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One of the technological advancements that are now becoming more and more popular and sought after these days is the flash media server. And everyone who knows what it can do would agree to this definitely. Well for a quick background, a flash media server gives you the chance to listen to your favorite songs and watch your favorite videos without having to download them. This is possible because of the streaming audio server and video server included in these packages. Sounds great right?

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Is the home you’re living in right now only a place you rented? And because of this, you feel that the need to take care of not only your properties and things but also the space where these are all located is not really urgent since it’s not yours anyway? Well this is a common thinking that tenants have, especially when they know that they would not be staying into their rented rooms or apartment for a very long period of time. And because they think that there are maintenance personnel hired by the owner of the building that will take care and clean and fix the lace anyway. But do you know that a website on the internet today thinks otherwise? That this online company thinks that as tenants, …

Whether it’s a mortgage, car loan, student loan, credit card, or medical bills, you probably have some amount of debt in your life. It is only natural that you want to pay it off as soon as possible, but what do you payoff first and how do you plan for investing?

Since the amount you can pay towards these items is predicated by your income level, a decision normally has to be made between investing and paying off your debt.

What should you do? The answer depends on two variables:

1. The rate of after-tax interest you are paying on your debt 2. The after-tax rate of return you expect to earn on your investments

Before you answer the first question, you must understand that there are two different kinds of debt. On one end of the spectrum is high-interest credit card debt that originates from things such as credit cards and department store charge accounts. This type is the deadliest and generally should be avoided unless absolutely necessary.

The second type of debt is the lower interest variety; your mortgage, student loans, etc. Often, the interest on these types is partially or wholly tax-deductible, making it even more attractive.

With that in mind, the answer to the debt reduction vs. investing problem can be solved with this one statement: If you can earn a higher after-tax return on your investments than the after-tax interest rate expense on your debt, you should invest. Otherwise, you should pay off your balance.

Example of Debt Reduction vs. Investing - Calculation

Scenario 1 Assume you have a thirty year, $150,000 mortgage with a six percent rate. Also assume you are in the 25% tax bracket. Due to the itemized deduction of mortgage interest, your after tax annual percentage rate is really 4.02% (not the 6.00% you are paying).

Hence, if you expect to earn an after-tax return higher than 4.02% on your investments (odds are substantial you will if you have a long-term horizon), then you should invest.

Scenario 2 You have a $10,000 balance on a credit card with a 22% annual percentage rate. Credit card interest expense is not tax deductible, meaning you should only invest if you think you can earn a 22% after tax return on your investments.

Given that the historical long-term return on equities has been somewhere around 11-12%, this seems highly unlikely. In this case, it would be foolish to invest.

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