Credit Card Debt Strategy With High Investment Return

by Scott on June 23, 2008

This is a simple credit card debt strategy that will be the equivalent of a high investment return of up to 30%+. We have all probably asked or heard the following question, “What’s a hot stock right now or how can I earn more than my banks savings account rate?” Great question, we all want to know what the next Microsoft or Google will be, right?

When my wife and I were first married, we had accumulated college loan debt and unsecured credit card debt. Most of the debt was from the purchase of a new computer and printer and for living expenses in our San Francisco apartment. Like most apartments, we had to pay a security and cleaning deposit as well as the first months rent. I was working at a brokerage company at the time and wanted to put every nickel and dime into the best stocks of the day. I remember spending $50 a month on two companies called At Home Corp (ATHM) and Exodus Communications (EXDS). But, our credit card debt was over $2,500 and the interest rate was 15%. Was this the best use of our families resources? Exodus and At Home were high flying stocks, but this was not a short term investment for our family. Now, if I could have timed my sale of both of these stocks, we could have made a few hundred dollars. Instead, one went bankrupt, and the other has a huge sell-off.

I would have been better off applying the money spent on At Home and Exodus towards our Visa debt. Here is an example of how we could have payed our debt off faster.

We owed $2,500 @ 15% interest and paid $50 per month. It would take us 78 months and $3,900.

If we applied the extra $50 to our payment, it would take us 31 months and only $3100 to pay off the debt. A savings of $800.

In this example, paying off credit card debt resulted in a 15% investment annual return for our family. You might have a credit card at an introductory period of 5-10%, but wouldn’t it be better to payoff that amount and start paying yourself and not the credit card companies? When someones asks you, “what is the best stock tip?” Ask your friend if they have credit card debt. Tell them to buy Visa (V), not the stock, the personal debt. Your friend may have never thought to treat credit card debt as an investment opportunity.

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{ 2 comments… read them below or add one }

1 heidi June 23, 2008 at 10:12 pm

You are absolutely right! There is nothing worse than credit card debt! It chokes you when you get in over your head (trust me, I know). Thanks for an easy way to look at paying off debt.

2 Julie N June 24, 2008 at 10:43 am

Great advice and overlooked way too often! Adding the example is what really hits home though!

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