Is Debt Repayment A Good Use Of Spare Money?Summary: Many people overlook debt repayment and the financial benefits that it can bring when thinking about investment. This section looks at why reducing or repaying outstanding loans, credit cards or debts can be a sound financial move. The simple fact is that money owed must somehow be repaid. As unpleasant as clearing credit balances may be - especially when the money has been long spent - it must be done. However, it should rarely be a chore. In every corner of the known world, interest paid on savings is at a lower rate to interest charged on debts. Generally, the difference is quite astounding. For example, if the average interest rate being paid on US$1,000 of savings is 3%, then the average credit card interest rate for the same US$1,000 will probably be around 18%! Using spare money to repay the balances on revolving debt (credit cards) or short-term credit is usually a prudent use of the funds. This means that for lots of people that hope to invest soon, a better course of action is usually to try and tackle some or all of their personal debt level. Often, by overpaying and then clearing one loan, enough spare income is produced from the individual's monthly wage that a second loan can be overpaid and in time, cleared. This is usually a sound financial strategy. Actually, describing debt repayment as a 'sound financial strategy' is something of an understatement! For almost all of us that do not have the skills and insight of a Warren Buffett or a George Soros, overpaying high interest rate debts will probably be the best thing they ever do with their money! Of course, many people - and this is a part of human nature - prefer to find new avenues to make some extra money rather than remove the weight from their neck - something that debts most certainly are... As a rule, debts should be overpaid in order of the highest interest rate first. This means that things like credit and store cards should be paid off first and mortgages paid off last. This also has the appealing side-effect of enabling some short-term psychological wins to be made as the smaller debts are cleared one by one. To read more about the subject of debt overpayment, please follow the links below:
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