Day 6: The Best Piece Of Advice I Was Given About Financial Interest

When I was 20, my intro to accounting professor, Julie Gentile, gave me an unforgettable piece of advice.

I was just starting to get interested in accounting and finance, and had been running myself ragged trying to pay for college. But, like most beginners, I was making a lot of mistakes: I took out unsubsidized student loans, I carried some credit card debt without an iota of understanding about credit card terms, and I had no significant understanding about financial interest.

Until one day, Julie said to me:

“If you make only the minimum payment on your Credit Card, you will not pay off your balance for 20 years. Run for the hill on those.”

That day, my whole perspective to finances changed.

I got pretty enraged at this concept of interest that I set out to understand it.

While I didn’t have immense debt myself, I grew up under a household with not much financial literacy and had assumed “if you pay the minimum” you’d be fine.

Oh how damaging that assumption is.

If I maxed out my then Wells Fargo Student Credit Card at its $1,000 limit at a then 20% variable interest (that 20% kicked in 6 months in btw…), and I only made the minimum payment of $17 per month, I would still be paying for that credit card right now, and I would only be half way there, 10 years later.

With interest, you can easily find yourself paying significantly more later to a degree that is 2x to 5x your original amount, if you only do the minimum. If you pay the minimum rate on a 4% 30 year mortgage, you will pay an additional 75% more than what the original price is.

I have been carrying this revelation through out my life leading me to aggressively pay down high interest, unsubsidized loans student loans first, expressing an abundance of caution in auto loans and financing agreements, and having way too high of a skepticism with any pre-approved lending options.

Read this post and more on my Typeshare Social Blog