“Should pay down my credit cards or contribute to my 401k?“
We were asked that very question by a Financial Zen Member recently.
His 401k matched 50% on the first 6% of his income and his credit cards charged 22.5% interest.
He makes $200,000 per year. So if he contributes 6% of his income, he’ll put in $12,000 and the company
will give him another $6,000 for free!
That’s a guaranteed 50% return.
Over DOUBLE the return on paying down a 22.5% credit card.
I bet you can guess what we recommended he does.
And this is a good example of how to make every financial decision concerning paying off debt or
investing.
Step 1: Calculate the rate of return of Option 1
Step 2: Calculate the rate of return of Option 2
Step 3: Choose the option with the higher rate of return.
