How Can You Get Guaranteed Return in 2022?
All the financial advisors will tell you that there is no guaranteed profit when you invest. Generally speaking, they are right. But there is a way to guarantee that you get a guaranteed return when you invest in yourself and do this right.
Credit Card Debt
The average credit card debt in the US household is well over $5,000 and the average interest rate is around 14.5%. It’s not too hard to find much higher credit card balances and interest rates if you look around just a little bit. In fact, most cards I apply to come with credit card interest between 25% to some as high as 36% or so APR per year.
Carrying a credit card balance from month to month is a fast and easy way to destroy your financial health. It’s like having a leech just leeching away at your money (literally day by day). So let’s say you have a card that has $5,000 in balance with a 28% APR. Getting rid of that balance is as good as you getting a 28% return on your money, guaranteed! Genius right?
How Bad Can Credit Card Debt get Really?
Let’s use the above example of $5,000 credit card balance with 28% APR and you only pay the minimum of 1% or $50 a month. You would owe around $1,400 a year or $ per day3.835. So on a 30 day month, you would owe about $115, on a 31 day month; you would owe around $119. So in a typical month, it’s ($5,000 (balance) + $115 (30 day interest)) – $50 (minimum monthly payment) = $5,065.
The next month, it’s more of the same; your balance will continue to increase. $5.065 + $120 – $51 = 5,134. So if you pay the minimum each month, you will never be able to pay this thing off since your minimum payment isn’t even enough to pay the interest the credit card debt balance generates each month.
Let’s say you have a $10,000 balance. Your annual interest alone is $2,800, so after 12 month of paying the minimum, you can expect your credit card debt balance to be around $11,800. If you have $20,000, the interest each year alone will set you back $5,600 and you are looking at around $23,600 balance at the end of the year.
In another word, the credit card company is super happy that you never pay this off. It just means that they can continue to make 28% off of you over and over and over again until they suck you dry. So when your debt with interest this high, this is a high red alert priority item that needs to address as soon as possible at ALL costs.
What About Student Debt?
Average student debt comes in around $28,000 for those who has them and their interest aren’t quite as horrifying as the credit card debts but these aren’t debts that will help you grow wealth, so get rid of them quickly.
Student debt, if used correctly to get a degree and career field that will help you recoup your investment in yourself, then it’s a great investment. So many people don’t know what to do with their careers once they enter college and waste time, and some don’t even graduate. Those are basically wasted money and still have to be paid back by the loaner.
From an investment standpoint, the student is still something that needs to go quickly because it does not help you generate cash flow like a business or investing in stock can do for you. You still have to pay a sizeable interest which eats away your ability to save.
The good thing about student debt is that typical interest rates are much much lower than credit card interest, and sometimes it’s even less than the mortgage interest rates. Typical student loan interest is about 4.99% to 7.25%, some are even lower. But some of the private loans, especially to do for profit colleges, are much higher and could be as high as 12-15%.
So with a $25,000 balance and 5% interest rate, you are looking at $1,250 in interest per year. If you have $50,000 worth of student debt, then you are looking at around $2,500 of interest per year. If you have $100,000 worth of student debt, then it doubles again to around $5,000 of interest per year.
If you have higher interest rates, say 8%, then $25,000 of debt will add on $2,000 worth of interest per year. If you owe $50,000, you are looking at $4,000 interest and $8,000 of interest if you owe $100,000. So though the interest rate is typically lower than the credit card APRs, the average balance of student loans tend to be much bigger than the credit card balance so you still end up paying a sizeable interest if you don’t pay down your balance aggressively.
In Conclusion
If you have either one of these types of debts, aggressively pay them down and pay them off, that money saved is your guaranteed returns. There are many ways to do that. You can pay them down each month on your own, or you can get debt consolidation service to roll all your debts into one and just aggressively pay down that one debt.
You can even open 0% APR credit card (usually 12-18 months interest free) and transfer balances to that card and aggressively pay it down in the time frame that the APR is 0%. One caveat with credit card transfer balance is that they typically charge between 3-4% fees for balance transfer. So if you are transferring $5,000 to that one card, expect to pay between $150-$200 in transfer fees.
Prioritize getting rid of these BAD debts if you ever want to go anywhere with your finance.
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All the financial advisors will…