Why is it bad to carry a credit card balance?
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Consider what happens when you put money into an investment bond. Someone is essentially going to pay you a certain percentage each year for use of that money. Overtime this accrued interest is rolled back into the initial investment and compounds the principal and thus overtime your money makes money for you.
In this way, many savvy investors are able to reduce the amount they must work by having their money work for them. But when you carry a credit card balance, just the opposite is happening. You are paying a certain percentage to someone else that compounds and means that you must work harder. More importantly, you are paying a substantially higher interest rate than an investor would ever get off of a bond.
If for example you have $2000 of credit card debt and you have $2000 to either invest in a bond at 3% APR or to pay off your credit card with a 12% APR, which is a better investment? In this way you can think of paying down consumer debt as an excellent investment that is not only guaranteed (no risk), but that also guarantees a high rate of return. A bond that has the same a comparable risk profile pays only 3% whereas paying off that credit card is a 12% investments; a full 9% greater than the bond. Any invesor will tell you that a guaranteed no-risk 12% return in an excellent investment opportunity! In this way, paying off or at least paying down consumer debt (credit cards, retail credit cards, etc) as one of the best investments you can make!
If you are unable to immediately pay off the debt, the next best thing you can do is to find personal loans with more favorable terms than credit cards and this may provide a better structure for paying off that debt. Alternatively, find a low interest credit card (as low as possible) and increase your monthly payments to pay it off as quickly as possible.
