Did you incur a great deal of interest last year? Some deductible and some nondeductible? While you get your records together during tax time, you should go over your debt situation as well.
Paying interest on credit card debt is a financial disaster. You’re likely paying 15 percent or more–and that interest isn’t deductible. Therefore, before you invest another penny anywhere, pay down this debt. If you have money sitting in the bank, use it to pay off your credit card debt. When you pay down credit card debt that’s costing you 15 percent, for example, you’re earning 15 percent on that money, aftertax, with no risk. How can you beat that?
The same is true for other types of personal debts, including auto loans. When you pay off those debts, you’re effectively investing at the loan rate. So you should go ahead and pay off such debts, rather than make other types of investments or leave money in bank accounts.
