Money Matters

I can still remember my first day of finance class at UF. I can't tell you my professors name, but I can tell you that he taught me something that has shaped the direction of my life and my career. He taught me the power of....COMPOUNDING INTEREST. Huh? This amazing math can work for you and it can work against you. He showed me how compounding interest can work AGAINST you when you ( at this time he was addressing us students who just discovered the freedom and dangers of having our own credit cards ) pay only the minimums on credit cards...WOW, I thought. I will NEVER EVER carry balances on a credit card. And to this day I don't. Well, I lie. I carry a balance on a 0% card at Lowe's that I will pay off as soon as it is not 0%. That is okay, and I'll explain why in later blogs. Anyways. Compounding Interest, let me illustrate how dangerous Mr. Compounding Interest can be....
For example, we've got Mr. and Mrs. Like To Have a Good Time. They are new in their marriage and careers. Throughout their college years and early twenties, they have racked up about $10,000 in credit cards on a Visa Card that has an APR of 10% and are paying just above the minimum payment at $100 per month. When does this get paid off?....August of 2028!!! How much interest do they end up putting in the Visa's pocket...$11,590. So their $10,000 of purchases ended up costing more than twice what they paid for it. Change their payment to $250 per month, when does it get paid off...July 2012 and they pay $2,212 of interest...just by increasing to $250 of a monthly payment from $100, they saved $9,378 of interest. When I learned this I thought to myself, "I want to pay $0 in interest", which is why I don't use credit cards. But, if you absolutely have to..increase your payment, stop paying minimums. Think of what you can do with an extra $9,378. ( Invest it, downpayment on a house, go back to school etc. ) Soo...this is why the light bulb went off for me, if you can learn HOW money works, YOU can get money to work for you.