The concepts of debt elimination and realignment of financial goals we developed as a result of the Financial Crisis has become an obsession for me - on one critical point that drives the train for almost everything else. That point is simple to state: Do not allow yourself to make the fatal mistake of paying credit card interest on a never ending revolving basis. If you make this mistake, you are sacrificing your future - including happiness - as you get older and comfort in retirement.
It is simple math. Let’s assume you are one of the millions of Americans who has become comfortable carrying $40,000 of credit card debt on a revolving basis and you do this from age 30 to 60 – 30 years. In this scenario, you will pay $240,000 of interest over the 30 years, assuming the interest rate on the cards is 20%. At age, 60, you will still owe $40,000 on the credit cards.
Now – let’s discuss the $240,000 of interest you paid. Had you not been paying it (at the rate of $666.67 per month), and instead, were saving it – with an 8% return tax deferred or better yet – in a Roth IRA where the taxes are paid as contributed and the earnings then accumulate tax free – you’d have - $999,207.52 -- a million bucks.
I meet people all the time. Some of them appear to live a modest lifestyle – but they were “Savers” – and did not pay credit card interest. When they reach retirement, they usually have a home that is fully paid for, a couple of used cars in good condition owned free and clear, no debt and $500,000 - $800,000 in savings. They are able to retire and live comfortably.
Many of the people I meet, however, are in a different situation. They confess they are “not savers” and their finances at 60 have a common trend. They are still making mortgage payments, because they have refinanced their home 2-5 times over the years to reduce debt, they have two car payments, limited savings and anywhere from $40,000 to $150,000 of credit card debt – and guess what – their earnings each and every year were greater than the “Savers.” Let’s call this group the “Non-savers.”
Here is where my obsession lies. The “Non-savers” are not without savings because they didn’t want to save or didn’t believe it was a good thing. If you ask them, they will say, “There were just too many bills – the kids, college, weddings, etc – and we just didn’t put it away.” Here is where my obsession lies. The Non-savers MISTAKE is simple – they paid the “juice” for 30 years – the interest - and that is what stopped them from saving. They could have purchased and spent the same money on the same things as the Savers – had they not paid the $666 per month of interest for 30 years – and they would have had $1 million dollars. That money would have eliminated the mortgage, the car loans and left savings of $500,000 +. It is all about the interest. I’m obsessed with the knowledge that millions of good people are sucked into the credit card trap – many of them don’t even realize it – and the result is tossing their financial future in the garbage.
I have a couple of suggestions. If you have a child or grandchild who is age 3 to 15, begin a constant campaign to let them know that “credit cards” are as bad as drugs. They are toxic to your future. When you are sitting with them watching many of our favorite stars smile and speak well about their credit card company, say to them, “Don’t believe that. Credit cards will ruin your future. Do not use them and if you ever have one – the rule is you must pay it off every month and never pay interest.” We can brainwash our children – when they are young – just as we were brainwashed. Here is a example. How many of you still love the Detroit Lions and hold out hope for their future? This didn’t come from recent years – you were sucked in when you were a kid! The same applies with credit cards – if you teach your child/grandchild they are bad – they will grow up believing that – and you will have taught them the greatest lesson they will ever learn!
For those of you who are the “Non-savers” – this blast was my attempt at your first lesson. The next one is FREE – attend our seminar next Wednesday, December 11th – “I’m Going to Be Debt Free in 2020.” We can correct the ship and save your future – if you give us the chance. After all – I’m not only obsessed about the problem – I’m obsessed about solving it!