Here's a series from Kiplinger's that is very imaginative. Here's their summary of what's to come:
It can be hard to make a financial decision when you're faced with two options that each look good. We take five common dilemmas and show you how to choose the most financially sound path.
Here's their first challenge:
Should I save/invest or pay off debt?
And the (not-so-amazing) answer:
Evaluate which option will give you a bigger return on your money.
Wow! That was enlightening! Ok, enough sarcasm for now. At least they give us an example:
If you have credit card debt charging 18% interest, paying it off is like receiving an 18% return on your investment. It's pretty hard to find that kind of payoff in the stock market. On average, stocks have historically returned about 10% annually. On the other hand, if you have student loans charging 3% interest, paying ahead on that debt doesn't make much sense. You can generally get a higher return elsewhere. In that case, make your regular monthly payments and set aside any extra money in higher yielding savings or investment accounts.
However, they hedge their answer:
Of course, despite all the number crunching, there's something to be said for the feeling of being debt-free. If investing makes more sense on paper for your situation, but paying off your obligations will bring you greater peace of mind, go for it. A good financial decision is one that helps you feel in control of your money, not the other way around.
I agree with the last sentence. As such, the answer for me to this question is to pay off the debt first. It's a guaranteed return (which 10% is not guaranteed, especially in the short-term) plus I simply don't like to owe anyone anything.
Of course, I've taken heat for this stance before, but I have my reasons beyond the above (see the comments section here).
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