Call Now!
Call Us 414-326-9231 608-260-7133 Text Us 414-326-4709

How do Credit Cards Impact you Net Worth?

Here's a great article by Kristina from credit sesame:

Believe it or not, many people don't know how their credit cards affect their net worth. A lot of people don't exactly know how their net worth is calculated and therefore they confuse their net worth with their credit worthiness. However, the truth is that your personal net worth and your credit worthiness are two completely separate (but equally important) parts of your financial well being. Just because someone has many credit cards doesn't necessarily mean that he or she has a positive or high net worth. The truth is that the way someone manages their credit products can actually have a negative effect on their personal net worth.

How is Your Net Worth Calculated?

Your personal net worth is calculated by subtracting all of your liabilities from the total value of your assets. Liabilities include any type of debt that you owe in the form of credit cards, lines of credit, student loans, mortgages, and overdraft protection. Assets include personal savings, investments, retirement accounts, employee share ownership plans and bank account balances. Assets also include the value of your home, a collection of artwork, jewelry, your car, home furnishings and precious metals (i.e. gold and silver bars).

Credit cards do not increase your net worth because credit cards are not assets, they are liabilities. If you have a credit card that you never use or if you have a credit card and pay off the balance every single month it is still considered to be a financial liability because the total credit limit is available for use at any time. Liabilities decrease the value of your net worth, even if you acquired the debt in order to purchase an asset.

It is very common for people to apply for a personal loan or line of credit in order to purchase an asset such as a home or a car. The amount of the loan will be very close to the value of the asset in the early years and therefore your personal net worth will reflect the liability. However, as the loan gets paid down and the value of the asset increases your personal net worth will also increase. Whenever you have a depreciating asset such as a car, your net worth will probably not be impacted in a positive way unless the loan is paid off in full and if the asset still has some value.

What is Your Personal Net Worth?

Take a moment and try to calculate your net worth. Add up the value of all your assets both tangible (fixed assets) and intangible (liquid assets) in one column. Then add up the value of all your liabilities including loans, credit card balances, mortgage loan balances, overdraft protection and so on in another column. Now subtract the amount of your liabilities from the total value of your assets. What is your total personal net worth?

If you are struggling with credit card debt, call Miller and Miller today. With offices in Milwaukee, and Kenosha we are ready get a fresh start for all who need it in southeastern Wisconsin.

No Comments

Leave a comment
Comment Information
Email Us For A Response

Free Case Evaluation

* indicates required field

Miller & Miller Law, LLC
  • VISA
  • Master Cards
  • Discover
Milwaukee Office map Madison Office map Kenosha Office map

633 W Wisconsin Ave, Suite 500
Milwaukee, WI 53203

Phone: 414-312-6581
Fax: 414-277-1303
Milwaukee Office

2810 Crossroads Drive
Suite 4001
Madison, WI 53718

Phone: 608-260-7133
Madison Office

6123 Green Bay Road
Suite 210
Kenosha, WI 53142

Phone: 262-326-1669
Kenosha Office

Appleton Office
4321 W. College Ave.
Suite 200
Appleton, WI 54914

Phone: 920-280-3838
Appleton Office

Brookfield Office
200 S. Executive Drive
Suite 101
Brookfield, WI 53005

Phone: 262-261-0665
Brookfield Office

Glendale Office
6001 N. Green Bay Avenue
Glendale, WI 53209

Phone: 414-973-8662
Glendale Office

Fax: 414-277-1303 - We also have offices in Appleton, Glendale and Brookfield to better serve you.