No doubt you’ve heard the refrain that all debt is bad. Economic experts say so all the time, using the most disapproving tone they can muster up to tell Americans not to accumulate debt.

But as with most proclamations from so-called “experts,” the notion that all debt is bad is a canard. Sure, too much debt is detrimental to your financial health. But that doesn’t mean all debt is ill-advised.

A home mortgage, for example, is good debt. By buying a home, you’re not only investing in the American Dream, you’re building equity in an asset that historically has seen its value rise every year. Student loans are another example. By taking a loan out to get a college education, you’re investing in your future. And study after study shows that college graduates, by and large, lead happier, healthier, more financially secure lives.

But there are bad debts, too – debts that can limit or even prohibit your ascent to wealth.

Of the bad debts, few are worse than credit-card debt. Simply stated, credit-card debt can kill you from a personal finance point of view. Massive credit-card debt can choke your ability to deal with all of your other financial responsibilities, taking over your life and limiting your ability to grow and prosper.

Bad Habits

In Automatic  Wealth, Michael Masterson emphasizes the importance of developing wealthy habits. In fact, it’s Step #3 on his list of the six key steps to financial independence.

And make no mistake, a heavy reliance on credit cards is one of the worst wealth-creation habits you can develop. The toll it’s taking on Americans is staggering.

According to the research firm CardWeb.com, the average credit-card debt of U.S. households with at least one card was $9,205 in 2003, up from $2,966 in 1990. That’s a whopping 310% hike. Worse, our children are picking up bad credit-card habits. According to the student loan agency Nellie Mae, credit-card debt of college students rose an average of 46% in recent years.

What’s with our propensity for those little plastic cards? Sure, it’s nice to eat at a five-star restaurant or buy season tickets to watch the Red Sox – if you can afford it with what you bring home on payday. But using a credit card to finance these little luxuries is a long-term loser, if only because most of the stuff you buy with credit cards depreciates rather than rises in value.

From a personal financial planning perspective, any money that is earmarked toward your credit-card debt is money that you can’t use to pay down those good debts I mentioned above. That’s the primary reason why credit-card debt is invariably bad debt.

Take student loan debt. In point of fact, student loan debt and credit-card debt are joined at the hip. For decades, credit-card companies have targeted college students, offering them their first shiny new plastic card while downplaying the dark side of owning one.

Well, that plan worked. Millions of young Americans who received their first credit cards in college (and millions more who didn’t, but got them right after they graduated and earned their first job) have developed the nasty habit of using them with alarming regularity. In the process, younger Americans have put a real dent in their financial health and made it even harder to address their student loan debt.

Nellie Mae says that a college student who makes the bare minimum monthly payment on the average student credit-card debt of $2,750 (with an 18% APR interest rate), would need a whopping 15 years to pay it off. Worse, the cardholder would have to pay as much in interest as the amount of the original $2,750 debt. And that’s operating on the dubious assumption that the cardholder would never use the card again.

Breaking the Cycle

That’s why managing your personal finances – especially your credit-card debt – is job one when it comes to creating automatic wealth.

How so? Well, try paying off your car loan or your college loan when your monthly Visa statement looks like the annual operating budget of Portugal. In many cases, the interest rate on credit cards is 16% or more … the interest you pay is not tax-deductible … and quite often the money you owe is for something you can’t even use anymore.

That said, here are some pointers to help you pay off your credit-card debt and get your personal finances on solid footing:

  • First, make sure the credit-card bill is accurate. Analyze the bill. Make sure it matches your receipts. Sometimes when you sign on the dotted line, you don’t double-check the amount of the purchase. Big mistake. You might not have been charged the discounted sale price for an item. You might have been charged twice. You could even have been charged for an item purchased by someone ahead of you in line. It happens. If you notice a discrepancy, call your credit-card issuer and dispute the charge.
  • Don’t fall for any “special deals” from your credit-card company – offering to lower your minimum payment, for example, or telling you that because you’re such a good customer, you can skip this month’s payment. Skipping a payment sounds enticing, but remember that the interest-rate clock is still ticking. Suppose your bill for the month is $2,500. If the annual interest rate on your card is 18%, skipping that one payment could cost you about $38 in finance charges that will show up on next month’s bill. (No wonder the credit-card company is encouraging you to do it.)
  • A great way to keep track of your credit-card expenses – all of your expenses, for that matter – is to write down what you’re spending as you spend it. You may not realize it, but using a credit card to pay for that glass of Merlot after work, the dry cleaning you picked up on the way home, and that four-cheese pizza you had delivered to your door for dinner adds up. A record of your daily, weekly, or monthly credit-card expenditures might make for some interesting reading.
  • Don’t “manage by credit card.” Too many consumers like to use a credit card to buy everything. (The credit-card companies LOVE to push that strategy.) That way, they have a ready-made list of their expenditures sent to them at the end of the month. Bad idea. Getting into the habit of using a credit card is never a good ploy. It’s easy to treat the card like cash – but it ain’t cash. Sooner or later, you’ve got to pay – with high interest payments to boot if you’re not on time.

Put the credit card away. Cut it up if you have to. Try using a bank debit card to “pay as you go.” You’ll soon be pleasantly surprised by how much cash you have on hand every month – money you can use to pay off good debt and put into investments that will grow.

[Ed. Note: Brian O’Connell has authored 10 books, including The  401(k) Millionaire and CNBC’s  Creating Wealth. With his background on the Philadelphia Stock Exchange and at the fixed-income trading desk of Delaware Funds as a bond trader, he’s appeared as an expert commentator on business issues for CNN, Fox News, CNBC, C-Span, Bloomberg, The LA Times, and other media outlets.

Currently, he operates a freelance writing business, working on books, corporate copywriting projects, and magazine articles for a variety of clients. Brian is also proud that he’s a volunteer grade school newspaper editor for Kutz Elementary School in Doylestown, PA, where he works with students to produce The Kutz Chronicle, the school’s quarterly news publication.]

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