Upside Down Financial Thinking!

I heard a well-known financial speaker say that you shouldn't save money at 3% if you owe credit cards that are costing you 15%.

That's upside down thinking.

What he is really saying is "Put the needs of your family aside until you have first paid credit card companies off." Does that make sense? Should you put off saving money for several years while you dig yourself out of credit card debt? Should you put off saving for your child's education so you can first take care of the credit cards?

No.

Very simply, you MUST take care of home first! You must ensure that your family is protected in terms of savings, life insurance, health insurance, education, and so forth. THAT must come first. NOT your credit cards.

Now, you most assuredly should seek to pay off your credit cards. That is only right. But ONLY after you have first "paid" yourself by investing in these essential financial protections for your family. Put money in savings, an emergency fund, health insurance, and your children's education, etc., THEN pay your credit cards.

You may ask, "But I won't have enough to pay the minimum payment to my credit card company!" No? Well, then tell them what you can pay them. If they agree, fine. If not, THEN STOP PAYING THEM.

It will mess up your credit? Credit is what got you into this mess in the first place. It is a vicious cycle--and credit card companies know it! It takes time to pay off a credit card. It is very likely that before you get it paid off, something will come up that will cause you to have to use your credit card again (since you have put off savings and an emergency fund). And so you are right back in debt again.

PAY YOURSELF FIRST! Only then should you pay unsecured debt. They don't like it? Be nice, but tell them you have other things you have to pay that are more important. Is your house more important that credit cards? Yes. Is your child's future more important? Yes. Quit thinking that you will somehow catch up and make provision for your family and children after you pay off your credit cards--DO IT NOW! You don't know the future. You may never get out of credit card debt if you don't act now. You might wind up paying for your child's college tuition using credit card advances, who knows? You have to watch out for your family beginning NOW.

Paying for your house enables all these other things. If you have your house paid for, you can get a loan for just about anything due to the equity in your home (though you do need petty cash on hand at all times for emergencies). You can pay for children's education, needed appliances, and so forth. A bank will be happy to lend you a large amount of money on a $100,000 home. After all, they know that you will do your best to repay them, since not doing so will allow the bank to foreclose on your home--or force you to sell it before that happens, in order to pay off your debt.)

At the same time, should this worst-case scenario happen, and your home is indeed foreclosed on, well, the "good news" is that after they take what you owe them, the rest is yours. That is, you will have seed money with which to begin again. You will not be destitute (of course, I am assuming that you didn't take out a loan on your home to buy a red Corvette!). Your house becomes your bank, as well as your protection against complete failure--you'll have something left to carry you on until you can get back on your feet.

So pay, pay, pay on your mortgage so you can quit relying on the credit card companies and that evil thing they call a credit rating.

Do these things and turn your thinking right side up!

P.S. I want to emphasize that you should borrow against your house ONLY ONLY ONLY if you need to. Ideally, you want to be completely debt-free. But if you MUST borrow money and do not wish to rely upon your credit rating--or do not wish to pay the higher interest rates associated with less-than-perfect credit--only then should you borrow against your home. And you should seek to pay it back as soon as possible.