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Banking, Credit Cards, Financial Freedom, Investing, Retirement, Saving, Wealth

Avoid paying interest and get rich

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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:

  1. Make it automatic
  2. Pay down your debts
  3. Bank with a credit union
  4. 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!”

 

Financial Freedom

Banking at credit unions versus banks – the great debate

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Banks are known for high interest rates and exorbitant fees. You need to tread very carefully to avoid late fees, overdraft fees and high interest charges if you want to stay out of debt and build wealth.

I have had my personal share of experiences that I would sooner like to forget but they were also great lessons learned. After paying huge fees, one time I even paid for an overdraft fee of $25 for a $2.00 charge, I knew I had to stop over drafting. This actually happened multiple times. So I eventually said enough is enough and I switched from a bank to a credit union.

Credit unions are known for lower interest rates and willingness to work with those of modest incomes. I even learned that credit unions are legally not able to charge more than 18 percent interest rate cap on loans and credit cards per the National Credit Union Association, as long as you pay on-time. Works for me.

It has been over 7 or 8 years since I made the switch to exclusively use credit unions and I couldn’t be happier. I even over drafted one time and as a courtesy this was refunded to me. In contrast, this did not happen with my bank.

Not only was I paying less in interest but I also was able to avoid over drafts completely by signing up for protection with linking my savings account and/or credit card. Previously, I was not made aware of both options with the bank I was with.

In addition, there was a time I was able to do cash advances inside the branch of any bank. Then one day I went to one and they were like last month they changed the policy and no longer did bank advances. How is a consumer to know? I could have been stuck on the highway with a flat and needed the cash but nope. Sorry kid, your out of luck.

Another bank said they too changed their policy and only do cash advances for members. A third bank said they would do it but there was a limit of one thousand dollars for non-members. Then after conferring with her manager informed me they could not do it because the back of my card was not signed. Even though I had identification. I signed the back of the card at the counter and then left.

Finally, I went to my local credit union (where I was a member btw). Not only were they willing to do a cash advance on my Visa but there was no issue of any kind. I was able to get my funds in under five minutes.

From this experience, I learned that you have to handle your affairs and conduct business very carefully. I saw that companies and banks or credit unions could change their policies at any time without anyone knowing. What you are able to do on Monday may be cancelled by Friday. Best to just keep a cash cushion in case of emergencies such as money in savings because financial institutions may consider you and your credit card as personae no grata (unwelcome or not appreciated). This is all done at their leisure so make sure you always have a back-up plan.