If you use a credit card, you don’t want to be rich. – Mark Cuban star of “Shark Tank”
According to CNBC, Americans have an average credit card balance of $6,375 and owe a record breaking $1 trillion in credit card debt, which is the most ever recorded in history.
Investing that money instead could net you anywhere from $50,000 to $200,000, depending on how long you invest it and getting a return on investment of around 9%.
And that does not include an employer match or if you invest more. You could save and invest your way to a small fortune thanks to compound interest.
Here are some ways to avoid paying interest.
MAKE IT AUTOMATIC
I’m sure to many of your out there this is not new advice. However, how many people are actually doing this is another story.
Setting your bills up on automatic payments is a great way to avoid missing payments.
Credit card companies can levy a hefty fee for missed payments. The most recent I read was $38! Forget that. I rather use that money for gas or some other function. Anything is better than paying fees.
In addition, credit card companies can ratchet up your interest rate to 29.99% for missing a single payment!
That means almost near perfect timing of paying all bills.
The closest you can get to doing this is to make all your payments automatic.
Set up everything you can on autopay.
You can put the gym membership, cell phone, utilities and insurance payments on a credit card. Then set up automatic payments with your bank to pay that credit card off at the end of every month and you’re done.
PAY DOWN YOUR DEBTS
Paying off high interest debt is a must on the road to wealth.
Every dollar you spend towards interest cannot work for you compounding interest instead.
Think about it. If you pay $700 per month servicing debt and pay 50% of that in interest, that money is gone. Dust in the wind my friend.
If you can do the polar opposite, investing the entire $700 and earning interest instead, you have a clear path to building wealth over time.
That is the equivalent of $8,400 a year you are investing as opposed to using that amount to pay debt in which $4,200 goes to principal and the other $4,200 in interest and that money you never see again.
CONSIDER BANKING WITH A CREDIT UNION
If you read my posts, about the Unbanking of America and New Banking Rules: clear a check payment in a day, then you understand where I’m coming from.
Many may not know this, but credit unions are not allowed to charge more than 18% on loans or credit cards (unless you default).
The savings gain alone from not having to pay some credit companies 22-27% interest is huge!
You could save anywhere from $50-150 bucks or more per month with a lower interest rate. That’s another $600-1,800 per year!
Just something to consider.
REFINANCE YOUR MORTGAGE
If you can lower the interest rate on your mortgage, you can save $100’s or $1,000’s of dollars a year.
In addition, if you can change your repayment period from 30 years to 20, 15, or 10, then you can save a ton of money. Maybe not tons of money monthly or right away, but over the life of the loan.
For example, a $250,000 mortgage at a 3.92% rate over 30 years will cost $425,533. You reduce that to 15 years and total output is $331,058. That is a difference of upwards of $100,000!
If you take that $100,000 and put that into index funds, you could have anywhere from $600,000 to $1 million dollars over 30 years with a minimum 6% return on investment.
Many folks will buy at least 2-3 homes in their lifetimes. If every new purchase resets your debt-free mortgage clock by 30 years, then you are likely to spend most of your working years in debt.
I hate to be the bearer of bad news, but this is actually the norm for most people.
You do not want to be normal. You want to be different and extraordinary because that gets results.
If more folks put down 10-20% and got 15 year mortgages, you would be better off in the long run.
Paying on one item for 30 years is a long time.
A lot can happen in 30 years. Heck, a lot can happen even in 10 years!
Retire that debt ASAP or as fast as you can.
You can build an in-law suite, swimming pool, and remodel the kitchen after the debt is gone and the home is paid off.
People used to have mortgage burning parties, after paying off their home. Let’s try to bring that back shall we.
I have recently read in the news personal finance experts expressing their concerns over mortgage payments that Americans are making.
Most wanted the debt paid just before you retire. Others said get rid of it in your 40’s. Like around age 45. Why you ask? Since, this is the point where you are halfway through your career, it is best to spend the second half of it working toward building capital to fund your nest egg.
That is excellent advice.
Basically, you spend the first 20 years paying off all you owe, and the last 20 years building up your retirement accounts you will need in your golden years.
SUMMING IT UP
All you have to do is follow these four steps and you can avoid paying interest or at least a whole lot less of it.
Remember these 4 steps:
- Make it automatic
- Pay down your debts
- Bank with a credit union
- Get a 15 year mortgage
Sounds pretty simple right?
Well, you would be surprised by how many people are not doing any of the things stated above.
Therefore, if you can start doing even one of these things now, you are well on your way to building up your bank account.
And in the illustrious words of Porky the Pig, “That’s All Folks!”
