Today the Dow Jones Average dropped more than 500 points and stock markets have now wiped out all of their gains for the year. That leaves most investors (if they’re lucky) right back at where they started for the year, and fretting about more potential losses to follow.
Those families fortunate enough to have investments are now struggling with where to invest and lower their risk.
Does this sound like you? Do you want a risk-free way to make money? The answer is simple, pay off your debt.
The average credit card debt per household is $15,799 and the average interest rate on those cards is close to 15%. That means that if a family cashed out their stocks and bond and paid off the debt they were carrying instead, they’d be effectively earning close to $2,400 compared to zero if it had been in the market.
Of course, people want to save for a rainy day and have an emergency reserve but as today’s market volatility shows, investing in the market is not a good option for money you need in a pinch.
That money belongs in an FDIC-insured bank account. Unfortunately, banks now pay next to nothing on savings accounts. That makes paying off debt all the more compelling.
In a pinch, consumers can still use their lines of credit and credit cards to put gas in the tank and groceries on the table. But if the bad times don’t come, having paid off the debt will easily have been the best money-making decision.
They say a penny saved is a penny earned. Well a penny of interest saved is equal to a penny of investment income earned.