Why Paying Off Credit Card Debt Should Come First

I’ve been there. At one point in my life, I had multiple credit cards with balances. Instead of focusing on paying off credit card debt, I was only making the minimum payments while trying to invest in risky ventures like altcoins and speculative stock options. My logic? I thought I could get rich quick. Instead, I lost money—a lot of it. It was a hard lesson, but an important one: paying off credit card debt should always come before investing.

Credit card interest rates, especially in the U.S., are notoriously high. It’s not uncommon to see rates upwards of 20% or more. When you compare that to the average return on investments, it quickly becomes clear that carrying credit card debt while investing doesn’t make financial sense. Even if your investments perform well, it’s unlikely they’ll outpace the interest accumulating on your credit card balances.

Once I realized this, I took action. I prioritized paying off my credit cards by:

1. Consolidating Debt: I took out lower-interest loans to pay off high-interest credit cards.
2. Taking Advantage of 0% APR Offers: I transferred balances to credit cards offering 0% interest for 18 months.
3. Aggressively Paying Down Debt: I used the money I would’ve invested to tackle my outstanding balances instead.

While I still have a low-interest loan open, its rate is significantly lower than what I can reasonably expect to earn from investing. This makes carrying that debt manageable while I continue to focus on building wealth the right way.

Why Paying Off Credit Card Debt is a Wealth-Saving Move

Credit card debt is one of the biggest obstacles to financial independence. Here’s why:

• Compounding Interest Works Against You: Just as investments grow through compounding interest, so does debt. The longer you carry a balance, the more interest you’ll pay over time.
• It Limits Your Cash Flow: Monthly payments toward high-interest debt eat away at the money you could be using to save, invest, or spend on things that matter.
• Psychological Stress: Debt can weigh heavily on your mental health, affecting your ability to make clear financial decisions.

Steps to Pay Off Credit Card Debt

If you’re ready to prioritize paying off your credit cards, here’s how to get started:

1. Assess Your Debt: Make a list of all your credit cards, including balances, interest rates, and minimum payments.
2. Create a Budget: Identify areas where you can cut back to free up money for debt repayment.
3. Use the Debt Avalanche or Snowball Method:
   • The Debt Avalanche Method focuses on paying off the highest-interest debt first while making minimum payments on the rest.
   • The Debt Snowball Method prioritizes paying off the smallest balances first for psychological wins.
4. Explore Balance Transfers or Debt Consolidation Loans: These options can lower your overall interest rates and simplify payments.
5. Avoid New Debt: Focus on paying down what you owe before taking on new obligations.

A Balanced Approach

Paying off high-interest debt doesn’t mean you have to abandon investing entirely. For example, if your employer offers a 401(k) match, take advantage of it—that’s essentially free money. But beyond that, prioritize paying off your credit cards before making additional investments. Once your high-interest debt is gone, you’ll have more cash flow to build wealth sustainably.

Final Thoughts

Learning to manage credit card debt was a pivotal moment in my financial journey. It taught me that building wealth isn’t about chasing quick wins but about making smart, disciplined choices. If you’re in a similar situation, remember: paying off your credit cards first is one of the best investments you can make in your financial future.