Things You Need to Know if You Want to Master Your Money


It’s ironic people shy away from talking to others about money, considering everyone has to deal with it. But instead taking advantage of this shared experience, a lot of people keep their questions to themselves and outwardly pretend they understand what they’re doing with money. Only once they’ve dug themselves in a hole do they start asking for help.

No one is born understanding personal finance. It’s mostly on you to figure it out as you go, which doesn’t always work out well.

“Typically in America you don’t learn about these things — you don’t learn about debt and interest,” according to Alex Sadler, managing editor of, the namesake site of personal finance and early retirement icon Clark Howard. “You’re handed a credit card … and it’s up to you to read the fine print. People get into serious trouble.”

Sadler knows this not only because of the people who ask questions on but also because of her own experiences. “I maxed out credit cards, I had a student loan I didn’t understand, and living that way and not changing my lifestyle, I realized that that was going to prevent me from doing things in my life that I wanted to do.”

Ideally, people would get to know how money and credit works before they start using it, not the other way around. But that backwardness is often the reality of Americans’ personal finances, which is why Sadler and the team started a new project called CommonCents.

“A lot of problems people face is not understanding what they are trying to tackle,” Sadler said. “A lot of times people … they think they have tried (to get out of debt) and they just don’t understand how it all works and how to make that attempt and effort successful.”

We asked Sadler about some of the core concepts that people need to know — but often overlook — in order to master their finances. Here’s what she said.

1. Understand Interest

Sadler said this is a common issue among people who reach out to Clark for help getting out of credit card debt.

“A lot of people think because they’re paying the minimum monthly payments they’re not getting charged interest,” she said. This, of course, is totally false. It’s not that making the minimum monthly payment isn’t a way to get out of debt — it’s just that it can take an extremely long time.

So, how does interest work? As far as credit cards go, you can get a sense of it by using this free credit card payoff calculator (and if you have credit card debt, the tool can help you make a plan to pay it off.)

2. Learn What it Means to Budget

It’s perhaps the core tenet of personal finance: Budgeting. But you can’t hope to budget if you don’t really understand what it means.

“Budgeting means making sense of your money: How much money are you making? How much money are you spending?” Sadler said. Budgeting, no matter how you do it, boils down to one thing: “Spend less than you make. You’re living paycheck to paycheck? You’re not spending less than you make.”

That brings us to her next point:

3. Know Your Numbers

“The majority of people that Clark talks to about debt, the first thing he asks is, ‘OK, you have credit card debt — how much do you owe?’ The majority of the time, this person asking the question does not know the answer,” Sadler said. “How do you plan to pay off your debt if you don’t know what you’re facing?”

That’s only part of the spend-less-than-you-make equation. Knowing your take-home earnings, your debt, your spending, your assets — these are all things that can help you make smart financial decisions every day that will also make sense years in the future, Sadler said.

Image: macniak

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I Got a $6,000 Windfall. Which Credit Card Should I Pay Off?


One of the hardest things about paying off debt is figuring out where to start. Should you go after the biggest balance first? Or would it make more sense to start knocking out some of the small stuff? One of our readers found themselves in such a dilemma:

I received a windfall of $6,000 and I want to pay off 2 credit cards entirely, but my husband wants to pay down one for $11,000. Which would be the best idea?

Like all financial decisions, each of these options has its pros and cons. And while we don’t know the interest rates on these credit cards, we can still go through some of the things our reader may want to consider before putting that $6,000 to use.

What Option Saves You the Most Money?

Again, we don’t know the interest rates on these debts, so the reader has to do a little math. A credit card debt payoff calculator (we have a free one here) can help them figure out how much money they could save in each scenario. In many cases, it makes sense to go after the balance with the highest interest rate, so you can reduce the amount you pay in the long run. But a card with a low interest rate and a high balance can also end up being really costly if you take a long time to pay it off. It’s really important to run the numbers when making a debt-payoff decision.

How Do These Decisions Make You Feel?

There’s a lot to be said about leaving emotions out of financial decisions, but a little can actually be helpful. Paying off two credit card balances can be really satisfying, and you’ll have two fewer things to worry about. On the other hand, making a dent in an $11,000 credit card balance can feel like incredible progress. Staying motivated is crucial to getting out of debt, so if there’s an option that excites you the most, it may be the right choice, even if it doesn’t save you the most money over time.

What’s Your Credit Like?

One of the most important aspects of your credit score is your amount of debt and how much of your available credit you’re using. To figure that out, you add up your total credit card balances and divide it by your total credit limits — that gives you your credit utilization rate, which credit scoring companies advise consumers to keep as low as possible (preferably below 30% and, ideally, below 10%). As our reader considers putting $6,000 toward their overall credit card debt, no matter how they distribute that money, they’ll lower their credit utilization rate.

The utilization rate on individual cards also plays a part in credit scores. If one of those cards is maxed out, it could help their credit scores to lower that card’s balance. (You can see how your credit card debt, and other things, are affecting your credit by getting two credit scores for free on

It’s unclear from the reader’s comment if the credit card debt belongs to one person or both individuals. Each person has their own credit score, even if they’re married and have joint accounts, so that’s something for the reader to consider as well. Say the two credit cards the reader wants to pay off are their only credit cards and their credit score is suffering from the high balances. Paying off those cards would help their credit score, which may be important if the couple wants to buy a house or a car in the near future.

There’s not a single “best” answer to our reader’s question, but they can arrive at a smart decision by considering the outcomes of each possible choice and understanding how it could affect their financial future.

Image: AleksandarNakic

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