Alpha Teach Yourself Investing in 24 Hours: An Analysis (part 6)

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Cleaning up Debt

by

Charles Lamson

We are addicted to credit cards. We whip out the plastic without even thinking about how or when we are going to pay off the balance. In addition, the credit card companies keep sending them or upping our credit limits.

Without thinking about it, we are up to our wazoo in credit card debt. But when the bills do come, we notice that all they expect is this small minimum monthly payment. We can handle that.

What we may not notice is that we are paying 18 percent (or more) in interest and, if you look closely at your bill, you may find that the friendly minimum balance they want you to pay is LESS than the finance charges.

This means that if you only pay the minimum balance, you will never pay off the debt because all you are paying is interest. Your principal is never reduced.

PROCEED WITH CAUTION Be careful of the "transfer your balance" ads from credit card companies. After a short period at the advertised low rate, the interest charge will shoot back up.

Gather all of your credit card statements and any other high-interest debt you have and compare the interest rates. Make a list from highest interest to lowest and begin paying off from the top down. The first investment you are going to make is in yourself. You are going to stick those high-interest credit cards in your desk drawer and not use them again until you have paid off or substantially paid down what you owe.

The reason is obvious. If you are paying a credit card 18 percent on a $5,000 balance and earning 12 percent on a $5,000 investment, you are taking two steps forward and three back. It is actually worse than that.

You cannot make an investment that is not overwrought with risk that will pay you enough to offset the money gushing out of your checking account. It may not be as much fun as buying stocks, but there is nothing you can do that makes more financial sense than getting rid of high-interest debt. More importantly, the object of investing is not to break even, but to get ahead.

*SOURCE: ALPHA TEACH YOURSELF INVESTING IN 24 HOURS, 2000, KEN LITTLE, PGS. 17-18*

END

PROCEED WITH CAUTION

Be careful of the "transfer your balance" ads from credit card companies. After a short period at the advertised low rate, the interest charge will shoot back up.