Poll: Investing and Paying Credit Card Debt
The reason I want to conduct this survey is to see whether the change of a person’s circumstance will alter his/her regular investment, though it’s only a small amount.
Last month, I wrote a piece on investing and paying credit card debt. The scenario that I created in that post may not be as good as I would like it to be for making my case: If the investment is for a long-term goal such as a comfortable retirement, it should not be delayed or interrupted, even when one is in a tough situation like battling credit card.
After the entry was published, I received some comments questioning the soundness of my argument, i.e., whether it makes financial sense to invest $100 a month to earn a 10% annual return while having a credit debt that costs 18% APR. Many suggested that the right course of action in this case is paying off the debt as soon as possible and making up the investment contributions after the debt is gone.
Now I want to continue the discussion, but from a different angle. Suppose that you have been investing a small amount of money, say $100, every month in a non-retirement account for retirement for years. Then, suddenly something unexpected happened and you incurred $10,000 credit card debt which charges 18% APR. While you are determined to get rid of the debt as soon as possible, will you continue to make the $100 monthly investment? Or you will wait till the debt is eliminated to restart it?
We have been in a similar situation before, though we weren’t really in debt. We started investing in 2001 with regular purchase of $50 or $100 of several mutual funds. In early 2002 there were a short period of time that both my wife and I lost our jobs in the telecom crush. At the time when our basic living was threatened, I didn’t totally abandon our investments. Instead, I scaled back the purchase from $100 to $50 for some funds while suspending automatic contributions to others because I knew I couldn’t afford to invest as usual when we were living on our savings. It was some tough time for us. One of the first things I did after we both reemployed was to resume the investments, which have never been interrupted since then.
What would you do in this case?
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