How many of us keep a monthly credit card balance, while socking away cash? If so, it is a bad move…
Every month, pay off your credit card balances before you save or invest any cash (outside of a 401K matching plan). I have been guilty of this elementary mistake also, usually due to a lack of attention.
Most people pay the credit card bill and save automatically through online banking or with a quick click of the mouse.
Not much thought is given to it, but most consumer credit cards carry an interest rate between 13 – 23%, and saving cash gets close to 0%. For many people, it still feels right to save every pay day.
However, the math is very simple and painful. On a credit card balance of $10,000, with an average APR of 18%, your annual interest charges total $1,904.12.
I have been in the global financial markets business for a long time, and I would struggle to name even one investment (outside of a 401K match) that guarantees an annual return of 19.0% !
So…send every discretionary dollar towards paying off your credit card debt as soon as possible. When you can handle paying off the monthly balance consistently, then start saving again….