{"id":15552,"date":"2023-05-30T05:44:47","date_gmt":"2023-05-30T09:44:47","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/got-debt-this-simple-investment-can-earn-you-five-times-what-a-saving-account-will-pay\/"},"modified":"2023-05-30T05:44:49","modified_gmt":"2023-05-30T09:44:49","slug":"got-debt-this-simple-investment-can-earn-you-five-times-what-a-saving-account-will-pay","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=15552","title":{"rendered":"Got debt? This simple investment can earn you five times what a saving account will pay."},"content":{"rendered":"
\n

This <\/em>article<\/em> is reprinted by permission from <\/em>NerdWallet<\/em>.\u00a0<\/em><\/p>\n

The word \u201cinvestment\u201d likely brings to mind stocks and bonds, but the best return on your money might be obtained by tackling consumer debt. NerdWallet\u2019s annual\u00a0consumer credit card report\u00a0found that 18% of Americans say rising interest rates have made their overall debt more expensive. While you can\u2019t predict what money invested in the stock market will make this year, paying off high-interest debt provides you with a guaranteed bang for your buck.<\/p>\n

\n

As of February 2023, the average interest rate on credit card accounts charging interest was 20.92%, according to the Federal Reserve Bank of St. Louis. That means for every dollar of debt you pay down, you\u2019d save about 21 cents over the course of the year. That may sound inconsequential, but if you paid off $5,000 worth of credit card debt, that would result in more than $1,000 in interest savings. A 21% return on your money in a year is about five times what you might earn in a high-interest savings account.<\/p>\n

Here are four steps to pay off your debt sooner and maximize that ROI, or return on investment.<\/p>\n

1. Stop adding to debt, if possible<\/strong><\/h2>\n

Credit card interest is calculated based on your average daily balance. So if you\u2019re making payments toward your balance but still using the card for expenses, you might just be treading water. Interest keeps accruing, and your payments are going toward interest rather than meaningfully reducing the debt.<\/p>\n

Switching to cash or debit \u2014 at least in the short term \u2014 is a good idea when you\u2019re paying down credit card balances. Sure, you might miss out on credit card rewards, but if you\u2019re paying sky-high interest, the rewards are being eaten up and then some. Once your debt is paid off, you might consider using credit cards again and paying them in full each month to avoid interest charges.<\/p>\n

Learn more: <\/strong>What\u2019s the best way to get rid of credit-card debt \u2014 pay off the smallest balance first or the one with the highest interest rate?<\/p>\n

2. Seek out lower-interest options<\/strong><\/h2>\n

Lowering the interest rate on your debt means that less of what you pay goes to interest and more goes toward wiping out the principal balance.<\/p>\n

If you have a good credit score, you may have options to reduce your rates. According to the survey, 15% of Americans say they\u2019ve used a balance transfer credit card to save on rising interest rates. A\u00a0balance transfer card\u00a0can provide you with a short-term 0% interest rate \u2014 often 15 to 18 months \u2014 for a fee. The fee is usually 3% to 5% of the balance you\u2019re transferring; if it\u2019s going to take you a while to pay off your debt, the fee is probably worth it.<\/p>\n

You might also find a\u00a0consolidation loan\u00a0that offers a lower interest rate than you\u2019re paying now. Loan rates have also been rising, but if you have good credit and need a longer timeline than a balance transfer card will give you, it could make sense to seek out a loan and make a fixed monthly payment for a specified period of time.<\/p>\n

Also see:<\/strong> Small-dollar loans are increasingly popular. This is why they\u2019re a smart choice for low-income Americans.<\/p>\n

3. Consider pulling back on savings and investing, for now<\/strong><\/h2>\n

When you have credit card debt at 20% interest, you effectively get a 20% annual ROI when you pay it down. That\u2019s a high return that could be hard to replicate in the stock market in the same time frame. So for now, you might want to pause investing to attack your debt.<\/p>\n

There are exceptions to this. If you have a workplace retirement account \u2014 such as a 401(k) \u2014 with an employer match, it makes sense to continue contributing enough to capture the full match. That\u2019s free money and likely equates to a return higher than 20%, though you\u2019ll need to look at the specifics of your company\u2019s match policy.<\/p>\n

Contributing to savings may be another place to cut back temporarily. Earning 4% interest in a high-yield account while paying 20% interest on debt leaves you in the hole. While it\u2019s smart to have an emergency fund, you may not need the recommended three to six months\u2019 worth of expenses saved before you start tackling your debt. If you feel that your job is secure, consider starting with an emergency fund that will cover one month of expenses, then set up a small recurring transfer to your savings account while allocating the majority of your excess cash to debt payoff.<\/p>\n

Worst-case scenario, an emergency comes up and you have to put it on your credit card. But in the meantime, you\u2019ve saved a lot of interest by paying that balance down.<\/p>\n

Don\u2019t miss:<\/strong> An Alabama woman was arrested for falling behind on her trash bill. She\u2019s far from alone.<\/p>\n

4. Supercharge debt payoff<\/strong><\/h2>\n

OK, so you\u2019ve stopped using your credit card, looked at lower interest options and reduced savings and investing (for now). Now it\u2019s time to scour your budget for any additional ways to cut costs so you can put even more money toward your high-interest debt. Consider cutting back on (or cutting out entirely) your nonessential purchases. The sooner you pay off your debt, the sooner you can add back nonessential spending guilt-free \u2014 and ramp your investing and savings back up \u2014 without the stress of interest eating away at your finances.<\/p>\n

More From NerdWallet<\/strong><\/p>\n

Erin El Issa writes for NerdWallet. Email: erin@nerdwallet.com.<\/em><\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

This article is reprinted by permission from NerdWallet.\u00a0 The word \u201cinvestment\u201d likely brings to mind stocks and bonds, but the best return on your money might be obtained by tackling consumer debt. NerdWallet\u2019s annual\u00a0consumer credit card report\u00a0found that 18% of Americans say rising interest rates have made their overall debt more expensive. While you can\u2019t […]<\/p>\n","protected":false},"author":1,"featured_media":15553,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[236],"tags":[83],"class_list":["post-15552","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-news","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nGot debt? 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