Credit Card Debt – Pay Maximum

Why be minimum be Maximum. Max out your life not your debt. Debt is a tool but, like a knife it cuts both ways. You can get a house with debt or you can get a boat with debt. You can live in a house and having debt to acquire one may be a good deal (you have to live somewhere). Acquire debt to buy a boat seems to me to be a bad deal (unless you live in your boat). Using a debt card to buy a want rather then a need is a bad deal. I’d buy a text book for school over a comic book but, I would prefer not to buy with debt  in the first place.

The reason is explained in this wonderful video of the major reason to avoid “Debt Cards”  *(note – the method of compounding looks like it may be in error in this video but, it is still a good illustration of the effect of compounding):

 Credit Card Debt Explained with a Glass of Water

The most basic point is to pay off any Debt Cards as soon as possible with the maximum payments you can make to build financial momentum in the positive direction. (of course have an emergency fund)

Here is a quick example with hypothetical numbers for illustration purposes:

Suppose you have a $1000 Debt Card debt.

The minimum payment is $100 per month.

You have the potential to pay $200 per month of with discretionary money.

The monthly interest is 10% (compounded monthly)

It would take you 24 months to pay it off with the above minimum payment. The maximum payment using your discretionary money would have the debt paid in six months. Of course not everyone is able to pay double towards a debt but the point was pay more then the minimum and reap the reward. (Look at the below chart and see what happens when you invest at 5% the same $200 payments after the debt is paid off!)

Maximum Debt Payments – Maximum Investment Payments 2 Years

MaxPayoff_MaxInvest_Y1

MaxPayoff_MaxInvest_Y2

Even if the investment payment was decreased to the minimum payment the investment interest works for you instead of against you.

Maximum Debt Payments – Minimum Investment Payments 2 Years

MaxPayoff_MinInvest_Y1

MaxPayoff_MinInvest_Y2

The difference of investing in yourself by maximizing your payments instead of investing in a Debt Card Company.  Better yet buy stocks of the Debt Card Company and own them instead of them owning you.  Do some calculations yourself and see what happens.

 

*Tool – Great On Line Calculator ! Not a serious strategy but, another great way to reduce debt on a Debt Card is to write your own terms like Dimitry Agarkov !  He scanned a bank credit card offer, rewrote the terms to be 0% interest, no fees, and no credit limit and if the bank didn’t stick to the rules they would be fined $91,000 or if the bank broke the contract they would pay $182,000.

The only hitch to this one is you have to get the bank to agree to the terms and issue a card like Tinkoff Credit Systems did. I do believe the banks are going to read the fine print after Mr. Agarkov contract writing career.The bottom line is if you invest in yourself by paying off debt to the maximum you will have money to invest in your future. Pay the minimum towards your debt and the Debt Card Company will have a great future. The choice of who’s future you want to build is yours.

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