Should I invest my extra cash or use it to pay off debt?
To answer this question, you must decide how your money can work best for you. Compare the money you might earn on other
investments with the money you would pay on your debt. If you would earn less on investments than you would pay on debts, you
should pay off debt.
Let's assume that you have $1,000 in a savings account that earns an annual rate of return of 4 percent. Meanwhile, your credit
card balance of $1,000 incurs annual interest at a rate of 19 percent. Your savings account thus earns $40, while your credit card
costs $190. Your annual net loss is 15 percent, or $150, the difference between what you earned on the savings account and
what you paid in interest on the credit card balance. It's even worse when you consider the tax effect. The interest on the savings
account is taxable, and you have to use after-tax dollars to pay your credit card bill.
In the above example, it would be best to use your extra cash to pay down the high-interest debt balance. The same principle
would apply if you were to invest your extra cash in a certificate of deposit (CD), mutual fund, or other investment.
Working with an advisor that holds the CFS designation does not guarantee investment success.
Securities and Investment Advisory services offered through FSC Securities Corporation, Member
FINRA/SIPC and a Registered Investment Advisor. The Grace Financial Group is a marketing
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal
advice. The information presented here is not specific to any individual's personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and
cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law.
Each taxpayer should seek independent advice from a tax professional based on his or her
These materials are provided for general information and educational purposes based upon publicly
available information from sources believed to be reliable—we cannot assure the accuracy or
completeness of these materials. The information in these materials may change at any time and