Interest, Interest, Everywhere!
Anyone who has ever taken out a loan has had to deal with interest. Interest is a double edged sword that can be used either for your gain or loss. Credit cards usually have very high interest rates and over the course of time cost at least twice the amount of money that we initially borrowed. As more interest is piled on, high payments are required to keep us from paying interest on the interest! However, Interest can also be used to our advantage. Anytime we make use of a Money market or savings account, then we begin to accrue interest of our own. Like a credit card, the money invested in the money account will not only continue to generate interest on itself, but on the past interest.
When dealing with interest of any sort, it is important to remember that the banks you deal with are always operating in their best interest. Banks deal primarily in borrowing and lending money. By opening a savings account with a bank, you are loaning money to the bank. The bank then uses the money you have loaned it, and loans it out to others in the form of credit cards, and at higher interest rates than they are paying for the savings account. This brings the banks a nice, steady source of income; Borrow money from customers at a 5% rate, and loan it back out at 20%! Even though the interest rates generated by savings, money market, and CD accounts will never be as high as the interest rates charged by credit cards and other loans, we can still use them to our advantage. If you deposit $50 every month into a savings account that yields 5%, you will have $6959 sitting in your account in 5 years.
Many banks factor in acceptable levels of debt. On the surface these rules seem to be an innocent way to protect people from going deeper into debt. This could not be farther from the truth. These rules are put in place to maximize the bank's income. They are designed to hold you just far enough into debt that you continue to pay endless amounts of interest, while at the same time, keeping you from getting so far into debt that you have no way to pay the loan and are forced to default. It is vital that you set your own rules on how much debt you can handle.
The best way to make your debts work for you rather than against you is to invest your money. Investing your money into education is a good choice, as you will be able to bring in more money in the long run. Most businesses are started using a bank loan. The borrowed money is used to get the business rolling, but then the proceeds from the business can continue to pay for years to come. While credit card debt can be easier to come by, the interest rates are much higher than a conventional loan.
The high interest rates can be difficult to overcome using the return from your investments. Always try to get the lowest interest rates possible when trying to acquire a loan. Once you have the necessary capital, shop around! There are many good opportunities out there; any time you are making more from your investments than you are paying in interest, you are moving in the right direction.
In today's market, it is very easy to find yourself buried in credit card debt. While interest rates once seemed to be a small hole in your pocket, they can quickly become a huge problem! If you are struggling to The Motley Fool hosts an excellent seminar for getting out of debt at http://www.fool.com/seminars/capitalone/index.htm?sid=0001&lid=000
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