Credit Card Debt, Who's To Blame?
A recent article ran in various publications around the country alerting readers to the fact that the average credit card interest rate is up to a shocking 21%.
The article points out, Credit card companies which attract new customers with zero percent teaser rates and more rewards, have raised rates while their costs remain historically low. Another rising and unsettling trend: More strapped consumers are taking pricey cash advance deals.
Last time I checked, credit card companies were not holding a gun to anyones head forcing them to spend money that they did not have. Unfortunately, today in America, it is never ones own fault. Someone or something else is always to blame. It is the classic devil made me do it excuse, with the claimant always the innocent victim.
Personal responsibility is an all but forgotten concept.
Credit cards are a tool. A tool that I happen to love. I like not having to carry cash. I like being able to account for all my expenses. I like the points/rewards that I earn. What I dont like is paying interest. So I dont. It is a simple concept; pay off your bill in full every month and you wont have to pay 21% interest.
All too often we speak with families that state that they are now ready to get serious about getting their financial plan done and start building wealth. Too many of them are unable to do so.
These unfortunate individuals and families have the faade of financial success, nice house, nice car, nice clothes and a nice watch. What they also have is tens of thousands of dollars in credit card debt, tens of thousands more in car loans, and a huge mortgage. These people are affluent on the outside, but actually living paycheck to paycheck on the inside.
How can we start building portfolios and growing wealth for people who are paying 20% on credit cards? We most certainly are not going to beat that rate of return unless it is a really, really, really good year.
I have written, and lectured extensively on the air about the magic of compounding interest. Compounding gains over time is the royal road to riches. In fact, the bulk of stock market returns throughout history have not been due to capital gains but compounding dividends. Compounding is a tool, and like most tools can be dangerous if not used correctly. Borrowing money at ridiculous rates that would make Tony Soprano blush is not using compounding correctly.
It has been my experience that people often let ego and pride lead them to improper use of compounding interest. It has also been by experience that financially sound families often have much greater wealth than their neighbors, and their neighbors had no idea.
Editors Average Credit Card Interest Up To Shocking 21%New York Post 4/21/14