Many people think that the way to prosperity is to invest big and wait for the money to roll in. While investments work for some, one of the best ways to improve your financial position is simply clearing your debts.
For example, if you are paying an interest rate of 6%, then by paying some of this debt off earlier you are effectively ‘earning’ this rate of interest. While you may not see this as profit, it’s still 6% less that you’ll have to save to pay off your debts later on.
Another benefit is that this ‘investment’ is both risk free and tax free. As you never actually earn this money there is nothing to be taxed on, so your 6% really is 6%.
The average long term investment will give you 7% return at best, so invested money is not as valuable as paying off your debts can be. Consider a credit card with 16% interest and the value of clearing your debts before putting your money elsewhere.
Source: http://www.smh.com.au/money/borrowing/pay-down-that-debt-to-get-ahead-20130903-2t1jp.html
