Step 2:
Payoff Credit Cards
I decided that I needed to payoff all my credit cards, and that was the best idea I ever had about money.
Everything I know about finance and investing I owe to the good folks at the Motley Fool (www.fool.com). One of their guiding principles is everyone should learn to “live below your means”.
Now that sounds simple, but this is actually more difficult than it sounds on the surface. For me this means that your monthly income should be more than your monthly outgoing payments. The first step in living below your means is to get out of debt, specifically credit card debt.
There are books written on this topic and I read one published by the Motley Fool, so I don’t mean to go into the gritty details. Instead, I would like to relate to you my experience on both sides of this line.
I carried a credit card debt of about $12,000 into my marriage. For about 3 years, my wife and I paid an agreed upon amount towards this debt every month...
...I don’t remember how much we paid, it wasn’t the minimum payment, but it was not an amount that would pay off the debt anytime soon either. This meant that we were tagged a monthly interest charge. This interest charge was in the range of 12 – 15% of the balance of the debt.
Now here is the rub. At the same time, we had about $15,000 in the bank in combined savings and our big cash wedding gift. This money was held in a regular savings account and only earned about 3 – 4 % annual interest.
I’m sure the fool guys have a fancy term to describe this situation, but what I call this stupid. Once I figured out the math, I started trying to convince my wife that we needed to pay off the credit card and then re-build the savings (and then start investing!).
Yayoi (my wife) took a lot of convincing. I think she was more afraid of NOT having much savings left then she was interested in paying off the debt. Well after much effort on my part and enlisting the support of friends that we both respected, she relented and let me pay off the credit card.
To this day, she doesn’t let me forget that I brought debt into the marriage, but since living below our means and paying off our credit cards every month, no matter what...it has become more of a cute joke than an actual fightin’ dig.
Of course, most folks will say that they have credit card debt, but don’t have money in the bank. You’re right we were lucky to have a nice pile of “get of debt money” after our wedding. But, again at least we had the discipline not to go out and spend all that money and saved it instead.
After we paid off this debt, we kept saving our money and didn’t have that big credit card payment anymore, so we saved more each month. Eventually, I started investing while living below my means and saving money.
Today, we have a pile of money invested in the stock market and always max out our IRAs. In 2003, I bought a used car with cash for about 12K and a new one about a year later for 16k with cash on hand.
People freak out when I tell them how much money I have, because I’m not flashy and I don’t buy useless stuff to impress people. I generally don’t tell people how much money we have so they don’t think “I’m better than them" because I know I’m not.
I just learned some simple rules about life and money and I stuck to them. It’s easy to do you don’t have to be smart or weird.
The whole point here is that if
you are saving money AND carry ANY credit card debt, you are THROWING
AWAY MONEY!!! Take what you have saved and take a chunk out of that
debt.
Then take the money you are saving every month and put it on your credit card debt until it’s gone. If you don’t have any savings, and have credit card debt, then I suggest you check out the following link at The Motley Fool called “How to get Out of debt” It’s free by the way:
http://www.fool.com/seminars/sp/index.htm?sid=0001&lid=000&
I trust the Motley Fool guys...they are great, but if you don’t like them then you could try an internet search on “get out of debt”. Be careful though. There are scam artists out there that will try to get you into a debt consolidation loan.
This might be a good idea for you, but I suggest doing research before you pay someone to solve your problem for you. I’m sure there is amble free information out there for most folks to get themselves out of debt without paying anyone.
If you really need a debt consolidation loan to get out debt, find someone you trust not to rip you off.
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