"Can’t I Just Invest Instead?” Why Paying Off Credit Card Debt Comes First

By Ava Clark, Wealth Management Associate

Credit cards are a financial tool used all around the world—to build credit, cover large expenses, or fund your occasional shopping spree. But they are a double-edged sword: used wisely, they can enhance your financial flexibility and unlock valuable perks; used carelessly, they can trap you in a world of debt. While there are numerous pros and cons to owning a credit card, the number one rule to follow is to never carry a balance.

Drawing You In

When you first apply for a credit card, it often comes with attractive benefits, like sign-up bonuses and a 0% APR introductory period. At first, it sounds great: “I can borrow money without paying any interest!” But this is how the credit card trap begins. Many people max out their credit limits during this interest-free window, only to find themselves unable to pay off the balance before the 0% APR period ends. Once that happens, the remaining balance starts accruing interest at steep rates. The current U.S. average is 24.35%. Even if you make the minimum monthly payments, the high interest can still cause your card balance to grow, trapping you in a cycle that will continue until you prioritize paying them off.

Paying off your credit card debt should be your top priority before starting/continuing to fund your investments. According to J.P. Morgan, the U.S. stock market has delivered an average annual return of approximately 11.6% from 1950 to 2024. Over the same period, a traditional 60/40 portfolio—comprising 60% stocks and 40% bonds—has generated an average annual return of about 9.4%.¹ If you're carrying a credit card balance with a high interest rate, any money you're investing—even if it's earning an 11.6% return—is effectively canceled out or outweighed by the interest you're paying. In other words, the gains you're making on your investments are likely to be erased by the cost of your debt. No investment return could keep up with that of the debt growth on credit cards.

The risk-adjusted return is even less appealing. You are guaranteed to pay high interest on your credit card balance, but unless you invest in lower-yielding cash accounts, CDs, and Treasuries, you have no similar guarantee on your investments. Those low yields, especially when considering the taxable income earned on those investments, are not even close to the average credit card interest rate.

The Responsible Cardholder

But wait! Credit cards can be beneficial to your finances when used responsibly. Credit cards can be a strong tool for building your credit. For example, applying for a student-discover credit card, like one with a $500 limit, can help teach young adults healthy spending habits while building their credit.

There are additional perks beyond building credit—reward points, cash back, and travel miles. While benefits vary, it’s standard to see a 1–1.5% cash back bonus on purchases. You can redeem these rewards to help pay off your card balance, book a flight/hotel, or cover other expenses. These other benefits can add up to significant value, provided you do not carry a balance on your card from month to month.

When used wisely, credit cards can provide real value to your financial life. They offer convenience, rewards, and benefits to your credit profile. The key is to focus on responsible use and credit management. A broader financial plan can help you keep the card from being a financial crutch that holds you back from achieving your most important financial goals.

Sources

Schulz, M. (2025, August). Average credit card interest rate in US today. In D. Shepard (Ed.), LendingTree. Retrieved August 2025, from https://www.lendingtree.com/credit-cards/study/average-credit-card-interest-rate-in-america/

Kurt, D. (2023, January 22). How to use a credit card to build credit. Investopedia. Retrieved August 25, 2025, from https://www.investopedia.com/articles/personalfinance/082614/start-building-solid-credit-young-age.asp

Rosenberg, R. (2025, April 28). 9 perks of credit cards that cash just can’t offer. Investopedia. Retrieved August 25, 2025, from https://www.investopedia.com/articles/pf/10/credit-card-debit-card.asp

¹ J.P. Morgan Asset Management. (2025, August 1). United States guide to markets (p. 59) [PDF].