Everyone that reads this post today should do one thing before moving forward, open up your wallet and pull out your plastic, be it Amex, Visa, MasterCard or even a store credit card and put them beside you.

Now, I’m not going to ask you for some money, but I am going to ask you, how much debt is on each card? Do you pay it off in full each month or like many people, just pay off the minimum balance and continue this never ending cycle where all you are doing is paying off the interest.

How much interest are you paying on each card? Most people that I know pay anywhere from 11.4% – 27% in interest alone! With those types of fees, you are going to be working for your money rather than having the financial freedom that you deserve.

I have a few simple steps that I always ask friends and clients do when they are carrying credit card debt:

1. Cancel cards where you pay an annual fee.

There are many cards on the market that offer no fee and still you can generate rebates on gas, points for trips, and other products, personally I have a Platinum card that is no fee with Bank of America that gives me all the protection I need along with a generous points system I can use for an array of items from a toaster to a trip. By eliminating the annual fee cards, you can instantly save $100-200/year on each card. Note, when some try to cancel their fee cards, operators might try to waive your fee for one year. If you accept this offer, take note of when the next fee will apply or like I did, just decline and go to a no fee card.

2. Consolidate all your balances onto one card.

By doing this, you are able to manage one account and only one goal towards financial freedom. When I was 19, I remember having 5 credit cards in my wallet with different amount owed. Some cards I would pay the minimum balance of 3% while others I would just throw what I could afford, this was making me lose money and also track of what was being paid off. I seemed like a cycle of debt. Having all my charges transferred onto one card helped in many ways. I was also able to get a better rate by talking to the card issuer and was able to keep a higher credit rating score since I was making regular large payments on time.

Some cards offer a separate, lower interest rate for balance transfers. When I consolidated my debts onto one card, I was able to get 0.9% for 12months which was MUCH lower than the 18% I was trying to pay off. When doing a balance transfer onto another card, keep in mind the time frame you have to enjoy the low rate and also note that if you miss the payment due date, the rate goes up to almost 25% on some cards. So be careful and track your payments.

3. Cancel all extra cards.

Having extra credit cards is a hassle and a problem in many ways. Some people might misplace cards and you wont realize until its too late and charges have been made. Yes, you are protected against fraud, but the hassle of filling out forms and answering questions and then having your credit history messed up is a major pain and takes up a lot of time.

Another reason to cancel those extra cards is to prevent over spending, especially during the holiday season. Many people feel that putting a new LCD TV or Laptop onto a credit card is ideal because the “item is on sale!”. Well, if your card is charging you interest of 18%, and you are buying a product that is 10% off, you just got suckered into paying more on the long run. Plus as all things depreciate over time, by the time you actually paid it off, its worth nothing close to what you ended up spending.

4. Finally, dont make purchases that you cannot afford to pay off in full at the end of the month

This is hard I know, we are all tempted when shopping to purchase some new shoes, a leather coat or put an expensive dinner and drinks on the card and worry about it later. Its easy to get caught up. Like many others, I was just like this, but after realizing the amount of money I was throwing away in interest charges, it was clear that I had to change if I wanted money down the road when it really would matter (buying a home, paying for education, getting a car).

We all want the best things life can offer. I know at a young age I was spending more than I could support and had to realize that this habit had to change. How was I going to support a spouse, a child and fulfill my financial obligations with bills when all I was doing was spending on new MP3 players and shoes when I had perfectly good ones.

Its hard to change old habits, but for your better good, its necessary. Looking back at the mistakes I made I wonder why I didnt change sooner. Reading this should give you some tips and ideas on how to get one stop closer to financial freedom. Instead of having a wallet full of debt, lets change and put some of your money back in there.

Happy Investing!

Aman, MBA

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