Basic Rules for Financial Freedom: Make Wealth Happen
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Pay Off Your Loans and Debts as a Priority
Do you clear your credit card balance every month? If you do, and you don't have any other outstanding loans/debts, then well done, you. You're not wasting money paying interest, and you're already in a strong position to go forward. Skip the rest of this Rule and carry on.
If you do have a credit card balance (or five), an overdraft, or other loans or debts, then you certainly aren't alone. It's so easy to get credit these days, and we live in a "have it now, pay later" society. Trouble is, debt bogs us down and holds us back. We're simply throwing money away paying off the interest. (You borrow, say, $20,000, and you can end up paying several thousand extra dollars back in interest. The actual amount you end up paying depends on how long you borrow for, as well as the interest rate you're being charged.) Debt is a millstone around the neck -- it makes you feel bad, it's always there nagging away at the back of your mind, and it can easily become a major problem that affects your health as well as your wealth.
There's no doubt about it. The very first thing you need to do on your wealth quest is to get loans/debts paid off as soon as possible and do nothing else until that's done. There's no point at all starting to put money into a savings account, earning say 5 percent interest, if you are at the same time paying 10 percent interest on money you owe to the bank or somebody else. It doesn't make sense. The simple truth is that those who borrow almost always pay a higher rate of interest than the rate received by those who save.
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From The Rules of Money Copyright © 2007, FT Press. Used by permission of FT Press, and Pearson Education. All rights reserved.
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