Paying off debt takes time, but it’s absolutely one of the best investments you can make.
The Federal Reserve notes paying off debt “has a riskless return that averages 14%, which no other asset class can match.”
Compare that 14% to the 11.69% average annualized return of the S&P 500 Index from 1973 – 2016.
You probably already know the math on why paying down debt is such a powerful investment. A quick recap: let’s say you pay off $1,000 on a credit card with a 15% interest rate. Now pay $150 less on your credit card bills over the coming year – and every year after.
Prioritizing paying off debt is a smart move even in a truly exceptional year for the stock market. (Like 2017, when the S&P 500 had a 21.83% return.)
That’s because many people will actually get an even higher “riskless return.” Average credit card interest rates in the US are as high as 20%.
Likewise, unlike most investments, the money you pocket from paying off credit cards is tax-free.
Finally, the extra money you’ll eventually save compared to paying off debt improves your cash flow. You can take that money and invest it.
But perhaps the best investment you’ll make from paying off debt is peace of mind, less stress, and greater confidence in yourself and your future.