Make a guaranteed 15% on your Money

by Steve Hoven

I know that many of us have credit cards with interest rates as high as 15-20% a year. Here are a few tips on how to lower your rates and to get rid of them all together.

If you have high interest rate credit cards and have a decent credit score, you can do one of two things to help reduce your interest rates. One is to call your credit card company and ask them if they will drop your rates (I have done that myself and it does work. It doesn't work every time but it could be a phone call worth $100's for you). In many cases, they will drop your rates for a short time. For example, if for a year, the credit card company drops your rates from 15% to 5% and you have a $5,000 debt, that is a great savings of $500 in interest for the year. This will free up some money for you to pay off the debt quicker. If a credit card company isn't willing to work with you and drop your interest rates, look for a better interest rate credit card. Just watch out for balance transfer fees, etc. Each situation is different but there are millions of people who are throwing away billions of dollars a year in interest because they either don't know that they can get a better rate or they don't know how to ask for one. It is really as easy as picking up the phone and asking your credit card company for a better rate.

I don't recommend using credit cards, of course. However, I know that many people do have credit card debt. By either calling the credit card company to get a lower rate or by looking for a credit card with a lower interest rate, you can cut down on your debt.

If you don't have the best credit and your credit card company isn't willing to work with you, and you can't find a credit card that offers a better rate, consider suspending any of your current investing and focus your attention on paying off your debt. For example, if you had a $5,000 credit card debt at 15% interest paying that bill off is like getting 15% on your money tax free and with no risk.

What do I mean? Well, if you had $5,000 in credit card debt at 15% interest over the course of the year you would owe $750 in interest. ($5000 x 15% = $750). So the total amount that you owe is now $5,750. Let's says you also happened to have $5,000 in the bank and instead of paying off your credit card, you just invested it. So you invested in the stock market or mutual fund and during that year the stock market had a decent year and you earned 15% on your money (Historically, it averages about 10% a year). So you made $750 in profits off of your $5,000 investment in the stock market/mutual fund. You then open up your credit card bill and the amount is $5,750 as well. This time you so decide that you want to pay off your credit card, even though you could have done that last year when the balance was $5,000. Well, now you sell your investment in the stock market/mutual fund. You pay $50 in commissions to your broker and 20% to the government for taxes ($150). So your net earnings are only $5,550, but you have a bill of $5,750. Even after you pay all the money you just got out of the stock market/mutual fund you STILL owe the credit card company $200 more (Of course that is just an example and those figures could change, etc.).

The point is that paying off credit card debt is the best investment that you can make. It is a GUARANTEED return, and you don't have to take taxes out of it as you are just paying back a debt. The above example showed a 15% profit in the stock market/mutual fund. What would have happened if the investment only went up 5% instead of 15% or what if it went down 15%? You would be in an even a bigger hole. In the example above you would have needed a 20% return in order to pay off the credit card in full after commissions and taxes. That is double the average return for the stock market. Historically, that is asking a LOT when you could just have paid it off from the beginning and not have to deal with the stress of the debt.

I always suggest paying off personal debt (which includes credit cards, automobile loans, furniture loans, personal loans, and student loans) prior to investing money in the stock market/mutual fund.