Waiting to pay down debt is not a good idea if you have the money readily available. It can cost you thousands of dollars if you are not careful. Would you borrow against your credit card to invest in the stock market? Do you have a low enough interest rate on your credit card and a guaranteed way to earn a higher interest rate in stocks to warrant the risk? No of course not. Most people would cringe at the idea of borrowing against a credit card charging you 8% (which is a great rate!) in the hopes of earning 10 to 12% investing in the stock market.
So, why would you keep $20,000 in a simple savings account earning 1% for six months instead of paying down some of your $60,000 in credit card debt with an average interest rate of 10%? It is ludicrous, but of course one of my Soldiers did just that. He had saved up the money specifically to pay off some consumer debt, but he did not trust his wife enough to pay the bill. He instead waited until he got home from Iraq and paid the debt off himself.
Meanwhile, waiting the extra six months cost him an additional $1,000 in interest payments on the $20,000 he paid off. He could have also used what he was paying in minimums as part of that debt to start a debt reduction plan like Dave Ramsey’s Debt Snowball months ago.
Like many rules and regulations in the military, you think that situations like this would go without saying. For example, according to Article 134 in the Uniform Code of Military Justice, it is illegal for a member of the military to jump from a military ship into the water. Does this really need to be a military law? Yes, it does because someone has done it before. That’s the reason why there are so many crazy rules and relations today. The same thing applies to this investing situation and advice. You think that I would not have to say it, but someone did it. So, I wanted to share with you in the hopes that no one will make the same mistake that one of my Soldiers did. Don’t sit on your money hoping your problems will go away. Procrastination can cost you thousands!