"Your interest payments are killing you!"

 

Much to my surprise, I received a card in the mail shortly thereafter.  After promising myself that I would not use the card, I soon found myself with a small balance from a purchase of a few things that I picked out while shopping one Saturday.  The best part about the card was that my minimum payment was only $5.00.  What a great deal!  I could buy a $60.00 pair of jeans and only have to pay $5.00 a month later. 

 

I consistently made my $5.00 monthly purchases month after month without a care in the world.  I was completely content with this easy arrangement with my credit card company until I accidentally forgot to make my faithfully payment of $5.00 one month.  The following month my bill included a $25.00 late fee as punishment for my absent-mindedness. I was so upset for having to pay $25.00 for paying one or two days late.  After that episode I decided to review my bill more carefully.  When I did, I realized something that changed my mind forever about the use of credit cards.  I began tracking the amount I owed and the amount I paid every month. 

 

I realized that my bill had an error.  For instance, I owed $75.00 on my bill. I paid my $5.00 expecting my bill to be $70.00 the following month.  On the contrary, my bill barely went down at all.  What was happening to my money?  My minimum payment was being applied mainly to principle.  It was like the credit card company was pocketing my $5.00 and still expecting me to pay the full amount for the jeans.  How would my jeans ever get paid off if they were not using the $5.00 to pay down my balance?  I became furious and vowed to avoid high credit card interest with every fiber of my being.  To this day, I pay all of my balances in full, no matter how large the balance. My money is much to valuable to give needlessly to the credit card companies.  

 

This will not be easy, but it can happen if you change the way you view of debt.  Do not look at debt as a natural part of life.  Look at debt as the blood-sucking leech that it is.  By avoiding consumer debt, you create an atmosphere where you will have less bills to pay.  If you have less bills to pay, you can save more.  If you are able to save, you are able to invest.  If you are able to invest, you can create wealth with incredible ease.

 

Is rolling debt into your home a good thing?

When many of us refinance our homes, we often allow the bank to pay off our outstanding credit card debts or car notes with the refinance.  There are pros and cons to using this method.  Some argue that by moving your debt from one location to the mortgage note, you benefit by lowering the interest rate of your debts.  Another argument to using such a method is that the interest paid will now be tax deductible. 

 

The negative aspects of this type of consolidating is the continuation of the habits that caused the credit card debt.  What may end up happening is the person will soon find themselves in a similar situation that they were in before.  Another negative is that the debts are stretched out for 30 long years.  Even at a lower interest, you will end up paying much more for those debts then if you attacked them with diligence and determination.  By using this method, you debts are embedded into your loan, and you have lost the chunk of the equity that you had in your home.

 

If, on the other hand, you chose to cut expenses consciously by attacking your debts,  you begin to hate the very thought of borrowing money.  And as your wealth builds, you will have created the habit of paying for things based on what you can afford to spend. You also get to keep the equity in your home in tact.   This, I believe, is a much better method of paying of your debt then simply hiding it into your home loan.