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Financial Success in 2016 – part 4
The next important step in your journey to financial success is ensuring you have no consumer debt.
Step Four – Pay off credit card or other high interest debt
Few investment strategies pay off as well as, or with less risk than, merely paying off all high interest debt you may have. Many people have wallets filled with credit cards, some of which they’ve ‘maxed out’ (spent up to the credit limit).
Credit cards can make it seem easy to buy things when you don’t have the cash in your pocket or in the bank. Whilst they are extremely convenient and easy to use credit cards are not free money and at some stage you have to pay them back, and get charged handsomely for the privilege if you don’t pay them off in full each month. Most credit cards charge high interest rates, with 20 percent being the norm.
If you owe money on your credit cards, the wisest thing you can do is pay off the balance in full as quickly as possible. Virtually no investment will give you the high returns you’ll need to keep pace with a 20 percent interest charge or if you have unsecured loans it could be as high as 30 percent. That’s why you’re better off eliminating all credit card debt before saving and investing. The great thing is by the time you have paid off your debts you will have created a habit to find money that can be very easily changed to putting the funds into a savings account.
Here are some tips for avoiding credit card debt:
Put away the plastic! Do not use a credit card unless your debt is at a manageable level and you know you’ll have the money to pay the bill when it arrives.
Know what you owe. It is way too easy to forget how much you’ve charged on your credit card. Every time you use a credit card, write down how much you have spent and figure out how much you’ll have to pay that month. If you know you won’t be able to pay your balance in full, try to figure out how much you can pay each month and how long it’ll take to pay the balance in full.
Pay off the card or loan with the highest rate. If you’ve got unpaid balances on several credit cards, you should first pay down the card that charges the highest rate. Pay as much as you can toward that debt each month until your balance is once again zero, while still paying the minimum on your other cards.
Most importantly remember that credit cards can be a little dangerous. Research shows that people spend significantly more when they use credit cards compared to using cash.
Once you have paid off all of your debts set aside the money you put onto those debts each month into a savings account to start putting towards your goals.
Lisa Dudson is a bestselling author and Registered Financial Advisor with over 15 years industry experience. Lisa offers financial advice through www.acumen.co.nz and co-owns the New Zealand's leading property investment agencies www.ifindproperty.co.nz & www.propertyladder.co.nz
Previously, in this series:
