Financial Literacy Month suggests it's time to take advantage of available tools, resources, and tips for financial education that can help increase your financial success. This month put yourself back in the driver's seat!
Do a thorough review of your bills, and you might find hidden fees that are pecking away at your hard-earned nest egg. At the onset of a purchase or subscription, we tend to do our due diligence, but as the years roll by, we stop reviewing, and that's when we lose control.
Consider the interest on your credit cards. Even if you have a low balance, some cards charge multiple interest rates based on purchases and cash advances. Although the difference may be slight in the short-term on a small balance, it's more significant in the long-term with a larger balance. For example, a $10,000 balance with an APR of 16% paid off over two years will cost about $1,750 in interest. The same balance at a 20% APR will cost about $2,215 in interest.
Most credit cards have variable APRs that'll fluctuate with a particular benchmark, such as the prime rate. For example, if the prime rate is 4%, and your credit card charges the prime rate plus 12%, your APR becomes 16%.
It's time to consider paying your balance in full.
Paying off a credit card balance is much like getting a guaranteed rate of return on your investment. If your credit card charges 20% interest per year and you pay off the balance, you're guaranteed to save yourself 20%, which, in a way, is the equivalent of making a 20% return.
So, when you have cash to spare, it's almost always better to use it to reduce your credit card debt than to invest it. If you can pay off your balance and stop paying credit card interest altogether, you'll find you have more money to invest in the future.
One interim strategy to consider, if you're eligible, is transferring your current credit card balances to a balance transfer credit card with a lower interest rate.
During Financial Literacy Month, pledge to yourself that you're ready, willing, and able to take responsibility for your financial future. It's the first step towards achieving financial health. If you need some professional guidance, contact us today.
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