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Paying down credit cards or invest more in stocks

Sent to Finance Experts May 17 2004 at 9:37 AM
   

I have $20,000 on credit cards with interest in the 10-11 percent range. I got a windfall of several thousand and was going to pay down my credit cards. However, my stock account allows me to invest 50 percent on margin (I’m not a day trader) and only charges me 4 percent on the outstanding balance. My stocks return 15 percent, so doesn’t it make more sense to put my money in the market account, thereby increasing my margin account, invest some of it and use some of proceeds from the stocks to pay off the credit cards?

Customer (name blocked for privacy)
Status:  Closed   Value: $10
Answer
May 17 2004 at 3:11 PM (5 hours and 34 minutes and 30 seconds later)
         
ACCEPTEDCheck Mark
Even if you do earn 15% on your stocks, your interest paid out on the credit cards is 18-22% (depending on the company). Just by comparing the figures, you see that anything you earn will be eaten up by the interest on your credit cards.

We have all heard the statistics that a credit card balance like yours will be paid off in at least 30 years, at mininum payments.

In addition, the margin investment is another form of debt. You will increase your total debt without dealing with the previous debt. A margin call will be potentially devastating (at the time, you may not have the cash to cover it).

In short, get rid of the debt; then invest what's left. Even if you go with the margin account, that will be the only debt requiring your attention.



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