In my last post I talked about how the credit card companies are making some of the best interest rates of any investment, on the money that they’re lending you. You’re basically paying for their yachts, mansions and all the other extravagant things the bigwigs at those companies buy.
But you know, there is another side to the interest rates they’re charging.
If you’re already deep in debt on these high-interest credit cards, it’s too late to avoid the problem. You’re already helping them double their money every couple of years.
But think about this…
If you get those cards paid off as fast as humanly possible, you’re basically “earning” that interest you no longer have to pay for yourself.
Instead of paying twice as much for the same purchases after 3 years of financing them, you’re only paying a bit more than the original cost, and your putting the rest of that future interest back in your own pocket.
Or freeing it up to pay off other lower-interest debts.
If you’re carrying a balance on any of these credit cards that are up in the 27-28% range, get them paid off as fast as you can.
You’ll be the one “earning” that 27-28% once they’re paid off.
Have you heard of Peter Lynch? He’s the “hall of fame” investor who averaged about 29% annual gains while he led the Fidelity Magellan fund.
How would you like to earn 29% on your money, year after year?
Sound like a pretty attractive rate, doesn’t it? You’d be able to double your initial investment in about 3 years if you could maintain this kind of performance.
Well, I’m here to share a big secret with you and tell you how you can do it.
Are you ready for this?
Start your own credit card company – that’s the secret.
Okay, maybe it’s not something that just anyone can do. I’m being silly in order to make a point.
A lot of consumer credit charge almost that much interest every year. Most department store credit cards are up around 27% or 28% interest.
So if you’re paying the minimum payment on those cards, the stores are doubling their money roughly every 3 years.
And that means it’s costing you twice as much for any purchases that you finance for more than that.
If you pay $500 today for a new mattress and make the minimum payments for 3 years, it’s going to cost you closer to $1000 for that same mattress. Would you have bought it at that price?
If you think about the fact that the credit card companies are making hall of fame returns on their “investments” – that’s the money they’re lending you at crazy interest rates – it suddenly seems a lot less important to buy that new gadget today, like they try to convince you to.
Think about that next time you’re tempted to put something on that credit card. Do you really want to help the credit card companies put all that money in their pocket?
When money is tight or the situation is right, more and more entrepreneurs seem to be willing to take a leap of faith and finance their dreams with credit cards. With bank lending practically nonexistent for small or micro-business financing, would-be business owners turn to any means they can to get startup cash.
Banks are usually unwilling to lend someone startup capital unless there is major collateral involved, say someone’s house! Many times the startup entrepreneur is usually a younger person, who may not have acquired enough assets to qualify for traditional financing, so it becomes very easy to take the easy, fast way to many thousands in readily-available cash, through the use of several credit cards.
The nearly inevitable downside to all this is that in the not too distant future our budding business person is now strapped with a debt load his or her fledgling business can’t cover, and the problems begin. They begin trying to cover the payments from other areas intended for the business, and God forbid other credit cards. The entrepreneur has suddenly taken on the role of debt manager as well, and the attention they should be giving their business is doled out on more mundane, though entirely necessary dealing just to keep the operation afloat.
More entrepreneurs need to realize that this is almost never a good way to finance a new venture. It’s hard enough for a new business to make it, let alone with a mountain of debt to overcome!
If you’ve ever had a dog, or watched someone with one, you probably know how proper training is important. Watching someone walk an untrained dog can run the gamut from entertaining to horrifying, while a trained dog will do what he’s supposed to.
Credit card users are no different, as this post about credit cards & dogs shows on the Personal Finance Advice blog.
Now if we could only train a dog to manage our finances for us, we’d be all set.
Two recent DVD’s bring to light some of the seamier aspects of the debt addiction Americans find themselves caught up in.
James D. Scurlock’s "Maxed Out" examines the credit card culture Americans have fallen prey to and some of the scurrilous practices by those that lend. It’s a kind of tragi-comedy, as the subject and its participants are very real, the characters are exceedingly interesting. As a side note, Spurlock almost maxed out his own credit cards in the making of this film. This film has won awards and notice from the Wall Street Journal. Give it a look.
The other DVD is Danny Schechter’s "In Debt We Trust". Schechter is an Emmy-winning journalist who drew his inspiration for this film from the current book "Credit Card Nation" by Robert Manning, and he has created a sobering view of how Americans are affected by this debt explosion. Schechter points fingers at the Bush administration (who doesn’t these days) and spends some time on the particularly odious practice of "payday loans", especially as to how they are actively pursuing military bases and their families.
Having these two important films come out relatively close to one another, both addressing a similar theme, only serves to underscore the reality of the problem we face as a nation groaning under a massive debt load. Hopefully they will get wide enough play to open some more eyes to the problem.
