The peril’s of credit card debt
Credit is so easy to get and being in debt is so normalized that no one really blinks an eyelid if someone is up to their eyeballs in debt. In fact many of the books on finance contains a section on how to get out of debt. There is plenty of information on the internet explaining how to get out of debt but the question is, “Do you have the self-control and the determination to follow through with the advice?”
The first thing you need to do when you are in debt is seek help from a budget advisor or doing a google search on the subject.
Then you must cut up all of your credit cards and say “no more.” The next step is to figure out how you are going to repay the money. The sensible thing to do is to pay back the debt on the card with the highest interest rate and to make the minimum monthly payment on the rest. Once you have paid off one credit card pay off the next one with the highest interest rate.
Once you have paid off your debts then you can go about creating your financial portfolio-there is no point in having savings earning 5% per annum and at the same time paying say 15% interest on your debts.
The only exception to this rule is that if you are in New Zealand Kiwisaver and paid in at least $1040 per annum, you would receive $520 tax cret from the government which is the equivalent of receiving 50% per annum on an investment.
There is such a thing as good debt and bad debt! Good debt is when the value of what yoyu are borrowing the money for is increasing while bad debt is money borrowed for things which lose value over time-it is sometimes referred to as dumb debt.
An example of good debt would be to borrow money to purchase a house because the value of the house is likely to rise faster than the money borrowed against it and as more of the loan is paid back, you will have more equity in the home.
A bad debt would be borrowing for a motor vehicle because the value of the purchase declines over time and in so many cases, the money owing on the car is more than the value of the car.
An instance of stupidity is to borrow money to fund an overseas holiday because there is nothing to show for the debt.
Many people get in debt in order to purchase stuff they do not need, to impress people they do no like with money to do not have! Its all about maintaining a self image and keeping up appearances.
For sound money manager’s, the rule is “If you don’t have the money you don’t buy it.”
I have an ebook avalable called “Credit Score Magic” and you can get it here;