains, like SPY. Well, unfortunately, the S&P 500’s historical rate is only about 10% a year. Of course, there will be years when it grows much faster, but there will be negative years too.
So, my recommendation: pay off that credit card debt as fast as possible. Double, triple, quadruple down, whatever you have to do because that nearly 30% interest rate is nearly insurmountable. It’s the number one thing holding you back from financial success. With all that being said, there are other factors to consider before diving headfirst into reducing your credit card or other high-interest debt. On our website, we go over some of those factors that, when put together, form the optimal order of investing. You can read it in the link below.
If you’d like a consultation on whether to pay down your debt or invest, I’d be happy to help. Email me at Kyle@basewealthmanagement.com or leave a comment below. Happy investing.
