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COMMENTARY Graduating college and moving out on my own started a quick downhill slide for me financially. But I was able to turn things around, leading to what I term my big money secret - virtually no debt.
As I moved out on my own, I maximized the balances on my credit cards to buy furniture and fixtures, to buy my work wardrobe, and to maintain a lifestyle that was better than my income could provide. I quickly found myself barely able to pay the minimum balances and I found that I had little available credit for emergencies. I was riding in my car one day with my boyfriend, now husband, driving and we hit a deer on a country road coming back from his house. While I had insurance, I realized that I did not have credit available on any of my credit cards to pay to get my car repaired and I went, hat in hand to my parents for help.
Since, I have maintained my financial secret. I pay off every credit card every month. I started using an American Express card once I was able to secure one. Because that card must be paid in full every month, it helped me to gain the discipline necessary. But now, I maintain a variety of rewards credit cards and use them appropriately. It has probably been 20 years since I have carried a balance on a credit card and just as long since I have had more than a car loan and a mortgage outstanding.
The returns on paying a credit card off each month can be substantial. First, credit card interest remains much higher than mortgage or car loan rates. I am not going to pay someone more than 7-8% for money when I cannot earn that kind of return anywhere in the market or at a financial institution. Second, I have learned that I enjoy the financial independence of a largely debt-free lifestyle. I know that I am not beholden to anyone or any institution financially. Finally, available credit gives me financial security. If some sort of catastrophic loss occurs, I have the available credit to manage my life and that of my family.
While it takes considerable discipline, my big financial secret is paying off my credit cards each month and living a largely debt-free life.
More from this contributor:
When is Debt Appropriate
What to Look for When Selecting a Mortgage Broker
Financial Independence
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