“I am Yahweh; that is My Name! I will not give My glory to anyone else, nor share My praise with carved idols.” (Isaiah 42: 8)
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MarketWatch—Should I use my $25,000 bonus to pay a $15,000 credit-card debt — or invest in blue chips?:
Dear Moneyoloigst,
I am 27 years old and a real estate agent in New York City. Lately, I have found myself really thinking about what to do with a sum of money that’s coming in to me from a couple of real estate closings next month.
For the past 2 years I have ramped up $15,000 in credit-card debt with an average of 20% APR. I will be collecting about $25,000 within the next 30 days. I’m debating whether to pay off my entire credit-card debt or invest it in blue chip stocks for the next 6 to 12 months, hoping to ramp up some profit.
What’s my best decision? Eliminate that debt once and for all or take on the chance to potentially pay off my debt from my profit? I have trading experience.
Thank you. I appreciate your time.
Ronald
Dear Ronald,
The answer to your question is relatively simple: Pay off your credit-card debt.
The answer to the bigger question is less simple. You spent $15,000 on credit cards, presumably confident in the belief that you could pay it off. Not paying it off every month in full is costly, yet you still feel sure enough to take this $25,000 and invest it elsewhere. I fear the same eagerness that led you to rack up $15,000 in credit-card debt at 20% APR will lead you to make another decision that puts self-belief over self-discipline.
I posted it on the Facebook Group for this column and it went gangbusters. It surprised me because the answer was a slam-dunk: Pay off the credit cards. But members of the group also made some salient comments. Colin Wiesner, among others, said, “Pay off the debt now as you won’t get a 20% market return on blue chips.” Robert G. Antonio added, “Your expectations are just too unrealistic.” The year-to-date change in the S&P 500 is 14.8%.
I don’t know how you got into debt. You say it ramped up. I assume, if it was due to an unforeseen medical emergency or bill shock, you would have mentioned it. The good news is: After paying off your credit card, you will still have $10,000 left over. You could save some of this in case you do have another unwelcome surprise or avail of some of the tax advantages by investing in an IRA. MarketWatch’s “Tax Guy” Bill Bischoff has some timely advice on that.
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SnyderTalk Comment:
Ronald’s question and others like it will be asked by tens of millions of Americans over the next 12 to 18 months. It’s picking up a head of steam now.
Should I pay off my credit card debt or by stocks?
Should I take out a home equity loan and use the money to buy stocks?
Should I use the money in my rainy day fund to buy stocks?
Etc., etc., etc.
When the stock market is soaring, there is no end in sight, and people see their friends and acquaintances making money on paper hand over fist, most Ronalds of the world will find the temptation too great. They will succumb to temptation and seal their financial fate for at least the next decade. Probably longer.
We are approaching the melt up point. I think it’s starting now. It’s serious. It’s predictable. Nothing we say or do can stop it from happening. As they like to say on Wall Street, it’s baked in.
My message is for people who have common sense and who have money invested already. Your returns should be spectacular for the next 12 to 18 months, but when the stock market peaks, the meltdown will be stunning.
Don’t overstay your welcome.
Prudent investing will minimize your losses, but if you were a stock investor in 2008, you know how much prudent investing can cost you. A 60% haircut is not unreasonable. It beats a 90% shellacking, but it’s not good.
There will come a time when being in the stock market will make no sense. Pay attention. When the hammer drops, it will be too late to start thinking about the problem.
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“The glory which You have given Me I have given to them, that they may be one, just as We are one; I in them and You in Me, that they may be perfected in unity, so that the world may know that You sent Me, and loved them, even as You have loved Me. Father, I desire that they also, whom You have given Me, be with Me where I am, so that they may see My glory which You have given Me, for You loved Me before the foundation of the world.” (John 17: 22-24)
See “His Name is Yahweh”.
