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Eliminate DebtAlthough most people understand that paying debt is important, and can save them thousands of dollars in the future, it appears that a serious disconnect between knowing and doing has occurred. After all, it is quite obvious that if you deal with your debt quicker, you will save money. So why is it that the average American holds between $7000-10000 in credit card balances? Isn't this expensive? The answer, of course is yes. But what's worse, is while many hold high balances on credit vehicles with rates often higher than 20%, they are also often holding investments or savings. These savings typically pay anywhere from 0% (a savings account) to 8% (average S&P 500 return), which sparks a confusing point. Why would you let money sit and earn low interest while you labor under a high balance credit card debt?Savings Are Good, But Debt Must Be Eliminated Certainly, there is nothing wrong with having a great savings plan in place. For emergencies, such as a job loss or a medical problem, having a cushion is a superb idea. And of course retirement should always be an issue on your mind, as social security continues its onward decline. The key here is that you can actually have too much in the way of savings - this point only occurs when you have lots of (expensive) debt. If you have too much savings, and zero debt, give yourself a pat on the back. Very few of us run into that "problem". The key point when looking into your debt/savings ratio is to compare what interest rates you are paying on your debt with what return you receive on your savings. In most cases, unless you have an unbelievably good financial advisor, your credit card and personal loan interest rates are likely way above that of your return. These debts should be dealt with as soon as possible. Taking a look at another scenario, consider your mortgage: because of its tax deductibility and overall low interest rate, this form of debt is OK to hold. In most cases, a savings plan is a prudent and recommended avenue, because it is very likely that the percentage of interest you pay is quite low. Car and student loans are also often attractive credit vehicles, as they often feature low rates and very small installments. Eliminate High Interest Debt Now Paying your credit card debt down is the key to a great financial future. With no high interest credit card debt, you will begin to see the rewards of having a sound savings plan, the comfort of an emergency savings fund as well as a more secure retirement. Do not worry about the mortgage - it is and will always be your credit card debt that will lead to problems. Are you experiencing difficulties with credit card debt? Contact us here for a free no-obligation consultation, and begin your path to becoming debt free within as little as two years. |
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