In almost any scenario, it’s important to pay off any high interest debt before pursuing other investment goals. While there is no set definition of high-interest debt, generally speaking, if your debt has a higher interest rate than your mortgage or student loans, you could consider it high-interest.
Common sources of high interest debt includes are things like:
- Credit cards
- Personal loans
- Payday loans
What is the best way to pay off my debts?
The most efficient way to pay off your debt is to start with your highest interest debt first and work your way down to the lowest-interest. This allows you to pay less money overall.
Why should I pay off high interest debt before investing in the market?
Many sources of high interest debt are above the long-term return rate of investing in the stock market. You should consider paying off this debt first, because you'll be paying more in interest than you'd make on pretty much any investment. There's a strong chance you'll lose money by not paying down your debt.
In the event that long-term market returns are higher than the interest rate on the debt you’re carrying, there’s no guarantee that these returns will continue in the future, or that there won’t be plenty of ups and downs along the way.