When you borrow money (a credit card, a car loan, a mortgage, etc.), you pay back more than you borrowed. That extra amount is called “interest”, and it’s expressed as a percentage. Paying those off before you start heavily investing usually makes the most financial sense. When rates are high, it costs more to borrow. When rates drop, the opposite happens.
Walk through the numbers
A $5,000 credit card balance at 24% interest costs about $1,200 a year if you only make small payments. Paying it off is like earning a 24% return.
High-interest debt grows faster than most investments, so paying it down usually comes before investing.
Related terms
For education only and not personalized investment advice. Examples are hypothetical illustrations, not a prediction or a promise of results. All investing involves risk, including the possible loss of principal.