2007-04-05 11:38:17 · 25 answers · asked by Anonymous in Business & Finance ➔ Personal Finance
pay off debt, unless you want more debt...
2007-04-05 11:41:28 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Depends on the interest rate of your debt compared to how much you can earn in savings. If it's credit card debt, you're better off paying that off.
As an example, if you have a 21% APR on Credit and a 6% APR on your savings, then paying off credit is like getting a 15% earning on your cash (think of all the money you'll save not paying that interest for the year). On the other hand, if it's something like a home mortgage, then put the money in a high-yield CD as 5000 towards your home isn't going to make much of a dent, but having 5000 for emergencies would be nice.
2007-04-05 18:44:24 · answer #2 · answered by Dave M 2 · 1⤊ 0⤋
A few of the other responders have touched on the right idea. Here are my thoughts.
The real question is the interest rates. Figure out how you would invest the $5,000...CD, stock, savings account, etc. What is the interest paid on your investment? Compare that interest rate to the interest you are paying on your debt. If the interest you pay on the debt is higher than the interest you'd make on the investment, then it is smart to pay off the debt. If you make higher interest on the investment, then make minimum payments on the debt and save as much as possible.
2007-04-05 18:51:16 · answer #3 · answered by Rich 4 · 0⤊ 0⤋
It is absolutely better to pay off debt. This is simply because the companies you owe money are charging you interest until you pay them back. On average, this interest rate is around 10%.
If you put that money in a savings account, you will most likely earn an interest rate of less than 1%.
To make a long story short, it only makes sense not to pay off your debt if you find somewhere to invest the money that pays you interest at a higher rate than you are being charged by the people you owe money to. :0)
2007-04-05 18:43:01 · answer #4 · answered by Anonymous · 0⤊ 0⤋
Think of it like this: Would you borrow $5k to put it in your savings acct.? Probably not, but that's essentially what you would be doing if you didn't pay off the debt.
It doesn't matter how much interest you might earn on an investment, or how much you're paying on your debt (assuming that you are).
If this money gets you completely out of debt, take the monthly payments that you were making towards the debt and invest it. I buy mutual funds that have been est. at least 10 yrs. with an average APR of at least %12 for the life of the fund.
2007-04-05 19:00:27 · answer #5 · answered by linkin 2 · 0⤊ 1⤋
the answer depends on the interest rate. put your money to whichever is the highest. for example, if you have debt with a low interest rate (say 2%) and your savings account gives you 4%, put it in savings. don't forget that you will need to pay taxes on the gift, so you do not really have $5000.00.
2007-04-05 18:44:56 · answer #6 · answered by PS 2 · 1⤊ 0⤋
If your debt has interest, you should pay off the debt and then put the payment that you would have made to the debt into a savings account.
2007-04-05 18:43:06 · answer #7 · answered by Colette B 5 · 0⤊ 0⤋
It depends. If you have reasonable debt at low interest then it would probably be better to save it/invest. If you have high interest then you should get rid of the debt. If the debt is something that you're going to be able to get rid of normally and without problems, then save. The effect on your net worth is exactly equal regardless of what you do, the issue is the nature of the debt you have.
2007-04-05 18:52:24 · answer #8 · answered by The Scorpion 6 · 0⤊ 0⤋
It depends if you are going to report it to IRS then put some in savings to pay taxes. Pay on the debt and see if you can negotiate a pay-off make sure it is in writing, names, sign, dated if you decide. Pay on time that is what counts and double up. You want to have some money left and invest little some in HSBC before April 30 online banking get 6% interest. www.HSBC.com sign-up let it draw some interest (New money account.)
2007-04-05 18:45:52 · answer #9 · answered by Anonymous · 0⤊ 0⤋
I would compare the interest rates of your savings account versus the interest rates of whatever debt you have. More than likely, it would be better to pay off your debt in the long run, since the interest rate that accumulates on debt is usually much greater than the interest you would gain in a savings account.
2007-04-05 18:43:59 · answer #10 · answered by Jessy 2 · 0⤊ 0⤋
There's always a lower interest rate when you invest in a savings account or Certificate of Deposit, because the bank has to make money somehow. By charging more for their loans and credit they make money to pay for that fancy sign. What you would pay them in investments they would loan out to someone else at a higher rate. Therefore pay off as much of your debt as you can. Never invest until your out of debt.
2007-04-05 18:59:34 · answer #11 · answered by Alex 2 · 0⤊ 0⤋