Here on bank transfer day, some people are proud that they are changing their bank accounts to credit unions since it will poke the eye of big banks.
However, while a noble first step, there are other ways that big finance and Wall Street skim money off you and the economy, and more importantly will hurt your finances.
Follow me below the fold.
1.If you pay interest on your credit card you are already losing
I saw some troubling comments on the front-page diary about moving credit cards to credit unions that people were happy that credit unions offered lower interest rates. If you are paying interest on any credit, you are doing something wrong. Welcome to the law of compound interest :Compound interest arises when interest is added to the principal, so that from that moment on, the interest that has been added also itself earns interest. This addition of interest to the principal is called compounding" Credit card interest rates are compounded daily.. Since 2010, credit cards have been required to show you much you have paid annually in fees and interest. If you check your Dec 2010 and Nov 2011 statements and you see more than $0.00 dollars, you need to get rid of your credit cards and use cash or debit. If you don't have the money now, you can't afford it.
2. There are only two items you should ever pay interest for. Education and a home loan. Education loans are acceptable if you think it will increase your income, which even today holds true. Look at the unemployment rate and income levels for college graduates vs. those with less education. Even for the younger 25-34 cohort, only 25 percent of Americans have college degrees. Get ahead of the game. Mortgages should only ever be 15 or 30 year fixed interest rates. You are not Nostradumus don't try to guess interest rates and play the ARM game. (adjustable rate mortgage) But what about your car Your car, like your television, and your laptop is a depreciating asset. As the years go down, it goes down in value. If you can't afford to pay cash for your car, you shouldn't get a new car. The price for cars goes down dramatically in the first two-three years and it is always a better idea to get a used car.
3. Pay yourself first. The savings rate has traditionally been dismal for Americans. Many people complain there is nothing left at the end of the paycheck to save. So pay yourself first by saving it. If you have a 401k, always pay at minimum to what ever your company will match. It's free money. Even if you are worried about the volatility of the market, you can always set your 401k to money market/stable value funds that do not risk principal. If you can't save ten percent of your income every month, you need to reduce your expenses.
4. If your current mortgage is above 4.5 fixed, and your eligible, you need to refinance. This is free money for you to pocket, and lenders are desperate to keep you and will cut closing costs.
5. If you are paying someone to invest your money, you are losing. Please read the Gottocks Parable by Messr. Warren Buffet. http://www.mymoneyblog.com/... I can't do it adjusting by cutting snippets of it, read the whole thing.
6. Welcome to the Investing Revolution
It has been said correctly, that credit unions have your interest because the customers own the credit union. Welcome to Vanguard, an investment company that is owned by the customers with rock-bottom management ratios. Please learn about the Indexing Revolution.