SHOULD YOU BUY STOCKS OR PAY OFF DEBT?
In my opinion, it is almost always best to pay off debt first. Owing money makes me nervous and I have always tried to stay as debt free as possible. Of course there are different kinds of debt and owing money on a house is better than owing money on a credit card. The reasons for that is that with mortgage debt you will have a lower interest rate than with a credit card and you can get some tax benefits out of it too. So for this discussion I will assume we are talking about credit card debt.
If you have money to invest but you also have credit card debt, I think the answer is clear: pay off the card(s) first. You can’t truly start investing until you become debt free from those evil little cards. There is no reason to be paying interest on them and at the same time having money in stocks that right now, will probably earn less than you are paying in interest on the credit cards.
We are not in a bull market and going forward into 2012, stocks may very well go down. There is a lot of risk and most everyone agrees with that assessment. Buying stocks now with money that could be used to pay off debt is just simply not smart. Perhaps if we were in the midst of a fantastic bull market you could make a case for it but getting out of debt, especially credit card debt, is the first thing you should be trying to accomplish.
Learning how to buy stocks is something everyone should do at some point in their life. Unfortunately though, we have a culture where people aren’t taught to be financially responsible and relying on the government seems to be the popular thing to do. Too many of us live for the moment which means spending everything (or more) that we have coming in and never bothering to learn how to save and invest for our retirements. If we never learn how to save and accumulate money, what good is the stock market to us?
Our whole country has a monumental debt problem. Everywhere you turn, debt is weighing us down. Before you start throwing money at stocks, make sure that money is free and clear and can’t be put to a better use first. By that I mean you should be free of all credit card debt and on your way to building up a nest egg. If you can do that, you will be miles ahead of most everyone else.
