I am not sure exactly how to phrase this question but it is one that I’ve been curious about for a while. Tons of people in finance always are okay with debt at low interest rates but are quick to pay off high interest debt. Why don’t people take the amount of capital into consideration? Example: I have $10k of debt at 12% interest but have 100k invested earning 8%. Despite me earning a lower APY on my investment in comparison to the APR on the debt, I am still earning more money annually. That 100k will be $8k earned after the year at 8% but the debt will only lose me $1200. So why would one be quick to pay off high interest debt if it’s a lower principal compared to having a higher principal at a lower rate?
In: Economics
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