Very Interesting Interest – Looking at Wealth Management

Managing Wealth - Gold Key Representing Riches And Prosperity
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There are two ways to gain wealth. One is to earn more and the other is to spend less. Seems simple enough yet few people actually ever grasp that reality and alter their behavior in a way that gives them greater wealth over time. But here is one of the most common wealth killers in the world – the credit card.

Carrying a credit card balance these days at or even above $20,000 is sadly not all that rare. Also no longer rare are what was once called usurious interest rates typically right about at 24% APR. Now look at what that does to your financial well-being.

Interest rates

If you make your minimum payment of right around $500.00 every month and don’t make any more charges or cash advances it will take you 6.8 years to pay off that debt. And if you succeed in actually paying of that debt you will have paid $40,637.97 in total which equals $20,637.97 in interest alone. Be late on a payment or two and the price gets much higher very fast. How many legitimate investments do you know that will double your money every 6.8 years?   Do you really love your credit card company or bank so much that you cheerfully give them what you cannot achieve for yourself?

Oh and if you want to see for yourself exactly what you credit card situation looks like visit this website and do the calculations for your specific situation.

consumercredit, financial education, credit card interest calculator website

Okay so you have stepped it what can you do? Well obviously the first option is avoidance. Yes go ahead and use that card but only real needs and not just wants. Also make a serious effort to pay off the full balance every month. One great way to assure that is done is to use only the American Express Card because that is the only option they give. Charge $1000.00 in a month and you will have to pay $1000.00 at the end of the month when your statement arrives. Discipline is clearly the key but if you failed to take full control and you have amassed substantial credit card debt there are other options. One might be to refinance your home mortgage if you have one. At a fairly typical rate of 4% APR these days adding another $20,000 to your mortgage debt would only raise your monthly payment by about $250 or about half of your current credit card payment.

But what if you don’t own a home, or your credit is so bad that a refinance is out of the question? One option is to get a second job and use all of the money from that job to pay down your debt. But you already have a second job and you are still sinking. At some point you may have to consider personal bankruptcy. It is not pleasant but it is also not the end of the world, but you cannot file bankruptcy every year, in fact current law requires an 8 year span between bankruptcies and you can also be assured that your credit will be destroyed and rebuilding it gets harder with repeat bankruptcies. Nevertheless sometimes bankruptcy is the only rational answer.

Calculating Interest

However what is required to assure a better more prosperous life is to focus hard on building real money discipline. Some of the stingiest people in our world are also often among the richest. Yes there is a correlation. Every minute of every day challenge yourself to distinguish between what you may want and what you really need. Buying something you merely want is fine so long as doing so does not increase your debt. Especially in modern times when credit card debt all too typically has dangerously high interest rates. And yes, of course, there can be legitimate emergencies such as essential car repairs or a physical injury or disease that is not fully covered by insurance. But while such true emergencies may force you to increase your debt you then need to seriously commit to paying off that debt as fast as you can because interestingly enough high interest is a real killer.

Photos: Courtesy of Ron Irwin



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