Some of the smartest people I knew in college went to work for credit card companies.  Capital One, in particular, sucked them up.  They developed sub-prime lending and a hugely profitable business - which some call legalized loan-sharking - was developed.  They also developed great software to manage virtually everything - rates, offers, credit limits, when to let you exceed it, etc.

 

 

I immediately called up MBNA, which was pretending to be “Princeton University Platinum Visa, how can I help you?” a nice sounding woman intoned (all the way from India or wherever she had been offshored).  I asked, sounding offended, “Why is my interest rate so high?”  After confirming my identity six different ways (please, identity theives, take this card from me!!!), Ms. MBNA said it was because I was late on my January payment.  “How late?” “I don’t know, but you were late”.  OK, I thought, that’s about when I switched everything over to online bill-pay, so it could have happened. I asked “How can we remedy this situation?”  “We can’t, sir,” she replied with that “oh, my, it sucks to be you” tone of voice.  “OK, I’d like to cancel my account immediately,” I replied.  “Just a moment, transferring you to the account cancellation department.”  

 

If talking to the main help desk is economy class, the cancellation department is luxurious first class, you imagine the representatives reclined in plush leather, looking out from the windows of their 50th floor office in Manhattan - no offshoring for those guys.  “How can I be of assistance, sir?” Mr. MBNA said.  I explained the predicament.  And he immediately returned my rate to the nice single digit it was at before I missed my January payment.  Undoubtedly, a computer program written by one of my college buddies TOLD HIM TO DO THIS.  The credit card companies are smart.

 

So why are people so stupid?  Every, and I mean every book, television show, or other media about investment should start with the following disclaimer: IF YOU HAVE ANY CREDIT CARD DEBT AT ALL, GO AWAY AND PAY OFF ALL YOUR DEBT, AND THEN COME BACK AND WE’LL TALK ABOUT INVESTMENT.  This is because paying off your credit cards is the best investment you can make BAR NONE.  It has a guaranteed return of up to 25% depending on your average rate.  Guaranteed.  Zero risk.  You will get that return.  There is no investment that beats this.  The only argument to make against paying off your credit cards before investing in other things is that you may need the liquidity.  But paying off your credit cards provides liquidity as well - by increasing your available credit.