If you’re a fan of the hit HBO series, Game of Thrones, there’s one phrase about the Lannister family that you’ve heard time and time again. A Lannister always pays their debts. It’s one of the many things their family has been known for throughout the show. Regardless of the amount, or how long it has been, a Lannister will ALWAYS repay their debts. It’s probably the only Lannister quality you would want to have.
Tom, here at Mullooly Asset Management, recently wrote a blog post about a survey done on millennials. In the survey, it was found that 6% of millennials thought missing a credit card payment would improve their credit rating. YIKES.
In that same survey, it was found 29% of millennials have completely missed a credit card payment. Again, YIKES.
Let me put it to you simply: if you can afford it, DO NOT MISS CREDIT CARD PAYMENTS. Pay off those credit cards as fast as possible. Being in debt is not something you want. While that survey was focused on millennials, the same can be said for pretty much every generation. For some reason, when it comes to credit cards, people tend to make very irresponsible decisions.
So as the Lannister’s would tell you: always pay your debts. This phrase can help you in a number of different ways apart from just paying off your credit cards. Let me explain.
We get a handful of questions each week from clients, potential clients, family and friends about their finances. One main thing I’ve been able to grasp from some of the conversations is that everyone wants to feel SMART.
Every single person wants to feel smart, but sometimes thinking you’re smart and acting smart are two different things.
On a recent podcast (you can find the podcast here), Tom and I answered a question from an anonymous listener about his or her financial situation. The question was “Is it wise to start a traditional IRA alongside a Roth IRA after I just got out of debt?” However, the details go on to say the listener “just got out of debt” except for his student loan payments.
That IMMEDIATELY set off a red flag in both our heads. This listener was under the impression that he or she was acting intelligently by saving for retirement and starting a Roth IRA and possibly a traditional IRA as well.
However, this listener was NOT out of debt. Student loan debt is not something to be glanced over. In most cases for young people, student loan debt is the most significant debt they have in their life. To answer this listener’s question, I would first say to take the money being put towards a Roth IRA or traditional IRA and use it to pay off the rest of your student loan debt.
While it IS a smart idea to begin saving for retirement, it is an even SMARTER idea to make sure your debts now are paid off first.
Something I’ve found myself saying quite a bit around the office lately is:
Make sure ‘present you’ is set before you begin worrying about ‘future you’!
The last thing you would want to do is sock money away in a retirement account when you have current debts and interest piling up. With some basic financial planning and cash flow management, you could easily reassess your situation and realize the money for retirement could be used in a better way today.
I sometimes hesitate to answer questions with “it depends”, but often times that is the right answer. “Should I max out my retirement plan at work this year?” Well, it depends. Can you afford to have that money coming out of your monthly paycheck? Would it be better served staying in your paycheck and being used to pay down student loan debt? Do you have credit card debt that has a 19% interest rate that is currently piling up?
Answering a question with a question is something I do not like doing, but sometimes we just need more information on your situation before we can accurately answer the original question.
A general rule of thumb if you have any sort of debt piling up: be like the Lannister’s in Game of Thrones, always pay your debts. Your future self will be grateful you did.
Now who’s excited for the Season 7 finale on Sunday night?!