Defeat and Freeze Debt

Albert Einstein is famously quoted as saying that the 8th wonder of the world is compound interest.  We don’t know if Mr. Einstein actually said these words, but compounding interest is truly powerful. Let’s take a look at the battle of the interest rates:

CREDIT CARD INTEREST: By way of example, not by way of bragging, I have an exceptional credit score.  That's not my personal assessment, that's actually what the level is called.  Credit can be assessed as poor, fair, good, very good and exceptional.  Different entities measure credit differently, but depending on which report I pull, my credit score is somewhere in the range of 810 to 818.  What that does for me is it gives me the best possible interest rate when borrowing money.  Even with excellent credit, my main credit card I use has an interest rate of 19.24% (do you know what interest rate your credit cards are charging you? If not, call the customer help phone number on the back and ask!). Please note, I’m not actually paying this interest rate because I use my credit card like a debit card and pay it off twice per month, but more on that in another post…

INVESTMENT RETURN: So far this calendar year, my best Fidelity investment account has returned 16.16% so far in calendar year 2023. Some individual accounts have a similar growth rate and some are not doing as well as the S&P 500 so far this year (making adjustments in those accounts, but more on that in another post…). As I write this today, the S&P 500 is up 11.7% for 2023. On average, the S&P 500 returns 10% each year, but an individual year may be higher (like 2023 so far) or lower (like negative 19.64% in 2022 - yikes!). The goal is to stay invested long enough that the average falls in your favor.

HIGH YEILD SAVINGS ACCOUNT: This month, my high yield savings account (“HYSA”) is paying 4.45% interest. Some pay a little more and some pay a little less, but their return rates are so similar that after you do a few comparisons, the next best step is to just pick one. I picked a HYSA at an institution where I already had some other accounts so I can check my HYSA on the same app that I reference for other reasons. It’s nice to keep it simple with finances.

WHERE SHOULD YOUR MONEY HANG OUT? Interest rates or return rates create a compound power this is astounding. The higher the rate, the biggest the impact, for better or for worse. The lesson I hope you see from looking at my personal examples of interest rates and return rates is to move your money AWAY from the negative compounding impact of consumer debt on credit cards and towards the safety net you need in a cash stash (I keep mine in my HYSA) and then start building a positive portfolio by moving money where it can really grow. I put a lot of stock (literally) in index funds that mirror the S&P 500. I do have some individual stocks, but sometimes they win, sometimes they lose and I’m not young enough to make those types of gambles anymore.