Credit, Debt, and Your Investing Future

Good Debt vs. Bad Debt

Not all debt is equal:

• Lower-interest, asset-building — mortgage, student loans (sometimes), business loans
• Higher-interest, lifestyle — credit cards, payday loans, "buy now pay later" gone wrong

A 22% APR credit card balance is the financial equivalent of running on a treadmill backwards. You cannot reliably out-invest 22% interest. The S&P 500 averages ~10% per year — pay off the card first.

The Math That Hurts

$5,000 on a credit card at 22% APR, paying only the minimum, takes ~22 years to pay off and costs over $7,000 in interest.

That same $5,000 invested at 10% for 22 years grows to ~$41,000.

The difference: $48,000 in lifetime wealth, gone to one decision.

Your Credit Score in 60 Seconds

Five factors:

1. Payment history (35%) — pay on time, every time
2. Credit utilization (30%) — keep balances low relative to limits
3. Length of history (15%) — older accounts help
4. Credit mix (10%) — different types of credit
5. New credit (10%) — too many recent applications hurt

A 760+ score saves you tens of thousands on a mortgage over your lifetime.

The Debt Avalanche

If you have multiple debts, the math-optimal way to pay them off:

1. Make minimum payments on everything
2. Throw every extra dollar at the highest-interest debt first
3. When it's gone, roll that payment into the next-highest
4. Repeat

(The "snowball" method targets smallest balances first for psychological wins. Both work — pick what you'll stick with.)

When Should You Invest Instead of Pay Off Debt?

• >7% interest debt: Pay it off first
• 3-7%: Split — pay extra on debt and invest some
• <3% (low-rate mortgages, subsidized loans): Usually invest the difference

Investing while drowning in 24% credit card debt is like bailing water with a teacup. Patch the hole first.