Millionaires are optimists

Year after year, we’ve found that our clients overwhelmingly consider themselves to be optimists. That shouldn’t come as a huge surprise since studies have found that optimists tend to experience more financial success. So what should you do if you are more of a pessimist? You can’t change your personality overnight to become an optimist, but you can become more optimistic over time through habits like practicing gratitude.

Being an optimist doesn’t mean seeing everything with rose-tinted glasses, either. You can recognize problems in your life (or the world) while working towards change. An optimistic outlook means believing you can change your life (and finances) for the better. The biggest problem with pessimists isn’t that they see themselves and the world for how it truly is, but that they often have a fatalistic outlook and don’t believe their actions matter.

Private schools are optional

Only 9% of children in the US attend a private school, but Americans largely agree that private schools do a better job educating children than public schools. In fact, studies have found that private school students score higher on the SAT than public school students. Another study compared academic performance for private school and public school students and actually found no statistically significant correlation after adjusting for one key variable: family income. 

Private school students tend to perform better than public school students, but there is a glaring selection bias. Private school is generally very expensive, so if you can afford to send your children to private school, chances are they are already ahead of the curve. Indeed, the study referenced earlier found that once you adjust for income, there is no statistically significant difference in academic performance.

Our millionaire survey further reinforces the idea that private school is not a prerequisite for success. 77% of clients surveyed attended public school from K-12 and 69% attended public universities.

Credit card use okay, credit card debt no way

Why do millionaires use credit cards? Credit cards can be a powerful tool, as I wrote recently, and millionaires know how to use them effectively. It’s really simple, actually – just don’t use them to live above your means! Credit cards are superior to cash or debit cards in almost every way. They often offer enhanced fraud protection, points or rewards, and some offer extended warranties, price matching, and insurance. But all of these benefits are only worth it if you have the discipline to use it like cash or a debit card and not go into credit card debt.

Drive it until the wheels fall off

When you think “millionaire,” you probably don’t imagine someone driving an older, high-mileage car. But our millionaire survey found that most clients tend to drive cars for over seven years! Driving vehicles for as long as reasonably possible makes a great deal of sense. Cars are depreciating assets, but depreciate the most in the first 3-5 years. The longer you keep a car, the greater the “value” you are getting out of driving it.

20% down isn’t a must on your first home

Putting 20% down on your first home is a good idea. It gives you a buffer against price depreciation and will make your monthly mortgage payment a bit lower than putting down less. With median home prices over $400,000, though, putting 20% down on a first home can be really difficult. Our millionaire survey found that 78% of our clients did not put down 20% on their first home, and you don’t need to either, but you still need to follow some ground rules to make sure you aren’t buying more home than you can afford.

Follow our 3/5/25 rule (aim to put down at least 3% to 5% on your first home, and make sure your monthly mortgage payment does not exceed 25% of your gross income). You need to plan to live in the home for at least 5 to 7 years, especially if you are putting down less than 20%. And on subsequent houses, you should aim to put down at least 20%.

Invest 25% or more for retirement

It should come as no surprise that our millionaire clients are good at saving money. The majority of Abound Wealth clients either invest 25% or more for retirement or are already retired.

Investing a healthy amount for retirement is a no-brainer if you want to achieve financial success. It’s like brushing your teeth to avoid cavities or eating healthy and exercising to keep in good shape. We recently launched a compound interest calculator if you are curious to see how much your savings can grow.

We’ve found that the public perception of millionaires is often quite different from the reality. Millionaires are optimists, usually go to public schools, use credit cards (responsibly), drive cars for a long time, don’t put 20% down on their first home, and most importantly, invest a large percentage of their income for retirement. None of these habits and traits require an extremely high income to achieve. No matter whether you are already a millionaire or currently have a negative net worth, implementing these habits and traits in your own life can help jumpstart your financial success.

The financial problems faced by millennials are well-documented. We were graduating high school and college during the Great Recession. We used student loans to pay for our college degrees that often weren’t worth the paper they were printed on. We had (and many continue to have) trouble affording homes. We are waiting longer and longer to have kids or are not having them at all (to be fair, the decision to delay having children or to not have children isn’t always related to money). We own less than half of the wealth that our parents did when they were our age.

All that being said, I wouldn’t want to trade places with my parents or any previous generation. My parents and grandparents had to go to a friend of a friend to invest, and they usually sold them insurance or annuities instead of helping them invest in the stock market. It is easier to access good financial information than ever before. Sure, there’s a lot of misinformation out there, but if you know where to look, you can teach yourself how to invest, the best way to pay off debt or buy a car or house, and so much more.

Gen Z’s four-letter problem

Gen Z shares many of the same financial problems millennials face. Homes are out of reach for many, college is expensive and often necessitates student loans, and many are facing tough job markets when graduating college (tech especially). There is one notable difference, though, and that is debt.

Gen Z carries a higher average debt load than any other generation. The average Gen Z adult has nearly $100,000 in debt (including credit cards, student loans, personal loans, medical debt, mortgages, and auto loans), but this average is skewed by a small but notable percent of this generation that carries a significant amount of debt. 32% of Gen Z adults have no debt at all, and 30% have some debt, but less than $50,000. 13% of the generation has between $50,000 and $100,000 in debt, and 11% has over $100,000 in debt (I’m assuming the percentages here don’t add up to 100% due to non-respondents).

The reason for Gen-Z debt

There’s no doubt that many members of Gen Z with over $100,000 in debt have their mortgage to blame, but the most common debt carried by Gen Z adults was not mortgages, but credit cards (56%), student loans (31%), personal loans (23%), medical debt (19%), and finally mortgages (16%) and auto loans (10%). The spending habits of young adults is quite different from older generations and might explain the higher debt load young people carry.

Older households spend more money on housing, household goods and services, and healthcare. Younger households spend more on education, communication, transportation, and leisure. It makes sense that the older you are the more you spend on healthcare, and that younger people spend more on education and communication. The notable difference in spending appears to be a preference by older households to spend money on goods and services and younger households to spend money on transportation and leisure. 

This is something we’ve known for quite a while: young people would rather spend money on experiences than things, and about 60% would rather have those experiences now instead of saving for retirement. Not saving for retirement is definitely bad, but choosing to spend money on experiences rather than stuff is a good thing. Experiential purchases have been shown to make people happier, even when accounting for price differences. Younger people are prioritizing spending that makes them happier, but unfortunately some may be going a little overboard.

How young adults can avoid consumer debt

In some ways, it is easier to control spending on things than it is spending on experiences. With things, your happiness boost often fades quickly and buying stuff doesn’t really provide you with cherished memories. Spending money on experiences is often accompanied by pressure from friends and family to join in on the fun and spend a certain amount of money, whether that’s just a dinner out or an expensive vacation.

It is really difficult to turn down new experiences with friends and family, but setting boundaries around how much you are willing to spend can help avoid those tough conversations entirely. Friends and family are much less likely to pressure you to spend money on something you can’t afford if they know you can’t afford it. It can be really difficult to talk about budgeting and money, but it is far better than the alternative which is living above your means.

Take iPads, for example. iPads are an incredible tool that can be used for so much good: you can read books, watch educational videos from The Money Guy Show, create art, write articles, get in shape using fitness training apps or videos, and so much more. Just as much as iPads can be used to improve your life, though, they can be harmful. Maybe you use your tablet to watch 8 hours of mind-numbing television per day or have developed a sports gambling habit on one of many betting apps available on tablets. 

Credit cards, just like any other tool, can be helpful or harmful depending on how you use it. Here’s how to use credit cards the right way, so they can be a valuable tool in your financial life, and what to avoid doing with credit cards.

Pros of using credit cards

Credit cards are usually the most convenient way to pay for a transaction. It is quick; all it takes is a simple tap or insert of your credit card chip into a card reader and the transaction is done. Long gone are the days of counting out the change in your coin purse or writing a paper check. One of the greatest “conveniences” of credit cards, and the biggest dangers, is that you don’t even need to have the money in your bank account to complete the transaction.

It costs merchants more to accept credit cards due to processing fees, and while some business owners charge credit card users more, the majority charge the same prices to both credit card users and those that pay in cash or cash-equivalents. This means that if you use cash or equivalents (like a debit card with no rewards) you are subsidizing credit card fees. The Federal Reserve has estimated that each household in the United States that uses credit cards receives an annual wealth transfer of $1,133 from cash users.

The benefits of credit cards go well beyond convenience and having cash users subsidize the prices you pay. Here are some other common benefits credit cards offer.

1. Fraud protection

Shop with a credit card anywhere you’d like a little extra protection. By law, your liability is limited to a maximum of $50 for unauthorized transactions, but most card issuers have zero fraud liability policies.

2. Points or rewards

Some credit cards offer cash back rewards that can be redeemed as statement credits or other cash equivalents. Others offer rewards that may only be redeemed for certain things, like miles for traveling or points for gift cards.

3. Extended warranties

Potentially one of the greatest features of a credit card is extended warranties. If you are making a big purchase, like an expensive home appliance or television, using a credit card with an extended warranty feature. This could help replace the purchase later down the road if something goes wrong.

4. Price matching

Some credit cards will price match items, which means if you make a purchase with your credit card and the price later drops, you can get a credit for the difference.

5. Insurance

Credit cards may offer travel or trip insurance that covers you if your flight is delayed or you use your luggage. Using a card with this feature can be great for frequent travelers.

Credit card pitfalls to avoid

Why would anyone not use credit cards? It’s the most convenient way to pay, you are essentially paying less for every purchase if you are receiving credit card rewards, and your card issuer may also offer benefits like price matching, extended warranties, and insurance. All of those benefits come at a price, though, and credit card companies aren’t operating out of the goodness of their heart.

The biggest pitfall is overspending. Studies show that people spend about 12% to 18% more, on average, when using credit cards. Credit card spending often doesn’t feel as “real” as seeing money come out of your bank account or handing over cash. Even if you pay your credit cards in full every month, you still might be spending more than you would if you weren’t using them at all. Credit card rewards and other benefits can make up some of the difference, but not all. If most Americans spend 12% to 18% more when using credit cards, it’s safe to say that most Americans would be better off not using credit cards.

Unless you have the excess income to cover credit card overspending, it will naturally lead to credit card debt. That sounds scary just to type; almost like a dentist warning you that not brushing will lead to cavities, tooth decay, and eventually, root canals. Credit card debt might even be less pleasant than having work done at the dentist.

Credit card debt is extremely harmful because it weaponizes compounding interest. Not only does it use compounding interest to harm you, the average interest rate on credit cards, at 24.20%, is substantially higher than you can expect to earn by investing in the stock market. Unfortunately, almost half of all credit card users carry a balance from month to month.

Credit cards can be financially beneficial when used properly, but they can be extremely damaging to your financial life if you carry a balance. If you have trouble controlling your spending when using credit cards, there is nothing wrong with foregoing the benefits of credit cards and using only debit cards. If you are an overspender and will carry a credit card balance, the benefits of using credit cards pale in comparison to the harm that carrying credit card debt can cause.

Despite how harmful credit card debt can be, it is very common. Almost half of all credit card users are in debt, and the average American household with credit card balances owes $6,270 in debt. If they are paying the average interest rate of 24.20%, that means they would be paying $1,517 per year in interest.

If you find yourself carrying credit card debt, you are not alone. Unfortunately, shame and embarrassment can hinder your ability to focus on the debt and pay it off as quickly as possible. Here’s how to get rid of credit card debt for good and relieve yourself of the stress and anxiety that always comes with high-interest debt.

1. Know how much debt you have

You may know exactly how much credit card debt you carry down to the penny, in which case figuring out how much debt you have seems like a silly suggestion. However, many Americans avoid thinking about their debt at all costs, and around 25% don’t know how much credit card debt they have. If you are part of this 25%, the first (very painful) step to getting out of debt is determining exactly how much debt you have and the interest rate on each credit card, if you carry debt on more than one card. Knowing how big the problem is makes it more difficult to ignore and helps you prioritize which credit card to pay off first.

2. Determine how much you spend each month

The next step to paying off your credit card debt is determining how much you spend each month. If you have credit card debt, chances are you may be spending more than you make (unless your debt is due to one-off spending for emergencies). Take a moment to sit down, look at all of your accounts, and categorize all of your expenses from the prior month. If you are spending more than you make, your budget is not sustainable and you will continue to accumulate more credit card debt unless you make a change. You must reduce your spending or increase your income to pay off your debt. 

3. Develop a plan for paying off your debt (and stop using the card)

Once you know how much you are spending every month and have (or can make) room in your budget, next you will develop a plan for paying off your credit card debt. Make your debt a priority and a top-level budget item instead of just using whatever money is leftover at the end of the month on your debt. Dedicate as much money as possible to your credit card debt; it is in your best interest to get rid of it as quickly as possible. Financially, it is better to prioritize debts in order of interest rate and pay off the highest interest rate debts first. Some believe in paying off the smallest debts first, which may give you the motivation you need to keep going. Check out our take on the avalanche vs. snowball method if you are curious which may be right for you.

An important step of getting rid of credit card debt is making sure you don’t accumulate any additional credit card debt while you are working to pay yours off. It may make sense to only use a debit card if you are prone to overspending when using credit cards.

4. Implement your plan (and make changes as necessary)

Now that you know how much debt you have, know what you are spending each month, and have developed a plan for getting out of debt, it should be smooth sailing, right? Maybe! But maybe not. Prepare for setbacks and have a plan for when things don’t go quite as expected. What if you have an emergency vet bill of $2,000 one month? Or worse, what if you or your spouse lost their job? Everything might not go as expected when paying off your credit card debt. Your “get out of debt” plan should evolve if your financial situation changes.

If you experience unexpected expenses one month that hinder your ability to pay off debt, look for ways to make more room in your budget. Maybe it makes sense to spend a month not eating out and shopping at a discount grocer like Aldi. Hopefully your plan will go as expected or better than expected, but a willingness to make changes to your plan and make sacrifices might be necessary to ensure your success.

Nobody wants to have credit card debt, and rarely does anyone plan to take years and years to pay off their cards. Credit card debt usually starts small. It’s easy to make a purchase on your card without the money to pay for it. After all, you can just pay off your credit card when you get paid and you won’t even owe any interest. What’s the harm in that? But maybe you have a minor financial emergency right after you get paid. You have to use your paycheck to take care of the emergency, but that’s alright. You can pay off your credit card next month.

Next month comes around faster than you expected and after last month’s financial emergency, you aren’t sure you have enough money for groceries and gas this month, much less extra money to pay off your credit card. The stress from worrying about money could lead you to make more poor financial decisions. Spending money on your credit card helps you forget that you don’t actually have the money to be spending on your credit card, if only for a moment. Next month your credit card balance and stress both grow and the cycle continues.

It is all too easy to fall into credit card debt. Remember that you are not alone and this is a trap that ensnares millions of Americans. It may not feel like it right now, but it is possible to get rid of your credit card debt completely and never look back.

Do you have high-interest debt?

That may seem like a silly question. Shouldn’t you already know whether or not you have high-interest debt? In some cases you absolutely know whether or not you have high-interest debt, but in other situations it isn’t as clear-cut. What if you are a college student and just graduated with student loans at 6.8% interest? Or what if you just bought your first home and closed at a 6.75% interest rate?

Before we discuss more nuanced situations, let’s define what counts as high-interest debt for everyone. Any unsecured consumer debt that you do not pay off in full every month counts as high-interest debt. This is commonly a credit card balance, as almost half of all credit card users carry a balance on at least one of their cards. Unsecured consumer debt isn’t just credit cards. Lines of credit at stores, loans to purchase electronics, furniture, and other home goods, personal loans, and more all count as unsecured debt that should be prioritized as high-interest debt.

A few types of debt work a little differently and may or may not count as high-interest debt for you. Student loans are often a necessary evil to obtain a college degree, and whether or not you count them as high-interest debt depends on your age and interest rate of your student loans. In your 20s, student loans with interest rates greater than 6% can be considered high-interest, and in your 30s anything over 5%, in your 40s over 4%, and all student loans should be prioritized after 50.

It’s important to note that the stated interest rate on your student loans may not be your effective interest rate. If you are on a SAVE income-driven repayment plan, any interest in excess of your monthly loan payment is not charged as long as you make the required monthly payment. This means some of the interest you owe may be forgiven each month and thus lower your effective interest rate (and possibly the priority of paying off your student loans).

Auto loans are unique and don’t fit neatly into high-interest debt or low-interest debt. Unlike mortgage debt, which we will get to next, auto loans are on assets that typically depreciate (or go down in value over time). This makes car loans more of a liability, which is why we recommend avoiding taking out a vehicle loan if possible and paying for a car in cash if you have the ability. We recognize reliable transportation is usually a need and not a want, which is why it does make sense to take out a loan to get a reliable car if necessary.

If you are taking out an auto loan, you should put at least 20% down, pay off your car in 3 years or less, and keep the monthly payment (or payments, if you have more than one car loan in your household) to 8% or less of your gross income. If your car loan falls outside of these guidelines, you should consider it a higher priority or high-interest debt (Step 3 of the Financial Order of Operations). We created an interactive tool to help you determine how much car you can buy, which you can use here.

Mortgage debt is another unique type of debt. Unlike every other type of debt we’ve mentioned so far, this debt is on an asset that typically appreciates in value. Not only that, if you itemize on your taxes, you may be able to claim a mortgage interest deduction that could be thought of as lowering your effective mortgage rate. For most individuals and families, mortgage debt does not count as high-interest debt, even at 2024 interest rates. However, you should still make sure you follow our rules for buying a home to ensure you are living within your means and buying a home you can afford.

How do you pay off high-interest debt?

Now that you know exactly what counts as high-interest debt, how do you pay it all off? There are two main schools of thought when it comes to the best way to pay down your high-interest debt. We don’t believe that either is right or wrong, but depending on how you are wired, one may make more sense than the other.

Debt Avalanche vs. Debt Snowball: Which Is Better?

If you are mathematically minded and have the discipline and desire to pay off your debt as quickly as possible, the debt avalanche method may be for you. With the avalanche method, you prioritize debts based on the interest rate without regard to the balance of the debts. This ensures you pay off the most harmful debts first and minimize the amount of interest paid on your debt. This method will save you the most money in the long run if you have the discipline to pay as much as you can towards your high-interest debt.

The debt snowball method may be better if you are more affected by the emotional and mental burden of being in debt and need small “wins” to give you motivation to get out of debt. With the debt snowball method, you pay off the debt with the lowest balance first without regard to the interest rate. This means when you start paying off your high-interest debt you will get the “wins” of eliminating balances, but overall you might pay more interest and be in debt longer than if you had used the debt avalanche method.

No matter what types of high-interest debt you have or what your balances look like, it is possible for you to get rid of all of your most harmful debt and build a brighter and more beautiful tomorrow for you and your family. The steps you must take to get rid of your debt may be as simple as reducing frivolous spending and building more financial discipline. If you have a larger amount of debt, it may be smart to look for different ways to increase your income. It’s normal for high-interest debt to make you feel anxious, financially insecure, and afraid of the future. Instead of focusing on those negative emotions, try to imagine how you will feel once you eliminate high-interest debt for good and never look back – and use that as motivation to work towards paying off high-interest debt.

History of credit card interest rates

Credit card debt is unsecured debt, which means you are not required to “secure” the debt with an asset. Mortgages and car loans are two common types of secured debt, or debt backed by collateral. If you fail to pay your mortgage or car loan, the bank has collateral (your house or car) it can repossess. Interest rates on mortgages and cars are naturally lower than credit card interest rates because the debt is secured.

Comparing credit card interest rates to mortgage and car loan rates isn’t a fair comparison, but we can compare credit card interest rates today to historical rates. Credit card APRs are currently at an all-time high since the Federal Reserve began tracking data back in 1994, but the federal funds effective rate has also risen significantly over the past few years. Instead of comparing credit card rates now to credit card rates a few years ago, I want to compare credit card rates now to a time when overall interest rates were similar.

The Federal Funds effective rate is currently 5.33%. From October of 1994 through December of 2000, the average federal funds rate was 5.51%. All else being equal, I would expect credit card rates to be about the same in that period as they are today – if not a little higher back then since federal rates were higher. But that is not what we’re seeing. From the 4th quarter of 1994, when the Federal Reserve began tracking credit card APRs, to the end of 2000, the average credit card interest rate on accounts being charged interest was 15.39%. Today, the average credit card interest rate on accounts being charged interest is 22.75%. This chart from the Consumer Financial Protection Bureau shows how credit card rates have risen much faster than prime rate.

Why is there such a large discrepancy? Is it more expensive to lend now or is something else going on?

Why credit card interest rates have gone up

To give credit card companies the benefit of the doubt, if more Americans are not paying off their debts, raising credit card interest rates would be a natural way to maintain your profit margin and protect your company from losses. Fortunately all of this data is tracked so we can see if this is why credit card rates are so much higher these days. This chart, also from the Consumer Financial Protection Bureau, shows the APR margin of credit card companies and the charge-off rate. The charge-off rate is the percentage of defaulted balances compared to the total amount of credit outstanding.

This chart is insane to me. 1995 to 2011 are what I would expect the chart to look like, and then we see a huge divergence after 2011. The APR margin for credit card companies keeps rising while the charge-off rate remains low and steady. What does this mean? Credit card companies are making more money than ever off of Americans. But there is a way you can win and beat the credit card companies at their own game.

How to beat the credit card companies

Credit card companies will likely continue increasing their profit margins over time, which means consumers with credit card debt will pay more and more interest to credit card companies. However, you can beat the credit card companies at their own game. We believe it is possible to responsibly use credit cards and not carry a balance from month-to-month. If you are able to do this, you will receive all of the benefits of using credit cards (rewards, better protection, extended warranties, travel benefits, and more) with none of the penalties (high interest rates and fees).

Not all Americans are able to use credit cards responsibly. The data shows that only 35% of cardholders always pay their balance in full every month. If you are part of the majority of Americans that does not use credit cards responsibly, credit cards might not be for you – and that’s okay. It is much better to use debit cards and have a little less protection and fewer rewards than to rack up debt on a credit card and pay an exorbitant amount in interest and fees to credit card companies.

The interest rate on credit cards has changed significantly since the 1990s, but the trap you need to avoid has not changed. Don’t let credit card companies win and make money off of your hard-earned dollars. Put that money to work for you and start investing today. Check out our new Wealth Multiplier tool to see exactly what each dollar you save in credit card interest could turn into by retirement.

Different types of debt should be prioritized differently and paid down differently. Here’s how to think about each of these unique types of debt and when to prioritize them in the Financial Order of Operations.

How to pay off mortgage debt

We believe that mortgage debt is different from any other type of debt because homes are assets that typically appreciate in value, unlike cars, college degrees, or consumer goods you put on a credit card. 59% of Americans currently have mortgage rates below 4%, which means there is little incentive to pay it off early with high-yield savings accounts currently paying over 5%.

Paying off a low-interest mortgage fits squarely into Step 9 of the Financial Order of Operations. But what if your mortgage rate is higher? Average rates now are currently over 7%. Does that still qualify as low-interest debt? Normally it would not, but in addition to homes appreciating in value, mortgage interest is tax deductible if you itemize. While mortgages are longer term debt, typically for 15 years or 30 years, if you have a rate over 7% now there will likely be an opportunity to refinance your mortgage in the future. We can’t predict exactly when that will happen, but the effective lifetime rate on your mortgage may end up being much lower than 7%.

Even if your mortgage rate is higher now, we believe it may still make sense to treat it as low-interest debt in the Financial Order of Operations.

How to pay off student loan debt

Our rules for paying off student loan debt are partially based on the interest rate on your student loans, but our guidance is a bit more nuanced. We believe it may make sense to prioritize your student loans at Step 3 in the Financial Order of Operations if your interest rate is above 6% in your 20s, 5% in your 30s, 4% in your 40s, or if you have any student loans at age 50+. If your interest rates are below those numbers, consider prioritizing your student loans at Step 9 of the FOO.

If your loans are on a federal payment plan, your effective interest rate may be lower than your actual interest rate. It may make sense to treat your loans as low-interest debt if you are on a payment plan that will qualify for forgiveness or reduce your effective interest rate. There is nothing you can do if you’ve already taken out loans, but if you are not yet in college or currently in-school, aim to keep your total student loan balance below your expected first year salary after graduating college.

How to pay off car loans

Paying cash for a car is ideal if you have the money, but many Americans need reliable transportation but aren’t able to buy a car in cash. Our country is very spread out and public transportation is not accessible to many people. A car is often not a want, but a necessity to drive to work and earn a living. This is why we created our 20/3/8 Car-Buying Rule to ensure Americans that need to take out a loan to purchase a car do it in a way that does not negatively impact their finances.

Car loans are not prioritized at a specific step in the FOO, but you should not typically need to use a car loan if you are at Step 7 or later of the Financial Order of Operations. If you do take out a car loan, aim to put 20% down, pay it off in 3 years or less, and make sure you are spending no more than 8% of your gross income on all car payment(s). Even if your car loan is low-interest debt, it should not be paid off in greater than 3 years since cars are quickly depreciating assets and you can end up underwater on your vehicle if you stretch out the term too long.

How to pay off credit cards and other debt

Credit cards and other consumer debt falls into Step 3 of the Financial Order of Operations, High-Interest Debt. If you have multiple credit cards or types of consumer debt, you may be wondering which you should prioritize first. Mathematically it makes sense to prioritize balances with the highest interest rate first, and moving down the ladder to those with lower interest rates. However, if you need the psychological wins and motivation of getting your credit cards paid off, it may make sense for you to pay off small balances first and then start on larger balances.

No matter what the interest rate is on your consumer debt, we believe it should be prioritized at Step 3, even if the interest rate is lower or even 0%. Low interest rates on consumer debt are almost always introductory rates or teaser rates that go away after a specific period of time, which is why you should make these debts a priority even if they aren’t currently at a high interest rate.

Around 77% of Americans have some type of debt. Many debts are manageable and not harmful to your financial life, but too much debt can make you feel overwhelmed and like your finances are out of control. Follow our debt guidelines to ensure your debt load is manageable, and if it isn’t, follow our payoff rules to ease your burden and get your financial life back on track.

New data shows that Americans are struggling when it comes to credit card debt and savings rates. In this Q&A, we discuss the new shocking data and give you tips on how to avoid this huge financial mistake.

New data shows that Americans are struggling when it comes to credit card debt and savings rates. In this Q&A, we discuss the new shocking data and give you tips on how to avoid this huge financial mistake.