Interest

• The main way that credit cards affect investments is through interest. Since most credit cards have a much higher interest rate than what the return on investment is for investing, many financial experts recommend paying off the high interest credit cards before placing money into an investment account. However, if you have credit card debt on low-rate, or interest-free cards, then the money that you have is better spent in an investment account. When you have to start paying interest again on the cards, the money you gained from investing can be used.
  
  

Significance

• Other than the interest factor, there are few ways that credit card debt affects investments. Some people may be uncomfortable with investing until their credit cards are paid off, while others may prefer to have some money building alongside the money that they are losing through the credit cards. Each person has to find his own balance between what he owes and what he brings in with investments.
  
  

Considerations

• Most financial experts recommend enrolling in your company's 401(k), regardless of your amount of debt. Since most companies match additions up to a certain amount, you are instantly able to double the money that you put in. Most credit cards do not have 50 percent interest rates, so you are gaining money with this practice. However, if you have a lot of credit card debt at a high interest (over 20 percent), then it is usually more profitable to pay off that money than it would be to use the same money in a 5 percent interest investment. The emotional versus financial also must be considered. If you are uncomfortable with debts, then you probably would be better off putting all extra money toward debt payment. If you prefer to have a large cushion of money, then more money can be placed into investments than towards debt.
  
  

Warning

• If you are unsure about the best method of debt and investment management that is best for you, then you should speak with a financial advisor. He can recommend a good procedure for helping you pay off your credit cards while still gaining investment income.
  
  

Time Frame

• The time frame of investments and credit cards is also important. Investments will generally provide you with interest benefits for life, while credit cards will only cost interest until they are paid off. If you are able to pay more than the minimum on a credit card each month and pay it off in three to five years, then the debt should not hold you back from investing.