What do you think is the biggest single reason people struggle financially? They don’t make enough money, they don’t save enough, they don’t know how to take advantage of the stock market, maybe a combination of all of these?

NO, IT’S DEBT!

By far the biggest single factor is the debt people carry, especially on credit cards and student loans. This problem has become more acute in recent years as investment returns have been almost flat and wages have become stagnate. In 2015 the average American household carried over $15,000 in credit card debt. Making the “minimum monthly payment” is a slow death march to your financial well-being.

Think about it, bank accounts and money market funds are paying you less than 1% on your money, US 10 Year Treasury’s pay under 2%! It is just difficult to make a normal return of 6-8% most people need to fund their retirement. Yet you will go out and purchase stuff on a credit card and pay 12 – 20% interest. Now, I’m not talking about the disciplined people who automatically pay-off their entire credit card balance each month. I would say these people might actually be pretty smart if they have credit cards that pay them 2% “cash back” on their purchases, they are “beating” the system.

The consumers I’m referring to carry a stack of cards in their wallets/purses and know which ones are already maxed out. If your money is worth 1 – 2%, your wages only increase 2-4% a year you just can’t afford to pay 18% interest on a credit card, it’s a financial downward spiral, there is no recovery.

So, if you are in that situation, what can you do? The answer is simple, pay off all credit cards ASAP. Then only use your card for future purchases if you can pay the entire balance at the end of the month.

There are some ways you might be able to do this without inflicting excessive pain. For example, I would suspend my 401K retirement contributions at work and make sure every penny of this money goes to credit card debt reduction. Figure out the highest rate card you carry and pay that one off first. Another possibility, is to swap debt, if you have a house take out a “home equity line of credit” completely earmarked for credit card debt reduction. Yes, you’ll have to pay back the HELOC but it will be at a much lower rate and spread out over time.

Don’t get me wrong, all of us have used credit cards and made payments. They helped us handle unexpected emergencies, and we may not have had the cash at the time. As you get older and start to plan the purchase of your first house, college education for your kids or plan your retirement you’ll want to closely examine the use of all types of credit, even home mortgages. The conventional wisdom is to plan so that you retire with a paid-off house. However, you might also develop a strategy to carry a very low interest mortgage 4% or less, while investing in returns of 6% or higher while maintaining access to a much higher level of cash.

In all cases paying the “minimum monthly payment” will haunt you for a lifetime.