Unfortunately, there’s a lot of bad advice out there. Last week I posted a blog entry about a questionable recommendation I came across involving credit cards and home equity lines of credit. Then today, I read some awful counsel regarding debt repayment that I hope you’ll steer clear of.
An Illinois based financial services firm believes consumers should delay paying off their debt so they can instead save money for the long term. I’ve now read this press release multiple times and I just can’t believe the company let this document get out the door. I agree that we should all prepare for the future. But at what cost? It’s simply too expensive (and foolish) to carry unnecessary obligations, especially when interest rates on credit cards often top 20%.
Before the stock market and real estate boom crashed, many people convinced themselves (with a little help from some in the financial industry) that borrowing money was as American as apple pie. While I think that carrying some debt is okay — including a fixed rate mortgage — many consumer loans are outrageously priced and should get paid off as soon as possible.
Having said that, I do believe it’s important to have at least six months worth of savings set aside for an emergency. I also think you should aggressively save for retirement. But before you can work toward either of these goals, you had better stop throwing money away on high interest debt. The only way you could possibly justify paying the rates on a credit card or some other consumer loan is if you are making more on your money in the market. And that’s certainly not the case these days.
What if you do lose your job? For one thing, your overall expenses will be lower if you’re not saddled with consumer debt. Plus, if you maintain good credit and your situation gets desperate, you can always put some of your expenses on your Visa or AmEx. Then just make sure to pay off the balance as soon as you’re employed again so you can limit the overall interest paid.
I wonder what bad advice I’ll come across next week.
Money, Money, Money image by borman818, CC 2.0.
