GO
Loading...

Cramer: Aspiring for wealth? Shed this nasty trait!

(Click for video linked to a searchable transcript of this Mad Money segment)

Cramer often says he believes that the stock market is the greatest wealth creation engine in the history of the universe. And he encourages most people to 'get in the game.'

However, he also thinks that some people have absolutely no business putting a single in dollar in stocks. Not even a penny.

Those are people with high interest rate debt – essentially from credit cards.

That's because the average annual interest rate on a new credit card is about 15% right now.

Dimitri Vervitsiotis | Photodisc | Getty Images

That means if you're carrying a balance on a credit card, or multiple cards, your investment must return more than 15% every year for you to just breakeven. And Cramer doesn't see that happening, easily.

"Yes, it's true that last year the S&P 500 gave you a 32.3% return with dividends—much more than you'd be paying on even truly exorbitant credit card interest rates. But 2013 was an exceptional year," Cramer noted.

Largely the Mad Money host believes history is not on your side.

"In 2012, the S&P was up 16% with dividends, in 2011 it was up just 2% with dividends, and in 2010 you got a 15% return with dividends—in all three of those years, every dollar of credit card debt would have cancelled out a dollar invested in the market, or worse."

Therefore, Cramer believes eliminating credit card debt is the first step on the long road to prosperity.

However, that's not to say you should avoid the market if you hold any debt – that's not what Cramer is saying, at all.

"It's perfectly okay to invest in stocks if you're carrying student loans," Cramer noted. "Those will typically run anywhere from 3.8% to 6.4%. I believe you can consistently do better than that in the stock market."

Cramer said the same is true if you hold a mortgage. They too are typically at rates that Cramer says are lower than the returns he believes are possible if your follow his system of investing.

At issue is only high interest rate debt, the kind typically found on credit cards. "It's the single worst variable that drives wealth destruction and it must be eliminated before you start owning stocks," Cramer said.

----------------------------------------------------------
Read More from Mad Money with Jim Cramer
Cramer: Market chock full of surprises
Sly strategy for catching major move
Laggard about to play catch-up?
----------------------------------------------------------

*It should be noted that Cramer also believes every investor should also own health insurance before owning stocks. "Nothing can annihilate wealth faster than the enormous out of pocket costs associated with the treatment of serious disease.

Call Cramer: 1-800-743-CNBC

Questions for Cramer? madmoney@cnbc.com

Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com

Featured

Contact Mad Money

  • Showtimes

    U.S.
    Monday - Friday 6p ET
    Australia
    Saturday 8a, 1p, 7p SYD
    Sunday 12a, 1a, 8a, 7p SYD
    New Zealand
    Saturday 10a, 3p, 9p NZ
    Sunday 2a, 3a, 10a, 9p NZ
  • Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

Mad Money Features

  • Grab the latest CNBC gear from the NBCUniversal Store!

  • Get a behind-the-scenes look at how Cramer formulates his investment advice. "Inside the Madness" is a column, which features e-mails and more with Cramer and his researcher Nicole Urken.

  • You’ve always wanted to hit the “Hallelujah!” button. Here’s your chance.

Cramer's New Book