OK, let’s dive right into it.
This is my #2 investing fundamental – carry no credit card debt.
The average American household carried a $7,400 credit card debt in 2010. If you carry any credit card debt, forget about doing any kind of investing and pay it off first. There is very little chance that you can overcome the interest rate with any kind of investment. Anything that can net you enough to overcome the interest rate is bound to be too risky.
This is the agreed upon first step to investment in any magazine, blog, financial consultant, and I totally agree with them. I was lucky and never carried credit card debt for long. Once I carried 10k for 6 months with 0% interest and paid it off right away after the rate increased. That was early in my investment career and I thought I could put 10k in stock and bag any gain that was made in 6 months. I don’t think I made or lost much money, but looking back on it I can see it was a bad decision. The gain was not worth the risk.
If you have any credit card balance, it’s best to pay off debt first before investing. There are many resources on the internet to help you figure out what to do, but the bottom line is start working on it right away and spend less than you make. Debt Avalanche and Debt Snowball are two popular debt reduction methods that you can try.
Transferring credit card debt from high to low %APR is also a good short term option. It will save you some money, but you still need to work on bringing the whole balance down.
The reason this is #2 for me is because I have a more important #1. I will run through #2 to #10 first and then reveal my #1 secret. I have to keep you coming back right?
retireby40′s personal strategy
- pay off your credit card every month
- you can have a number of credit cards, but only use one or two.
- give yourself a cash allowance and use it to buy everyday things. You spend more money if you use credit card instead of cash. This is true, read cash vs credit.
- make a budget if you have credit card debt