The bad habit killing your investment plans

I’m going to say something controversial and there’s a good chance you won’t agree with it.

At least, if you have a credit card in your wallet or purse right now that is carrying some debt, then you’re likely to find what I have to say confronting.

So here goes…

If you have a credit card and you don’t pay it off in full each month, then you are living beyond your means.

And if you can’t afford to keep your credit card debts down, then you definitely can’t afford to invest in property. It’s as simple as that.

I know it might hurt to read this, especially considering the fact that the majority of Australians carry credit card debt.

But the fact of the matter is that paying interest on your credit card expenses is simply throwing money away and is a sure sign of poor financial management.

It makes no sense to pay 20 per cent interest, or sometimes more, on every takeaway meal, winter coat and taxi fare you purchase on VISA or MasterCard. If you’re serious about property investment, then paying off your credit cards needs to be your number one priority.

Funnily enough, it’s often people with higher incomes that are less likely to have a budget and manage their money well. This is because they have regular cash income from their jobs and businesses, so they don’t really need budgets – but often they don't plan for a rainy day.

More affluent people tend to spend more often and sometimes it takes a hard knock, such as illness or loss of income, for them to realise just how vulnerable they really are.

I once had an investor with an income of $180,000 a year – not poor by any means, but he had a whopping credit card debt of $115,000. It completely halted any progress he wanted to make on purchasing properties, as the banks couldn’t look past an unsecured debt of that size.

On the other hand, people on lower incomes are forced to manage their money more carefully, as there is not as much to go around and they need to make sure they cover all their bills. Credit can put these people in precarious situations.

So regardless of your income, I urge you to work on paying off credit card debt as your number one goal, before you even think about investing in property.

If you’re not yet convinced of the merits of prioritising your debts, perhaps this will help:

For every $5,000 you hold in credit card limits, lenders will reduce your borrowing power by up to $25,000.

This means that if you have $20,000 in credit card limits, your borrowing power could be limited by $100,000.

Isn’t that enough incentive to work towards cancelling your fantastic plastic for good?

Happy investing!