(from Brice Hogan)

Many people in the Financial Industry are really focused on helping people save for retirement. There is just one problem with that they do not take into account that most people have a very large debt load. So I will illustrate the power of paying your debt off versus saving while carrying debt.

The Hardtimes Family is trying to get out of debt and at the same time try to save for retirement. They have $300 extra per month to invest their money for retirement. So they find a good mutual fund that is returning 10% a year on their money and invest it for 20 years. They would end up with $227,811 dollars at the end of 20 years but they still have seven years left to payoff all of their debt.

Lets take it from a different perspective using a Debt Payoff Program. As it is the Hardtimes family has $395,000 in debt. Their minimum payments are $3662 a month they will take over 28 years to pay off all of their debts just making minimum payments. So lets illustrate the power of debt payoff. Debt roll-up is just taking the minimum payment and rolling it into the next payment.

Their Debts are Monthly Payment
Department Strore 150
Credit Card 1 50
Visa 20
Home Depot 100
Master Card 111
MiniVan 500
Car 356
Time Share 200
HELOC 250
Mortgage 1925

So the process is to take the first payment $150 and then when you pay it off you roll it into the next payment the Credit Card 1 ($50 + $150) so at this point you are paying $200 to the Credit Card and paying minimum payments to the other payments. And you just keep rolling the amounts into the next debt. At this rate the Hardtimes family will have their debt paid off in 13 years instead of 28 years they will save $194,178 in interest. They can then take that $3662 at the end of paying their debt and invest it over the next 15 years into a mutual fund that is returning 10% they will end up with $1,470,737.

So we compare that with the first example the Hardtimes family would have made $1,242,926 investing in their debt, than just trying to save $300 month to invest. The best choice is really to invest in your debt and then to start saving after

One of the greatest evils of this modern generation was the advent of the Credit card. The modern credit card appeared through Diners Club, which was created partially through a merger with Dine and Sign, produced the first “general purpose” charge card, which is similar but required the entire bill to be paid with each statement; it was followed shortly thereafter by American Express and Carte Blanche. Western Union had begun issuing charge cards to its frequent customers in 1914.

Bank of America created the BankAmericard in 1958, a product which eventually evolved into the Visa system (”Chargex” also became Visa). MasterCard came to being in 1966 when a group of credit-issuing banks established MasterCharge.

Now why would I say that credit cards are evil. They are not, but here are some sobering statistics to think about:

National consumer credit debt, which accounts for 36% of the national consumer debt figure. Currently, national consumer debt is 2.04 trillion dollars (April 2004), with credit card debt equaling about 750 billion dollars.

The average family carries a balance from month to month of $8,000.00.

For every man, woman and child in the country, Americans owe $2,293.00 in credit card debt (based on current population figures).

Americans’ “national credit card debt” is equal to an average of:
$3,632.00 per cardholder
$6,400.00 per household
$8,000.00 per household with at least one credit card
The average balance on a single credit card is $8,000.00.
The average interest rate is 19%
Late fees are now $35.00
The average household has 10 credit cards.
Almost half the households in America report having difficulty paying their minimum monthly payments.
Americans paid out approximately $82 billion in interest alone last year.
The typical Minimum Monthly Payment is 90% interest and 10% principal.
Credit card debt is not the answer for things that we want now. It should be the old adage save up for what you want, because in the end it will cost you less.

Statistics provided by www.debtscape.org/debt-facts.html.

I saw an advertisement to sign up for a credit card, and I would instantly be given a $30.00 back from the card company. It also had rewards program, which was similar to a lot of the other cards out there.

Would it be okay just to sign up for the card to get the $30.00 back? I hope you all know the answer to this one. If not I will go over the fine print with you.

You start with an APR of 16.74, and depending on your credit, this rate can start out as high as 22.74. They also may raise your APR up to 31.74 at a default rate. The reasons they give are:

We do not receive, for any payment that is owed on this Account or any other account or loan with us, at least the minimum payment due by the date and time due; you exceed your credit line on this Account, if applicable; or you make a payment to us that is not honored by your bank. Your APRs may increase as of the first day of the billing cycle in which the default occurs.

If you notice that last sentence is, “may increase as of the first day of the billing cycle in which the default occurs.�

Just quickly on the late payments: $15.00 on balances up to, but not including, $100.00; $29.00 on balances of $100.00 up to, but not including, $250.00; and $39.00 on balances of $250.00 and over.
If I made any late payments, or made any mistake in my finances, the $30.00 back I would have received would probably go towards any of the above researched information. Plus any additional fees and charges I would have.