The enemy of your money is debt. It's everywhere on the news these days: foreclosures, bankruptcy, crushing credit card debt. Anyway you cut it debt is no good, but credit cards are particularly insidious with their late fees, endless minimum payments, and rocketing rates if you miss one payment even by one day.
You might have heard these numbers before but they are worth repeating:
- A typical credit card has an interest rate of about 13%. Try getting that in the stock market.
- At 13% it would take you about 11 years to pay off a $5,000 balance making on the minimum payments. You would pay nearly $2,000 in interest.
- The average American credit card debt is $9,200.
Including mortages, cars and student loans it all adds up. I have plenty of it myself with credit card debt and student loans. Last year I nearly became one of those credit card horror stories you hear about. I had about $10,000 on the card, but at a reasonable 5.99% percent. I was one day late on the payment and I called the company and begged the representative to accept my payment via phone. She assured me that my rate would not increase, a point I pressed her on repeatedly.
Much to my surprise then, when I recieved my next statement my rate had rocketed to 24.99%! There were nearly $200 in finance charges alone. Just in interest! I called the company right away and told them I was assured my rate would not change. To their credit (ha) they reviewed the phone call (yes, they really do record those) and changed my rate back, but had it stayed I would have been in trouble.
So if your crushed with debt what can you do? Aside from going on Deal or No Deal or calling one of those shady debt relief hotlines, it may seem dire. But there is hope! And its name is Dave Ramsey. Check him out right now. I love this guy, just love him. He has a radio show dealing with debt reduction and money management that airs here in Portland and around the nation, and he knows his stuff plain and simple.
To get out of debt he advocates the debt snowball. It works like this, list your debts from smallest to biggest and interest rates be darned. Cut back on ALL needless expenses; the gym, netflicks, Starbucks, and pay down the SMALLEST debt first. Free from that payment, you attack the next smallest amount until one by one your debts are gone. Using the debt snowball I've paid off $6,000 since January!
I love one of his sayings, "Live like no one else so you can live like no one else." That means eating rice and beans to get out of debt, so when you're debt free you can use all that extra income to really live. I keep thinking about the day I'm debt free and instead of giving my money to a big bank I can spend it as I see fit. Someday I'd like a house, a new car, to see the spots on the globe I've missed. I'd also like to support foundations like Global Giving more. Giving is something Ramsey is big on, he's not about accumulating money for money's sake.
So check out his website, stop living past your limits, and pay for things in cash! Leave me comments and let me know what you think.
2 comments:
Thanks for the Global Giving tip, I used it for a gift to my mom for Mother's Day.
I'm down with what you're saying in the post, except for the last point of paying for things in cash. Financially it's better to pay for day-to-day things with credit for two reasons: 1) This allows you to keep your money in an account that accumulates wealth (ie interest) during the month while you pay with credit; 2) Rewards cards (some don't even have fees) give you access to free things simply by spending the money you have to spend anyway.
This is all said, of course, with the caveat that monthly credit cards are paid off in full each month. If that one piece of criteria is met then it's free money to use credit cards (the interest + rewards).
Thanks for the comment. Glad you used Global Giving. My blog has done some good at last!
Good points about the credit card. If you paid off your balance in full you would only gain the points and not pay the interest, and there's definitely some benefits to be had there.
It would take self-discipline and one nice thing about cash is, when you're out, you're out. But if you can control your spending more power to you!
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