Pay Off Debt or Invest

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8/6/2007, 4:51 pm

Windfalls happen. An extra sum of money lands in someone’s pocket. Not as often as we may wish, but windfalls can happen after a settlement, a tax refund, your great work earns a nice bonus, you receive proceeds from a home sale. It happens.

And there are three basic things one can do with a windfall. Spend it. Pay off debt. Invest it.

The most tempting option for many is to spend it. “After all,” one thinks, “this is extra money.” One can always and easily spend a windfall, but unless you have no debt and all the money you’ll need in the future (which no one can predict), spending it is probably not the best option.

That leaves paying off your current debts or investing it. Investing always sounds like the wise thing to do. “I sold my house and made $40,000. I invested it in a no-load, tax-free, indexed mutual fund.” That certainly sounds good. But what if you have debt?

Is investing a windfall better than paying off current debt? Of course, it depends. And interest rates are an important factor in the decision. If you’re choosing between paying off credit card debt at 28% or investing in a 4% CD, the answer may be obvious. Or it may not. If it’s not, you’ll want to download Wheatworks Software’s latest Free Pay Down Debt or Invest Calculator.

Enter 3 numbers (the amount of the windfall, the interest rate of your debt and the interest rate your investment may earn) and Pay Down Debt or Invest Calculator spits out the amounts your investment will earn and the amount you debt will grow. And the results are crystal clear now and up to
ten years into the future.

Free Pay Down Debt or Invest Calculator, 4.0