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The Financial Mistakes Series (part #2)

by Mar 14, 2020Financial Mistakes Series

It’s a shame there are many more ways to deplete our savings, than to increase them 😅. Unfortunately, in our journey towards early retirement, saving money is not enough: preserving our capital is equally important, and even more so after retirement!

So I’ve decided to create a little series about what I consider to be money mistakes – the ones that can really hurt our FIRE. Some of them are obvious, others less so.

(Standard disclaimer: these are just my personal opinions and do not constitute financial advise; if in doubt please speak to a financial advisor)

Now, without further ado, today’s mistake is….

Keeping credit card (or other high interest) debt

Besides their main purpose (borrowing money), credit cards are really useful for the additional benefits they usually provide: loyalty points, cashback, purchase protections, etc. However, none of them is worth the incredibly high interest rates they command. 💸

Some people think it’s OK to keep their credit card debt (at 19% or more) while investing their spare money in shares or other activities instead. Wrong! Unless you have very special circumstances (or your investments generate higher returns than what you pay in interest, in which case you’re a financial genius), the best way forward is to repay any debt before you do anything else (*).

The Family’s Perspective

We own and use credit cards. We do this to exploit the benefits they offer (every year we get around £400 in cash back money, for example). However, we are extremely careful to pay the balance in full every month. We have a direct debit setup so we never miss a payment and we never have to pay those astronomical interests. By the way, have a look at your cards’ terms and conditions: in the majority of cases, if you are 1 day late with your payment, you don’t simply pay 1 day of interest as you would expect: you pay interest from the date of the transaction or, in some cases, from the beginning of the previous month, so 30 days! Ouch!

Are we going to make this mistake?

Credit cards are a great invention… for the banks who offer them! They are waiting for you to miss one payment, or start paying interest, to recoup everything they have given you as benefits, and then some. The only thing we can do is to do outsmart them: by always paying the full balance, every month, without failing. This is what we are doing, so no, we are not going to make this mistake.

…More money mistakes?

Check out the full series here.

  

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