Get Out of Debt Forever
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During the pandemic, consumer debts reached record lows and savings rates reached record highs. Now that we’re no longer wearing masks or staying indoors, however, it seems like we’ve cast off our restrained lifestyles and budgets. Credit card debt has ballooned and savings have plummeted – all at a time when interest rates have more than doubled. The truth is, if people really understood the crippling effects of consumer debt, they’d get out of it and stay out of it forever. Here are some simple techniques you can use to start eliminating debt and begin creating wealth today:
Snowball your credit card debt
Statistics tell us that 35% of American adults currently have credit card debt. Of that number, 43% don’t even know the interest rate on their cards! When it comes to your finances, ignorance isn’t bliss, ignorance is poverty. Using a credit card is appealing because it means you can get what you want immediately. But debt costs money. It borrows from your future and, because of high interest, it means you ultimately pay far more than that impulse buy ever cost. A powerful way to get a handle on credit card debt is to use the snowball effect. Start by focusing on one debt at a time. If you have three credit cards, tackle the one with the highest interest rate first. Take the minimum payment, add an amount to buy down the card and then combine them together. When that card is paid off, tackle the next one. Take that minimum payment, plus the amount you were paying on the previous card, and roll it over. Continue in this way and your credit card debt will be eradicated.
Unleash the compounding effect
After you pay off your credit card debts, your snowball will start to roll downhill and you’ll be able to build a huge snowman out of it! A big part of anyone’s financial success is investing to grow and unleashing the power of the compounding effect. Say, for example, you invest $100 a month for 40 years with an 8% rate of return. You’ll have invested $48,000 – but the compounding effect will make it worth $350,000. As Albert Einstein once said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” Make sure you get the compounding effect working in your favor.
Consumer debt is insidious in today’s world but, when you know how to handle it, you’ll get on track to phenomenal success and you’ll be able to help your family, friends and clients to do the same. To learn more, listen to the latest episode of “It’s a Good Life”