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Child Millionaires: Not Necessary Thanks To Canceling All Student Debt

Updated: 12/23/2019 by Financial Samurai 144 Comments

One of the things many responsible parents are doing today is saving for college. Not saving for college and expecting a student loan bailout in the future is bad planning. The same goes for not saving for retirement and hoping the government will take care of you once you can no longer work.

Do you really want to take that chance? I don’t think so.

Given college tuition is rising by roughly 6% annually a year, by the year 2033, the cost for one year’s worth of public or private school tuition may approach $54,070 and $121,078, respectively.

Add on expenses for room, board, travel and miscellaneous stuff and the annual cost of college could easily be 50% – 100% higher.

Meanwhile, according to the National Center for Education Statistics, just 41% of first-time full-time college students earn a bachelor’s degree in four years, and only 59% earn a bachelor’s in six years.

Therefore, it is only logical that all of todays’ new and future parents should try to save about $1 million for each child’s college education. If a family has a “trophy kid,” then the family should save $4 million and so forth if college is the desired path. Going into debt to buy a depreciating asset like a car or a college degree is fiscally unsound.

No parent should expect their child to be brilliant and get scholarships. Nor should any parent expect their child to be sensible and attend a public institution to save on costs. High expectations lead to disappointment.

No matter how many articles I write about the depreciation of a college degree, not enough people will listen because the desire for status is too strong. We also all believe that we are more talented and smarter than we really are.

Parents can hope for sensibility, but should still plan to spend the big bucks.

However, to save for our children’s college education often means that we are unable to save as much for our own retirements. This, in turn, may cause financial anxiety and unhappiness within the household.

Perhaps the Cancel Student Debt movement is a solution. Probably not.



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Steps To Get Out Of MASSIVE Credit Card Debt Due To Lifestyle Inflation

Updated: 10/25/2021 by Financial Samurai 49 Comments

Want to learn how to get out of massive credit card debt? You’ll learn how in this step-by-step post.

I don’t discuss too much about credit cards on Financial Samurai because I’ve only got two (a cash back rewards card, and a cash back business card) and nothing much happens except for racking up rewards points. Definitely use a credit card for convenience, safety, rewards points, and insurance protection if you can control yourself. But if you’re not careful, thanks to the ease of use and absurdly high interest rates, problems may ensue.

The following is a guest post by Financial Samurai reader, Debs, a middle income earning new grandmother who was able to amass over $140,000 in credit card debt! She was eventually able to get out of her massive credit card debt. I asked her to share her story on how she did it, and how she is getting herself out of debt. Kudos to Debs for having the courage to share her story.

It’s embarrassing to admit, but I tell this tale as a warning to all people like me who are on the bandwagon of lifestyle inflation, “I deserve” and family struggles that may cause you to take your eyes off the ball and wake up one day to say “How did I get here?”.

We weren’t addicted gamblers or smokers. We didn’t have a lot of fancy toys. We drank moderately and yes, we had four kids and a large home to boot (purchased in 1991).

Maybe a few travels thrown in here and there, but not excessive. There was some shopping for work clothes and things for our home. Maybe a bit of stress relief shopping, but nothing extravagant. That is my first message.

Our massive credit card debt crept up on us without even realizing it. At least I didn’t realize the size it had grown to. I wasn’t watching the finances. I was only working hard to contribute to the family income. That was enough, or so I thought.

Why We Got Into Massive Credit Card Debt



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How Much Is The Average Credit Card Debt Per Household?

Updated: 01/25/2022 by Financial Samurai 51 Comments

The average credit card debt is on the rise and the U.S. average household owes a crippling amount. According to Transunion, the average credit card debt per U.S. adult is $5,525 in 2021. And for US households, the average credit card debt balance is $7,938 per Wallethub.

Another interesting stat on the average credit card debt is that over 7 million Americans have access to a credit card. In addition, the total US credit card debt outstanding is a whopping $934.8B, nearly 1 trillion dollars!

the average credit card debt per U.S. adult is $5,525 in 2021


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How Many Credit Cards Should I Have Until It’s Too Many?

Updated: 08/06/2021 by Financial Samurai 55 Comments

Here are the best credit cards today if you are looking for an awesome rewards credit card. There are so many great offers, so how do you decide which ones to get? Let’s how many credit cards you should have until it’s too late.

Various types of credit card logos, Visa, Mastercard, AMEX, Discover

One day I was having lunch with a buddy of mine when he whipped out his foot long man wallet to pay the bill. “Whoah!” I said. “Where do you keep that thing?”

“In my man bag, of course!” he replied with pride. Todd lifted up his soft leather Bally bag that probably cost a thousand dollars. “Have a touch,” he said as he tossed it over. Todd’s bag was as supple as a baby’s bum.

The reason why Todd’s wallet is so big is because he has 10 credit cards all nicely color coordinated from top to bottom. The most prestigious cards – the black ones of course – were at the top. But as I looked closer at his collection, every one of his said “Preferred,” “Platinum” or “Elite.”

Temptations To Get A Lot Of Credit Cards

One could call Todd a credit card connoisseur. “I’ve got a card for every purpose,” told mentioned proudly. “Never leave home unprepared!”

Despite what is probably hundreds of thousands in credit at his disposal, Todd still rents a one bedroom apartment and has less than $80,000 his 401(k) at 35 years old because he’s spending all his money!

In fact, he admitted to having around $18,000 in revolving credit card debt spread across seven accounts. At least he’s got a nice BMW 650i coupe on lease for $899 a month.

So I got to thinking, maybe the reason why Todd has so little assets for a man making six figures a year is because of temptation from all his credit cards. When there are no cookies in front of me, I never eat desert. As soon as you put out a tray of gooey white chocolate chip cookies at my disposal, it’s game over!

The Most Credit Cards I’ve Ever Had

Some people are completely against credit cards because they’ve gotten themselves into debt troubles before. How many credit cards should those folks with debt problems have? None. Alcoholics should not hang around in bars.

By only using a debit card or cash, such anti-credit card users help minimize themselves from relapsing into debt. I commend their cold turkey approach, but it’s not for me.

I recommend everyone have at least one credit card to build their credit score, use as an emergency, borrow money for free for 30 days, earn rewards points, and minimize the pain of losing cash when you lose your wallet.

How Many Credit Cards Are Ideal For Optimal Financial Health?

The question is, how many credit cards are ideal for optimal financial health. Let’s discuss!

The most I’ve ever had was between the ages of 22-24 when I had five. I thought it was so smart to open up new accounts with 12+ month long 0% introductory APR rates, pay the minimum for the full term and then transfer the balance to another 0% APR credit card. Borrowing money for free is always a splendid thing to do when you are young, poor, and have a lot of time on your hands.

Unfortunately, there’s a point where the “spend more, save more” mentality runs out. Notably when it becomes absolutely backwards to keep spending just because the interest rate is cheap. More than anything it felt annoying to always have a revolving balance so I decided to quit the shenanigans and just focus on better spending habits.

Down To Only Two Credit Cards

From 2001 to 2013 I only had two main credit cards: 1) my American Express corporate card and a 2) Citibank ThankYou credit card because I’ve been a long time banking client.

The reason why I only had two was both physical and mental. On the physical front, I can’t stand having a thick wallet. The wallet is always in my right butt pocket for all you pickpockets out there and it’s uncomfortable to sit down when things are uneven. The second reason for having only two credit cards is due to record keeping.

By only having one personal card, I was able to comfortably keep track of all my expenses online and make sure I was not going over budget. For example, if I had a $2,000 a month credit card budget, I didn’t have to stay on top of numerous credit card balances.

My expenses for the month were essentially my credit card bill + the amount of cash withdrawn from my checking account. Having only one made it much easier to SAVE money.

Track Your Credit Cards Closely

Now that I have a third credit card to earn points for travel, I’ve got to be a little more diligent about my spending. With a 0% introductory APR, 40,000 bonus points, and the first year’s fee waived, I’m reminded of the times when I had multiple credit cards once again.

Now I’m tempted to take advantage of new credit card offers with bonus points. It feels a little like going into relapse!

Just imagine, if I can earn 40,000 rewards points just by signing up and use a credit card to buy a $100,000 Range Rover to earn a total of 240,000 points, why wouldn’t I? That’s five or six round-trip flights from San Francisco to Hawaii.

Unfortunately, car dealerships usually only allow for a maximum of $3,000 to be charged due to fees they have to pay which cuts into their margins.

Average Credit Card APRs 2020
Average credit card interest rate by card type 11/2020

The Biggest Risks To Having Multiple Credit Cards

I’m a big advocate of less is more when it comes to credit cards. Let me explain why I recommend keeping the number of credit cards you have to three or less.

1) More Credit Cards = More Temptation To Spend

If you have a budget of $1,000 a month to spend on your credit card(s), it’s much easier to limit spending on one card compared to limiting spending with five.

Your mind automatically starts thinking about the various custom rewards points for each card and you charge accordingly just a little more than you should. If you charge even $100 more on average between your five credit cards, you’ve gone 5% over budget for the month.

Compound the over budget amount over the year and just like that you’ve got $1,200 more in credit card expenses or debt that needs to be paid off. We can’t help but think of each credit card as one powerful spending tool with its own APR rate, fantastic benefits, and multi-thousand dollar credit limits.

Derivative Explanation: I threw a potluck at my house for 20 confirmed guests one year. One of my good friends said she’d make enough spaghetti for 20 people. I told her to just make full portions enough for five people. She looked at me stubbornly and said, “Well what about the other 15 guests?”

I proceeded to explain to her that if all 20 guests made enough full-size portions for 20 people we’d have enough to feed 400 people! She didn’t get it and insisted to bring massive pots of sauce and pasta. At the end of the party, she had to lug both massive pots still full of pasta and sauce home. The lesson here is that we get confused with how much we can spend the more spending vehicles we have.

2) Incremental Rewards Diminish

Unless you are a billionaire, you only have so much money to spend a month. Let’s say your budget is $3,000 a month and you go from one rewards credit card to three: one for travel, one for entertainment, and another for online shopping.

You must now calculate the incremental rewards you’ll earn, given you would have received rewards if you put everything on your one and only credit card anyway. Once you calculate the incremental rewards received, you realize the benefits aren’t that much at all since you are not spending 3X more by have 3X more cards. And if you are spending above your $3,000 budget that’s no good either.

Derivative Explanation: One friend started bragging about how his investment portfolio was up 18% in 2013. That’s a great return for anyone, but guess what? The S&P 500 index is up 18% as well! In other words, my friend created no alpha.

All the time he spend researching and picking stocks was a waste since he could have just bought the S&P 500 ETF SPY and kicked back all year. To maximize your rewards from each card you’ve got to meticulously deploy your usage. Otherwise, you’re weighing down your finances with distractions. Real investors create alpha. Otherwise, you’re just a saver. Read: Are You A Real Investor If You Create No Alpha?)

3) Higher Chance Of Getting Into Debt

Credit cards have the highest interest rates for mass consumer lending other than payday loans. With the 10-year interest rate at 3%, the average credit card interest rate is roughly 15%. A 5X spread is enormous! No wonder why millions of credit cards are issued annually.

When you have more temptation to spend with more credit cards in your wallet, you will inevitably increase your chance of accumulating credit card debt.

Just like how we don’t bring alcoholics to bars, we shouldn’t arm consumers who have a proclivity to overindulge on anything with more credit cards. Undisciplined spending and high interest rates compounded over time have a devastating effect on your wealth. (Read: The Reality Of How People Get Into Debt – It Just Creeps Up!)

Derivative Explanation: There’s a great study that showed a 30% increase in spending per customer once McDonald’s started accepting credit cards. One frugal friend I know went from buying two $1 McDoubles for lunch twice a week in cash to buying two $4 Filet O’Fish sandwiches and a large Coke three times a week for the next two years. He no longer plays singles because he went from a svelte 165 lbs to 200 lbs and admitted he’s got revolving credit card debt attributed to his fast food addiction.

4) Burden On Your Credit Score

We learned in my article on how to get a 800 credit score or higher that the Amount Owed accounts for 30% of your credit score calculation, while New Credit accounts for 10% of your credit score calculation.

Nobody knows exactly how many credit cards is too many, but one can imagine that after five credit cards, opening up another credit card at the margin will likely hurt your credit score, or at least not help your credit score. Sure there are plenty of examples of people who have eight credit cards and still have good credit scores. But perhaps they would have even better credit scores if they only had three credit cards.

Derivative Explanation: After three gin and tonics, I’m feeling good. After 10 gin and tonics, please dial 911 and pump my stomach before I die.

Focus On Bigger Picture Financials

Applying for multiple credit cards all the time is an unhealthy use of time. It’s like the person who always focuses on the emergency fund and not on ways to make more money. They never take their personal finances higher because they’re focused on kindergarten basics.

Everyone should have at least one rewards card given the benefits of travel insurance, rewards points, ease of use, and free interest for 30 days. My Citicard of nine years is now gathering dust given I want double points on everything with my Barclaycard. If I didn’t have a business, I wouldn’t have a third credit card. However many credit cards you have, be careful not to get caught in a negative debt cycle or damage your credit score.

Spend your efforts instead on building passive income streams and making more money. If you don’t have a highly addictive personality, one to three credit cards is the ideal number for optimal financial health!

Wealth Building Recommendation

Track Your Wealth For Free

In order to optimize your finances, you’ve first got to track your finances. I recommend signing up for Personal Capital’s free financial tools so you can track your net worth, analyze your investment portfolios for excessive fees, and run your financials through their fantastic Retirement Planning Calculator.

Those who are on top of their finances build much greater wealth longer term than those who don’t. I’ve used Personal Capital since 2012. It’s the best free financial app out there to manage your money.

Planning for retirement when paying for private grade school
Are you on the right retirement path? There is no rewind button.

Pay off Your Debt Faster

If you don’t have enough cash, getting a personal loan from Credible is a good place to start.

Personal loan rates have come down significantly in comparison to the average credit card interest rate. Thus, if you have expensive credit card debt, consider consolidating your debt into a lower interest-rate personal loan.

Credible has the most comprehensive marketplace for personal loans. Up to 11 lenders compete for your business to get you the best rate. Get real personal loan quotes in just two minutes after you fill out an application. Check out Credible today and see how much you could save.

For further suggestions on saving money and growing wealth, check out my Top Financial Products page.

In addition, if you enjoyed this article and want to get more personal finance insights and tips, please sign up for the free Financial Samurai newsletter. You’ll get access to exclusive content only available to subscribers.

Updated for 2021 and beyond.

Average Interest Rate By Debt Type: Auto, Credit Card, Mortgage

Updated: 08/09/2021 by Financial Samurai 52 Comments

Average interest rate by debt type
Feel the debt burden

The average interest rate by debt type is important to know to utilize debt more efficiently. This article will look at the average interest rate for auto loans, credit cards, and mortgages.

We are an indebted nation thanks to our desire for more and our financial system’s ability to grant us more. When used appropriately, debt can help provide for a better life and make us wealthier. When used indiscriminately, however, debt can destroy our financial dreams.

Below is a list of the most indebted nations according to Trading Economics. Currently, America is at ~106% debt-to-GDP and historically ranged from a low of 31.7% to a high of 122%.

Whenever your country’s debt is greater than its GDP, it’s probably a good idea to encourage your politicians to exercise fiscal restraint lest they take your country to hell during the next financial crisis.

Notice how many of the most indebted countries such as Greece, Italy, and Portugal continue to struggle since the 2008-2009 financial crisis.

Government Debt to GDP by country
Source: Trading Economics, Debt-to-GDP ratio by Country

Let’s review the following types of consumer related debt and rank them from worst to best. We’ll also take a look at the latest interest rate by debt type.



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Who Should Get A Black Card? Probably Not You!

Updated: 12/13/2019 by Financial Samurai 34 Comments

Visa Black Card CommercialHere are the best rewards credit cards for your review. I’ve spent dozens of hours analyzing the best cash back and sign-up bonuses today.

There once was a time I was rich, but never famous as I traveled internationally four times a year for business. Each destination hosted loads of other folks who wanted to learn about the next money making idea in the global financial markets.

With me was an American Express corporate card where I could expense relatively freely to the tune of ~$50,000 a year. The card provided travel insurance, access to airport lounges, concierge services, and more. 50K may sound like a lot, but that’s nothing compared to the hundreds of thousands in expenses I hear from some Black Card spenders!

I don’t have as much coming in anymore given I’m just a personal finance blogger, but I do have a lot of freedom. It’s a tradeoff many will take at some point in their lives. Given my desire to simplify things, I’ve only got one personal credit card, which is the Citi ThankYou Card. There’s no annual fee and all my spending is concentrated here to maximize my rewards points.

Since we live in the land of consumerism where we want things and we want them now, I thought it’d be a good idea to do a post for all you Black Card aspirees out there. Some get Black Cards just for its status symbol. Meanwhile, other people are a little less vain and use their Black Card for better access and service. Whatever the case, I’d like to introduce my guidelines for those who can and should not get a Black Card.

SHOULD YOU GET A BLACK CARD? LET’S SEE IF YOU QUALIFY

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Don’t Let A Credit Card Rewards Program Change Your Spending Habits

Updated: 08/06/2021 by Financial Samurai 32 Comments

These are the best rewards credit cards today. They have the best cash back credit card rewards and the highest sign-up bonuses. I used to receive a ton of credit card solicitations in the mail until I finally put my address on the do not spam list.

Nike Air Trainer I
Retro Nike Air Trainer 1. Tempting to buy with my credit card!

Some of the credit card rewards offers really tried to suck people in, such as 6% cash back on groceries, or 3% on gas.

Gas and groceries are the two unavoidable expenses for almost everyone. So it is brilliant for credit card companies to target these two items for credit card rewards.

Read The Fine Print On Credit Card Rewards

Even though I have a small monthly grocery bill and only drive about 6,500 miles a year, I was tempted to sign up. The “spend more save more” mentality started taking hold!

Then I read the fine print about the 29.99% APR, the limitation on how much I could get back, and the late penalty fee and decided not to sign up. The credit card rewards program didn’t match my lifestyle.

If you are a family of five who spends $1,000+ a month on grocery and commutes 50 miles to work everyday, you probably will benefit the most from a 6% cash back on groceries, 3% on gas rewards credit card vs. a single city dweller with no dependents. You just have to look at the fine print and see what COSTS are associated with the card.



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How One Late Payment Can Kill Your Credit Score

Updated: 02/16/2021 by Financial Samurai 55 Comments

One late payment can kill your credit score. Therefore, it is very important for you to be diligent and pay all your bills one time.

FICO gave a small peek behind the curtain at how their scoring model works and showed just how much mortgage delinquencies affect your credit score. 

The example they gave drew attention to three different FICO scores on the higher end of the spectrum (680, 720, and 780) and how one late payment of 30 days affected each score.

According to FICO, the impact of a 30-day late payment on a consumer’s mortgage varies greatly depending on how high the consumer’s credit score already was.



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Patch Homes Review: A Better Alternative To A Home Equity Line Of Credit

Updated: 01/04/2023 by Financial Samurai 110 Comments

Patch Homes has rebranded to Noah in 2020 and has raised more funding. This post is a Patch Homes / Noah review.

I’ve got around $1,800,000 in home equity locked up in one property. The property was originally purchased for $1,520,000 at the end of 2004 with $305,000 down and a $1,217,000 mortgage. The property is now worth an estimated $2,600,000 with a remaining $800,000 mortgage at 2.375%.

Although it’s nice to have $1,800,000 of home equity (31% LTV), it’s essentially “dead money” that’s doing little to improve my net worth or lifestyle. I controlled this property when my equity was only $305,000 after the initial downpayment, so the leverage power is no longer as strong.

Because roughly 67% of the average homeowner’s wealth is trapped in home equity, being “house rich, cash poor” is a common situation. As a result, homeowners have traditionally turned to home equity lines of credit (HELOC) to extract equity to pay for life’s many expenses.

One look online and you’ll find that HELOC rates are generally 1% – 2% higher than your current mortgage rate e.g. 3.75% for a 30-year-fixed vs. 5% for a HELOC. In addition to higher interest rates, using a home like an ATM machine may get homeowners who lack discipline in trouble down the road.

If only there was a better way to extra home equity at a lower cost. Enter Patch Homes.

The percentage of homeowners with over $100,000 in home equity in various cities in America
The percentage of homeowners with over $100,000 in home equity in various cities


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SoFi Review: Social Lending For Student Loans, Mortgages, Personal Loans

Updated: 02/16/2021 by Financial Samurai 36 Comments

SoFi started in 2011 and is a lending company that recently surpassed $15B in funded loans as of 2017. They have 225,000+ customers, 240 employees and have raised $1.9 B in equity funding after raising $500M led by Silver Lake in February 2017. Here is my SoFi review.

The company was founded by Mike Cagney, Dan Macklin, James Finnigan and Ian Brady, four students who met at the Stanford Graduate School of Business. They got together because they wanted to make lending and refinancing easier for borrowers using social lending.

The gist of their business is that lenders are willing to lend at a lower rate to people similar to themselves versus complete strangers. In other words, alumni should be more willing to lend to students and fellow grads of their alma matter because they share the same educational qualifications and should have a strong likelihood of repaying their loans.

SoFi is considered the largest and most successful fintech lender today. They are based right here in San Francisco, and I’ve met many of their employees. It’s worth checking to see if you can get a lower student loan rate with SoFi. The cost is free.



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