With five rate increases since 2018 by the Federal Reserve, we are paying billions more in interest. Debt levels are reaching a record total, and one thing remains clear – borrowing costs (at least for now) are still going up!
The credit industry will forever want us to believe that credit cards are necessary to bridge the gap between our incomes and the lifestyles we deserve. Everywhere we turn we’re told no matter our income, we deserve better — and, it works! It’s human nature to want it … and, want it “now”. Our culture teaches us to live for “now.” Debt has been so ingrained into our culture that we can’t imagine a life with NO payments. NO, really! Most of us can’t envision a house without a mortgage … a car without a payment … a student without a loan … or, credit without a card. We’ve been taught this is normal.
We don’t think of it this way, but the reality is every time we use a credit card, we’re getting a loan from the lender who issued the card. Credit is the present use of future income. In other words, people who use credit (aka “borrowers”) use someone else’s money today (aka “OPM” or “other people’s money). While the opportunity to use borrowed funds might sound like a great deal, if we’re not careful, we’ll end up paying a lot for the “opportunity” to use OPM.
Credit comes at a (high) price. You might know what your credit card’s interest rate is, but do you know how interest really works? What we often don’t understand about credit cards is “there’s no free ride.” If we don’t pay off our balance in full, the interest goes back to the date we incurred our debt.
You see, APR is an “annualized” representation of our interest rate. APR can help us compare credit cards, but it’s important to understand APR and interest are not the same. Interest does not wait around a whole year before it kicks in. Most credit cards will compound interest on a daily basis. When we don’t pay our full credit card balance every month, we accumulate boatloads of interest charges fast! Interest is compounding daily and we’re paying more interest on top of interest!
Another thing to keep in mind is how payments on our credit cards are allocated. Interest is always paid first! Simply, money is applied FIRST to the interest charges. Did you know credit card issuers can also choose how they apply the remainder of our payment? They might apply it to the highest interest (think cash advance) or they might apply it proportionately to all charges. The bottom line? We’re paying money from the day we incur the debt if we don’t pay off our balance each month. Interest makes carrying a credit card balance a very expensive way to borrow money!
What’s worse? Ever feel like you’re deeper in debt each month, even though you’re paying the minimum? It might be time to rethink your strategy. Do not make the mistake of thinking the minimum due is a “monthly payment” you should be paying. When we only pay the minimum payment (typically 1% of the balance plus interest), we’re only paying interest plus a tiny bit of what we owe on the card. The credit card company makes a lot of extra money on us — we’re going to be in debt for decades! Since the interest is the same as the minimum payment, almost all of the payment is going to pay interest. And with each swipe, credit card debt grows because the minimum payment won’t even cover the additional interest being added each month. End result? We’re deeper in debt each month even though we’re paying the minimum.
Yes, you read that right! You could get 16% return (or more!) on your money right now. And, it’s not that hard to do. Simply, we carry an enormous amount of personal debt (like $1 trillion). For a little perspective, we’d need a stack of $1,000 bills 364 feet high to have $1 billion. To reach $1 trillion, that stack would have to be 63 miles high! Welcome to a mountain of debt!
Look, it’s hard to pay off debts. The finance charges essentially take over a minimum payment each month and we barely get anything paid off. Need proof? Grab a copy of your bills and see how must interest you’re paying on debt. The result will probably shock you and, hopefully, serve as motivation to learn how to get out of debt once and for all!
Credit cards are easy to get and easy to abuse. Not understanding compound interest could mean we’ll end up paying a lot of money in interest. The force is working against us when we are in debt. But, now you know how compound interest works. This might just be your new super power! Whatever interest rate you have (it might be a credit card loan with 16% interest rate), when you pay off this loan, you’re making 16%. That’s your immediate return. Think you can find a stock that will return 16% this year? Of course not!
It’s impossible to build any real wealth with a mountain of debt hanging over our heads. Our paycheck is our most powerful wealth building tool, and debt is sucking away our income … one dollar at a time.
Anyone at any level can dig their way into debt, and anyone willing to rein in their spending can dig their way out. The hardest part about getting out of debt is just starting. I understand. It can be intimidating to tackle debt when we focus on what we owe. So, don’t! Instead, let’s snowball it. Need a blueprint of how to get rid of your debt? I got you!
Have a Mortgage? In 1963, the price of a house was $18,000. In 2017, it reached an all-time high of $263,800 according to Zillow. Rising prices are good news if you own a house, but the housing market can collapse. Many of us discovered this the hard way during the Great Recession.
What do we do if we have too much mortgage debt? Refinance to a lower interest rate? Refinance to a longer payment period? Imagine how wonderful it would feel to have no monthly house payment. What could you do with all that extra money every month? It’s actually quite easy to shave years or even decades off your payment schedule, increase your equity and save plenty of money in interest payments. Want to see some real life numbers?
Have Credit Card Debt? As oppressive as a mortgage can be, at least it doesn’t leave you feeling like you’ve been flim-flammed by a con man. The flimflam is getting burned by high-interest rates four to six times higher using credit cards.
Are you only making the minimum monthly payments? Can you pay off your total credit card debt in a year or less? Are you using credit cards to pay for essentials like gas and food? Are you using one credit card to pay off another? You can pay off credit card debt and still have a life. First, ask for a lower interest rate. Next, use cash! Lastly, get your debt snowball rolling with us! We could literally help you reduce your interest by thousands and shave years off your repayment!
Have a Student Debt Loan? If the debt mountain from credit cards isn’t enough, you might need medical attention if you get near a college campus! The total student debt tab now tops $1.5 trillion. 42 million of us share this, and it’s increasingly apparent it’s over most of our heads.
Is your student loan more than you will make in your first year’s salary? Can you repay your student loan off in 10 years or less? The average student debt is over $37,000. With an 8% interest rate on grad loans, you’d pay roughly $449 a month for 10 years. This plan could cost you $14,473 in additional interest. Want a better plan?
Can You Cover a $400 Emergency Expense? Four in ten of us can’t. If emergency struck, would you be able to come up with $400? Or, would you reach for your credit cards first? It’s not a matter of “if,” but “when” an unexpected expense will pop up.
No matter how hard it is to save, an emergency fund must be saved in order to carry us through the tough times. And, the best way to fund your emergency account is always the best way to save money for anything – save money automatically. You literally want to almost forget it’s there – except for emergencies, of course!
Need help getting your bills under control? Would you like to start saving more money today? We can help you get on a savings and debt management program that will allow you to spend less and save more!
It’s safe to assume that most of us carry some kind of debt. Round it all out – mortgages, car loans, medical bills, credit cards and what else? Debt really is about much more than money. Debt can hurt. I mean, REALLY hurt! It’s rough on anyone — especially when it encroaches on our marriage, partnership, or family. Debt and stress go hand in hand. If we’re dealing with debt, we’re more likely to report health problems brought on by stress, anxiety and depression. The higher our debt-to-income (DTI) ratio, the higher our likelihood of experiencing stress and depression.
Start with getting in control of your finances and deciding to get out of debt for good! What’s keeping you from pulling the trigger here? In my experience, once someone decides to take an active role in managing their money, they often go from not paying any attention to almost being obsessed. It’s all they can think about.
At first, it might be a little overwhelming to tally up how much debt you owe, but it’s the first step in eliminating it. Remember, you’re getting ready to cut that number down! Paying off your debt and becoming debt free puts you in complete control of your money. Just promise yourself that is the highest your debt will ever be!
Once you know exactly how much you owe, it’s time to put a plan together – how you’re going to get out of debt. The debt snowball method is our simple plan. So many lives are changed because people have decided to take control of their money and beat debt once and for all. All you need is a plan, and this one works!
Let our experts guide you through this process with ease! Drop us a line whenever you’re ready to keep the conversation going. We have everything you need to know about paying off debt. And, we promise, once you do, it will feel like you just got a raise!