Dear DTA,
I recently found your site and now I’m excited to start trading. It seems like there’s a lot of money to be made. But I’ve got some credit cards with balances. Does it make sense to start trading with credit card debt? Or should I concentrate on the credit cards first? Thanks!
-Jon K.
Hi, Jon.
Thanks for writing in. So glad you found the site!
You’re absolutely right about one thing.
There is a lot of money to be made.
But there’s an old saying that always rings true: you need money to make money.
And if you’ve got credit cards weighing you down and sucking up money, that’s less capital you can invest and become wealthy with.
Before I dispense some of my thoughts on this matter, I want to quickly give you an idea of where this perspective is coming from.
I used the stock market to go from below broke at 27 years old to financially independent and retired at 33.
Let me put that another way.
I went from zero to hero – broke to rich – in six years.
I even lay out my entire step-by-step approach in my Early Retirement Blueprint.
My FIRE Fund, which is my real-money stock portfolio, generates the five-figure passive dividend income I live off of.
I used the strategy of dividend growth investing to achieve my success.
If you’re not familiar with this strategy, Jon, make sure to check out fellow contributor Dave Van Knapp’s Dividend Growth Investing Lessons.
His series adeptly describes what this strategy is, why it’s so powerful, and how to successfully implement it.
I’m telling you all of this so that you have a better understanding of who I am and what I’ve done, as well as how to achieve a certain level of acumen and success for yourself.
The stock market has totally changed my life.
And it can totally change your life, too.
That said, you have to approach it intelligently.
Trying to trade stocks while simultaneously paying out high interest payments to banks is just not smart.
Look, Jon, I totally understand where you’re coming from.
I get the enthusiasm.
Truly. I do.
I’m fanatical about spreading the gospel of the stock market.
You’d be hard-pressed to find someone who’s more enthusiastic about aggressively using the stock market to build long-term wealth and passive income.
But you have to get rid of that credit card debt first, Jon.
It’s a must.
The stock market is, historically speaking, an excellent vehicle to achieve 8-10% annual rates of return. That’s an annual average over the long run.
And this is compounding.
To put that in perspective, a 10% compound annual growth rate results in money doubling every seven years.
It’s incredible.
But paying 12%, 15%, or 20% on credit cards completely works against this.
There’s almost no possible way your rate of return will exceed the interest you’re paying on credit cards.
It’s too high a hurdle rate, especially with where broader valuations are at right now.
Frankly, it’s lunacy to have credit card debt if your goal is to build wealth.
Do whatever’s necessary to pay off your credit cards as soon as possible.
If this means picking up extra hours at work, or taking on a second job temporarily, so be it.
Think of credit card debt as a raging five-alarm fire.
It’s an emergency that must be dealt with right now.
Look for offers out there that offer introductory interest rates on balance transfers.
You might be able to transfer much, or all, of this debt to a credit card, or a series of cards, that offers 0% interest for a limited period of time (say, 12 months).
This buys you time to plug away and slay this dragon.
Once you have this emergency taken care of, you can move on to stocks.
Believe me, stocks aren’t going anywhere. They’ll be here when you’re ready.
When you do find yourself ready, we’ve got you covered with some excellent resources that are designed to help you build long-term wealth and passive income.
Take my Undervalued Dividend Growth Stock of the Week series, for example.
This is a free series that shares compelling long-term ideas, every week.
I filter high-quality dividend growth stocks from the Dividend Champions, Contenders, and Challengers list.
Then stocks undergo a vigorous analysis and valuation, resulting in some of the best long-term opportunities in the market.
There’s money to be made, Jon.
No doubt about it.
But don’t let those banks suck up your cash flow, limiting the amount of money you can invest and compound.
And don’t forget one last thing.
Get started today.
I wish you luck and success.
Jason Fieber
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Disclaimer: Jason Fieber is not a licensed financial advisor, tax professional, or stock broker. Please consult with a licensed investment professional before investing any of your money. If your money is not FDIC insured, it may decline in value. To protect the privacy of our readers, any names published in this article are under aliases. In addition, text may be edited, omitted or paraphrased for grammar or length.