Banking

Interest: Earn It Rather Than Pay It

Many people automatically assume that interest is a bad thing. This is because many of us encounter interest in negative settings: We are often paying it on loans. Credit card interest seems like Exhibit A when it comes to decrying interest. However, interest isn’t all bad. In fact, interest can be your friend. The key is to earn it, rather than pay it.

Earning Interest

You can actually get on the good side of interest when you use your money wisely. You can put it in vehicles that will help you earn money on your money. Use high yield savings accounts for your money, or put your money into CDs. These are safe ways to put your money to work for you, rather than letting it work for someone else.

Of course, in almost all cases, using cash products to earn interest will not result in huge gains. If you want to increase your ability to earn interest, you have to take a little more risk. This can include investing in stocks, as well as lending money to your peers. P2P lending, if you can handle the risk, can be a great way to earn interest. Instead of borrowing money, you are actually lending it to someone else. That means you get the interest.

Keep in mind, though, that the more interest you have the opportunity to earn, the more risk you are taking on. There is always the possibility of loss, and you could find that you lose more than you gain if you aren’t careful. Always research your options before making a choice about different investments.

Paying Off Your Debt

The truth, though, is that even with stock investments you are unlikely to offset the interest you pay on credit card debt. This means that it is important to pay your debt down as quickly as possible. The longer you are paying interest to someone else, the less money you have in your own pocket.

Make a plan to pay off your debt — especially high interest credit card debt — as soon as you can. Figure out how much extra money you have each month to pay down your debt, and then put it toward your debt. You can use the popular debt snowball technique to pay down one debt at a time, concentrating your efforts more effectively.

Bottom line: The faster you pay down your debt, the sooner you can start using interest to your advantage.

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