Andy over at $aving to Invest tagged me with the Single Step Personal Finance Challenge created by Mrs. Micah. The challenge is to find “one step you can take to make your financial system better or more organized.” This is my first tag!:) It’s like finally getting a Valentine’s Day card when you thought no one had thought of you:).

Well, thinking in terms of what is most efficient a move, there are two close contenders for this single step. You’d think one would be just pay off my student loan debt now so that once I am on a salary after finishing graduate school, I won’t be needing to pay over $550/month in loan interest. The only problem with paying off debt, for me, is that it easily comes back. It’s like trying to kill a zombie. I’m almost always going to need some debt. It’s the lubricant or glucosamine of my financial system, helping me move my financial joints when I need some flexibility. And the reward I feel from paying off debt too soon is very ephemeral. I feel like I’ve just “tricked” myself. It’s a mirage. Debt is intangible, disappearing and reappearing like images in clouds.

On the other hand, building income and especially boosting cashflow is extremely tangible to me and feels like a real gain. I feel I’ve really accomplished something when I’ve been able to increase my cashflow. So here I agree with another of Andy’s posts about wanting to increase his monthly cashflow to $300/month from passive income. If you have enough monthly income to live and save money off of, you’re financially free in my books.

So I’d have to say that enrolling in DRIPS (dividend reinvestment plans) is the best single step anyone can take to improve their finances, or what I call their “moneyenergy.”

Four reasons why:

• no fees or commissions
• automatic dividend/distribution reinvestment
• often get discounts (free money!)
• future source of cashflow (if you keep them reinvested until then)

There are other great reasons too, but these are some big ones. If you’ve read my other posts on DRIPs you’ll know what else I have to say about them. I currently own about 15 DRIPs. This is probably a bit too many for where I’m at right now, but that’s ok. I like knowing that I’ve got them set up and ready to go.

If you’re broke, have a tiny income (like if you’re like most students), or a sporadic income, or you have too many debts to pay off all at once, I think that investing in stocks through DRIPs is truly the most efficient way to develop future streams of cashflow. No fees will hold your money back and you don’t need $250 to begin.

I suppose I need to pass along this little tag now, and I think I’ll pass it over to… Sean at Financial Ramblings (if you haven’t done this one, yet, Sean!), The Almost Millionaire and Free From Broke. What do you guys think? What’s your “single most important step?” “The key” to your financial freedom, so to speak, perhaps?

Here’s a simple tip that I learned from Alan Corey in his book A Million Bucks by 30: How to Overcome a Crap Job, Stingy Parents, and a Useless Degree to Become a Millionaire Before (or After) Turning Thirty (which is an amazing read - I reviewed the book in an earlier post here).

You can call your credit card company every six months and ask to have your interest rate lowered. Tell them that you’ve found another card with a lower rate and that you’re thinking about transferring your balance over in order to better manage your debt. But emphasize that you’d like to stay with your current lender if they can give you a better deal, or at least substantially lower your rate.

If You’ve Missed Payments, They’ll Raise your Rate Behind Your Back

This is another dimension to credit cards that I only recently learned about. I was off in Europe for a couple of months and missed a payment, then had to rely on my other credit card and maxed that out and missed a payment (you don’t want to have to rely on cards that much on vacation, trust me - Europe requires ALOT of money - always more than you think - and then double that if you’re going to Switzerland. And it is NO FUN to be on vacation and not have enough of it.). After I got back, I had to spend 60% of my income just to get the cards back down to a reasonable level. What I didn’t know, until 6 months later when I tried this trick, is that VISA had jacked up my interest rate from 18.99% to 23.5% as a result of the missed payment. I had actually been paying 23% interest for 6 months without knowing it. Stupid.

An Annual Fee Can Save You $$ if it Comes With A Lower Interest Rate

I have always avoided cards with annual fees - what sounds worse than that? But in this case, the customer service representative offered me a card with a $25.00 annual fee and it came with a variable interest rate. The rate averages around 12% right now for me. Even combined with the one-time $25 fee, I am saving much more - about 50% than I was paying in interest previously. I might not stay with this particular credit package, but it was the best I could come up with on the phone at the time. I might try calling back again in six months to see what they can offer me then. I should note, too, that I wasn’t interested in switching my balance to one of those 0% for 6 months cards. I wouldn’t have been able to pay it all off by then anyway, and in any case, once the regular rate kicks in, it’s still a whopping 18.99%.

What I learned from Corey is that you can do this every six months. It worked for him, and me - it can work for you too. Do you have any similar credit card tricks to share? (I guess it’s not really a trick: it’s a simple matter of capitalist competition in the lender’s market).