In case you’re not in the mood to read this email – I’ll reduce the answer to two words – “Your Future!” In Fiddler on the Roof, Tevye sings, “If I were a rich man . . . dibby dibby dum. . . .”
If you’re carrying $30,000 or more of credit card debt at, let’s say, for simplicity’s sake, 20% interest, you’re paying $6,000 per year and $500 per month of interest. Your minimum payment on the cards is $750 per month, which equals $9,000 per year. That $9,000 is paid with after-tax dollars, so if you’re making $100,000 per year and paying 20% in taxes, netting $80,000, it’s costing you 11.25% of your disposable income to service that debt.
What’s worse? I will tell you. If you’re making the $100,000 – you’re not rolling in dough – and in most cases paying the $750 per month is not leaving you any extra money to save – nothing to your IRA or your 401k – or if anything, it’s much less than you want. If you don’t have any extra money after paying bills, then when you need to buy something, you charge it. That cycle repeats, month after month, and the result is the balances do NOT go down; they more often go UP!
This is known as the Credit Card Trap. $9,000 per year x 20 years – is $180,000. That’s raw cash. If, however, you ditched the credit card debt and saved the money in an IRA or 401k tax-deferred account – at 6% interest – you’d have $349,012.
Life gives us choices. In this scenario – the choice is to go 20 years and waste $180,000 month to month, leaving yourself with no savings and still $30,000 in debt or get rid of the credit card debt, save the juice you were giving to the credit card loan sharks and end up with real money in the bank. I will save “how to get rid of the credit card debt” for one of my emails to come soon. Today – I hope the point is made. To make it clear,
“If I keep paying on $30,000 of credit card debt… dibby dibby dum… I won’t have to worry about singing Tevye’s song.
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Regards,
Ken
