The 5 Wealth Killers No One Talks About - Part 3: The Cost That Never Sleeps

 In Part 3 of The 5 Wealth Killers No One Talks About, George Jameson, CFP® and founder of Capital Wealth Group, exposes a silent drain on your finances that’s more common than you think. 

 Welcome to "The Retirement Guide" Podcast! I'm your host George Jameson, owner of Capital Wealth Group, a Fee Only Advisory firm. Whether you’re nearing retirement or already retired, Join me each week as we explore the world of retirement planning and equip you with the knowledge and tools you need for a successful retirement.

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This is for education only.It is not tax, legal, or investment advice. Before  acting on any information consult your tax, legal, or investment advisor.

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Transcript

George Jameson: 0:18

Welcome back to Your Retirement Guide podcast. I'm George Jameson, certified financial planner and founder of Capital Wealth Group in Columbia, South Carolina. Last week I talked about how buying too expensive of a car can be a silent wealth killer over time, and how to buy a quality used vehicle without breaking the bank. Now today we'll explore the third Silent Wealth Killer, which is high interest personal debt like credit card debt, which has compounding rates. Please note, if you're already debt free, which a lot of my listeners are, congratulations, but please listen anyway and share this episode with someone you know who may have a spending problem, or who already has credit card debt. High interest debt, especially credit cards, can quietly derail your financial progress through compounding interest that far outpaces typical investment returns. The current average APR is now above 21%. And US households carry over$1 trillion in credit card balances. In addition, delinquency rates have been going higher in recent quarters. The best thing you can do is pay off your credit card each month and set it on Autodraft to make sure. However, life happens, and as the stats show, a lot of people carry credit card balances. But by understanding how interest compounds, selecting the right payoff method and following a structure repayment plan. You can get outta debt for good and save thousands of dollars in interest, protect your credit and free up important cash flow for savings and investments. So over half of us, about 53% of credit card users carry a balance for at least a year or more, and with APRs running between 20 to 28%, that debt can snowball fast. You've probably heard the saying often linked to Einstein about compound interest being the eighth wonder of the world. Whether he really said it or not, it nails the idea. Interest earns interest. That's great when it's working for you, but brutal when it's working against you. Here's a quick example on a$10,000 card balance. At 22% APR compounding monthly, you'd owe nearly$19,600 after five years. If you only made minimum payments, that's almost$10,000 extra you never meant to spend. Now let's talk about how to get outta debt. There are two primary accelerated payoff methods you can use. Number one is the debt avalanche. This is basically where you pay minimums on all debts and then apply extra funds to the highest APR balance. First. This method saves the most interest over time. And then number two is the debt snowball. This is where you pay minimums on all debts. Apply extra funds to the smallest balance first to build momentum, trading some interest savings for psychological wins. This is the method that Dave Ramsey preaches. Both strategies work well if you are disciplined, but it's not that easy. And one way to avoid debt altogether is obviously don't overspend, keep a budget and also make sure you have at least a 12 month emergency fund. In case life throws you a curve ball, like losing your job, having to take a major pay cut, losing a business major unexpected expenses, and so on. A 12 month emergency fund should help keep you from running up large credit card debt. Your dad, your sister, or maybe you or any one of us. Could face a sudden income drop, a market crash, or an unexpected expense it's tempting to grab the credit card or take a loan, but carrying high interest balances can nibble away at your financial future faster than you realize. No matter how bad it gets, avoiding or eliminating the expensive debt is the first step back to shore. Now if you or someone you know, finds yourself and then major credit card debt. Here are some steps you can take. First, list all your debts with balances, APRs, and minimum payments. Second, choose your method, either the avalanche for math or the snowball for psychology. Three, free up cash by trimming discretionary expenses and or pausing non-essential subscriptions. You may want to delete your Amazon app cancel cable, Netflix, gym memberships, trips to Starbucks, out to eat, and so on at least temporarily. If income is your problem, you may want to find a second job again, at least temporarily, until you have paid off your credit cards. Number four, redirect the free cash towards your target debt each month. And then automate payments to ensure consistency and avoid missed payments, which can trigger late fees and rate hikes. And then I personally recommend using some type of spreadsheet. You can find some free ones online or just simply use pen and paper. And now for some emotional and practical tips, don't punish yourself. Celebrate each debt paid off with a small budgeted reward. Avoid new debt of course, lock away the credit cards. Again, delete your Amazon or whatever app you use to make purchases on your phone. Cancel all essential subscriptions and set alerts to curb impulse spending. If you can pay off your debt on your own, great. Please do so. This is the best way to go about it. Follow a plan like the two I mentioned, and stick to a budget. But if you just feel like you can't do it alone, there are options and you may want to seek help, whether it's through a friend or someone you know that's really good at doing this. Or if you have no one to go to when your credit card bills start really piling up, it can feel impossible to dig out. So here's two options you may want to consider. However, there are pros and cons to each. And please do your own research before deciding on this route. The first is to work with a credit counselor. Think of a nonprofit credit counselor as a coach for your debt. But before you sign up for a debt management plan, ask about their fees there are some that are free, but make sure you read the fine print. And then also ask what they actually do for you. A good counselor can haggle with your issuers to lower rates or even roll multiple cards into one easier payment. However, there are some drawbacks to this option, but for some, this is a good choice. The second option would be to negotiate directly with your credit card companies. Keep in mind, this will also hurt your credit score. But if you're deeply into credit card debt, this may be an option for you. So believe it or not, you have more leverage than you think. Credit card companies hate defaults. They'd rather get 50 cents on the dollar than nothing at all. So here's how you may want to go about it. From zero to 60 days overdue, you'll usually just get reminders and late fees. And then from 60 to 90 days overdue calls get more frequent and serious. This is when you definitely want to start telling them, Hey, I'm in a bind. But I want to pay this off and can you work with me? Around the 90 day overdue period. This would be a prime negotiation time. Creditors are most open to a settlement at the 90 day period. However, you don't want to go past a hundred or 120 days'cause that's when credit card companies typically charge off your account and sell your balance to a collections agency. And once it's sold, you're stuck negotiating with debt buyers who are often tougher and less flexible. So what a settlement may look like. Sometimes you'll pay a one lump sum, say 40 or 50% of what you owe, and walk away with a zero balance. Other times you'll agree to a lower interest rate or even a structured plan. And then often you'll do a mix between a lump sum or down payment and then a payment plan. So bottom line, don't panic, but please do act. Reach out early, explain your situation and work out a deal before your debt heads to collections. Remember that every dollar you divert from interest is a dollar you can save, spend, and invest for retirement. So some final thoughts. High interest debt may be the most insidious wealth killer out there, slowly draining resources through compounding interest while you sleep, but with awareness of rates, a clear payoff strategy and discipline execution. You can break the cycle, save thousands, and redirect your cash flow toward building real lasting wealth. And one more thought. If you're not already in credit card debt, one key is to have a 12 month emergency fund because life does throw us curve balls. That wraps up today's episode. Please share this with anyone you know to either help them avoid going into major credit card debt or help those who need to get out from under it and please subscribe. If you're serious about retirement planning and like a one-time plan or help with ongoing investment management and retirement planning, please visit my website and schedule a free consultation@www.capital wealth plan.com. Next week we'll tackle the fourth silent wealth killer. So stay tuned. Thanks for listening and have a great day.