The #1 Wealth Killer in America (and It’s Not Cars…)

This is the number one wealth killer in America. Guys, I am so excited to talk to you because this affects nearly half of all Americans, which means there’s a good chance that you need to hear this. Before I reveal what might be the most destructive force in your financial life, make sure you like this video and subscribe if you’ve not already so that you can accelerate your wealth-building journey with our content at The Money Guy Show. So let’s dive in.

The number one wealth killer in America is credit card debt. Again, nearly half of all Americans carry a credit card balance month to month, with an average balance of over $7,000. That is insane. Make no mistake—we are not saying that credit cards themselves are the problem, and we’re not saying that any and all forms of debt are either. Credit cards can come with lots of benefits like cash back or rewards, and other forms of debt, like a mortgage, can be an exceptional wealth-building tool. But when it comes to credit card debt, we have a saying: credit card use is okay, but credit card debt? No way.

And we’ll get into why credit card debt is just so dangerous in a minute. But first, we have to address some of the common myths. Many Americans simply don’t understand why credit card debt is so disastrous for your financial future. You hear all the time that you just need to pay the minimum. Well, that’s wrong. Interest and penalties will pile up unless you pay off the entire balance. You hear that maybe carrying a balance from month to month improves your credit score. That’s wrong—it actually lowers your credit score. Some people even say that if you’re in credit card debt, you should continue to use it for the points—because, you know, points. That is wrong, wrong, wrong. Getting those points is just a drop in the bucket compared to the money that you are literally lighting on fire by carrying a balance.

Credit card debt is what we call chaina dangerous, and we suggest getting it out of your life early on in your financial journey. We have a little thing that we like to call the Financial Order of Operations, which is a nine-step tried-and-true guide of what to do with your next dollar. And high-interest debt falls into step number three—before a full emergency fund and even before most investing. And credit cards always count as high interest.

The reason for this is that credit card interest turns compound interest against you and actually creates a negative arbitrage situation. Put simply, arbitrage is the difference between interest rates, resulting in either a good thing or a bad thing. A prime example of this is investing while paying off low-interest debt. Let’s think about this: say you hold an index fund that tracks the S&P 500 with an average annual return of 10%. And let’s say you have a mortgage with a 4% interest rate. By making your minimum monthly payment on the mortgage and investing the difference in the index fund, you’re actually netting a profit—or an arbitrage—of 6% on those invested dollars.

But credit card debt turns this arbitrage against you. The average credit card interest rate is just under 25%, meaning investing in that same index fund while making the minimum payment would actually mean you lose money on the transaction. Imagine if you’re in a boat with a small leak and you have a bucket, and every time you scoop water out, more leaks in from the bottom. Now suppose that water is coming in faster than you can bail it out. That’s a great example of negative arbitrage. The only way to stop sinking is to patch the leak by paying off the high-interest debt before you can safely navigate towards your other financial goals—which means this debt has got to go.

Now, fortunately, there are some strategies that you can use to speed up the process. When it comes to paying off high-interest debt, there are really two popular methods: the debt avalanche and the debt snowball.

Let’s say, for example, you have three debts: a credit card with a balance of $8,800, an interest rate of 20%, and a minimum payment of $160 a month. Let’s also say you have a car loan with a balance of $15,000, interest rate of 10%, and a payment of $300 a month. And then let’s say you have a third personal loan with a balance of $5,000, interest rate of 12%, and a minimum payment of $100 a month.

The avalanche method is all about the mathematics. While you make all of your minimum monthly payments, every additional dollar you can spare goes to tackling the debt with the highest interest rate. In this example, that means paying the credit card first with all the extra funds attacking that balance. Once it’s paid off, then you would move on to the personal loan, putting the minimum $100 plus the extra $160 toward that balance. Once that’s paid off, all those extra funds are directed at the car loan until it is knocked completely out. This method saves you more money over time and is financially more efficient, but it may take longer to see progress, which means you have to make sure that you have discipline to stay the course.

The snowball method, on the other hand, focuses on building momentum. You start by paying off your smallest debts first, regardless of the interest rate. This method gives you quick wins and a sense of accomplishment so that you can stay motivated. Using these numbers, that would mean paying off the personal loan, then the credit card, and then the car.

The method you should choose really depends on you. Personal finance is personal, so it depends on your personality. If you need quick wins to stay motivated, go for the snowball. If you’re more interested in saving the most money in the long term, then maybe the avalanche is the best method for you. Regardless of which method you choose, once one debt has been wiped out, everything you were putting toward it can now be put toward the next debt, speeding up your progress and creating momentum. These strategies apply to all of your high-interest debt. That means credit cards or automobiles or even some student loans, depending on their interest rates and how old you are.

And for anybody looking to take this payoff strategy even to the next level, you can use what’s called a 0% balance transfer to help you pay off debt faster. It allows you to move your high-interest credit card debt to a new card with a temporary 0% rate for a specified period—often 12 to 18 months. But don’t get cute with this, because this can be dangerous. During this time, every payment you make goes directly toward reducing the principal balance rather than covering the interest charges. This can significantly speed up your debt repayment by lowering the overall amount that you owe.

But again, this can be dangerous. It’s important to note that these 0% transfer cards do come with caveats. Most offers include a transfer fee—sometimes it can be 3 to 5% of the balance—which actually adds to the amount of your debt. Once that 0% period ends, standard interest rates kick in, and remember, those can be as high as 25%. And missing just one payment—a single payment—can void the 0% rate, leading to higher penalties, higher interest, and more money out of your back pocket.

So no matter what strategy you employ, the key is behavioral change. Have the discipline to live on less than you make and pay off that balance every month. You will not believe the effects that this can have on your financial life. Credit card debt was the second highest source of financial stress among Americans, but getting on the other side of it is like giving yourself a raise. With no minimum monthly payment, those dollars can now be invested into the things that you care about, which puts compound interest back on your side.

Once you get there, you can begin accelerating your wealth-building journey so that your money can work even harder than you do. Guys, that’s it for this one, but make sure you subscribe if you haven’t already and share this video with someone you think could benefit from it. Check out all of our extra content over at moneyguy.com/resources, and we’ll see you in the next video.