Saturday, November 7, 2015

Being in debt sucks

Being in debt sucks. Being in deep debt really sucks and can affect you in a number of negative ways. You worry about how you will pay off your debt so your health is affected by the anxiety.

 Being in debt can lead to relationship issues with your spouse and even divorce. It can lead to loss of opportunities because your credit score is available online and people do look at it.

Employers are even using credit scores as a tool in hiring decisions. The idea being that if you are responsible in your use and management of credit in your personal life than you will be a good steward of the company’s resources.

It may seem that this is unfair but this is how things are. If you are going to take responsibility for your life than you must first accept reality for what it is and not how you want it to be. Then and only then can you come up with a solution for your debt problem. Admitting one has a problem and overcoming the denial of the problem is something that must happen before the debt problem can be attacked and overcome. While people are trapped in denial they will not be able to develop the motivation to stop the behavior of going deeper in debt much less paying down their debt.

I was in debt at one time earlier in my life. My debt problem was tied up in a failed marriage and some other unhappy events at that point of my life. Instead of crying like a baby or ignoring my situation I decided to fix the problem. Fixing the problem did not include being a welch and declaring bankruptcy. I took responsibility for my choices and decided the situation was not acceptable, realized that no one was going to fix it for me, formulated a plan to fix it, and then religiously executed the recovery plan.

Today I am debt free with the exception of my mortgage on my house. I have six months’ plus salary in the bank, an 800 plus credit score, and I am able to invest and build wealth for the future.

How did I do it? First off I decided that I was sick of having the debt monkey on my back and making minimum or near minimum payments on credit cards and not seeing the balances shrink. By the way, the banks love to encourage minimum payments because they want to keep you in debt (remember the debtor is slave to the lender).

The very first step is to go get a pair of scissors and cut up all your credit cards. If you are in a hole the first step is to stop digging. This is normally where the excuses begin. "I need a credit card to rent a car, blah, blah , blah"... if this is really the case take one card put it into an envelope and have a parent or trusted friend hold onto it for you. Use it only for a car rental or some situation where a card is required. Pay off the charges immediately!

Tell them you are in debt and that you are trying to get out of debt and that you want them to hold this card for a case like renting a car or some such matter that absolutely requires a credit card. Typically people in deep debt just need to cut up all their cards as they will end up using them for frivolous spending thereby negating this whole process of debt reduction.

The next step in my debt reduction plan was to make a budget of all my monthly expenses. This is very important and you have to do this in order to make the program work. You have to understand what money is coming in and what money is going out to the literal penny.

You have to begin thinking of your personal financial matters like a business. Successful businesses know to the nickel funds entering and leaving the business.

Now that you have a budget of your necessary expenses like rent, utilities, food, and other essentials. Note the word essentials. The Direct TV premium package with NFL Sunday Ticket, and the Apple 7 with a Verizon 20GB plan is not essential. This is the biggest trap people in debt fall into, trying to justify frivolous expenses while they are ass deep in debt.

Turn that crap off. You are on an austerity program so get used to living a minimalist lifestyle and dump the iphone and get a cheap flip phone.

Oh, and your gym membership that you rarely use? Get rid of it. Walking and running around your neighborhood is just as good and there is plenty of stuff online for bodyweight exercises. Try this out for an example.

No more going out to restaurants for lunch and dinner. Buy food at the grocery store and make meals at home. It is cheaper and healthier. Brown bag your lunch and no more Starbucks. If you drink coffee in the morning get your lazy ass up 10 minutes early and make some coffee in your house and put it in a thermos and take it with you, $.25 cents versus $5.00. Are you getting the idea yet? Cut your expenses and apply the savings to reducing your debt.

After determining your budget and cutting expenses to the bone you should understand how much excess cashflow you can begin to apply to debt reduction. 

The next step is list all of your various debts in order of magnitude, for example:

Chase Card       $12,583
Discover Card  $8,742
Car note            $6,518
Kohls Card        $1869

After doing your budget you should know what your excess cash flow is every month. Lets say you have $500 per month to devote to debt reduction. The strategy I used is to attack the low hanging fruit. In the above example make the minimum payments on the first three debts so you stay current. Then devote the majority of your effort to knock out the lowest amount first. Example: $500 per month to the Kohls card every month while making minimums on the other three debts to stay current.

Many people will suggest that you attack the the debt with the highest interest rate first. However, you are already deep in debt and this fact has you demoralized and dejected. You need a victory to help you stay motivated as this process is not fun and is grueling. Knock out the low hanging fruit and get some points on the board.

Another thing you need to do is get an account with Credit Karma. Determine what your beginning credit score is, probably not good if you are deep in debt, and monitor it every month. You will notice something after a couple of months. As your debt decreases you credit score should begin to creep up.

If you are like me this will begin to motivate you to stick with the program as you see you debt totals going down and your credit rating going up. You should be tracking the debt balances and credit score monthly on an excel spreadsheet or just a notebook. Remember we need to be running our financial life like a business. That is what wealthy and successful people do.

After you knock out the first debt continue working your way up the chain of debt but continue to devote the same amount of money even as you knock out each debt. So if you are devoting $500 per month to debt reduction continue to devote $500 per month even as you begin to knock out the different debts. This will probably take a couple of years. Yeah it takes some time and sacrifice. People do not get into debt overnight and it takes effort, self control, and time to get out debt.

As you get additional sources of income (something you should be doing if you are in debt) or a raise at work your living expenses should be staying relatively stable. Devote the additional income to debt reduction. 

It will not be fun and it will try your patience but when you finally pay off that last debt you will be free. Free to devote the fruits of your labor to the things that are important to you. You can begin to build a bankroll, invest, and build wealth. You will remove worry and anxiety from your life and you will be back in control instead of the greedy bankers.

It isn’t hard but like most self-improvement activities people already know how to do it they just refuse to actually do the work. Being in debt constricts and limits your options. It creates fear and anxiety. It keeps you from fully becoming what you want to be in life. You now know how to do it so get it done.

1 comment:

Jeffery Surratt said...

This will work for sure. But I pay the most to the higher interest accounts first. I do not care about paying off my $600 15% credit card first or my $160 Kohls account, the interest saved is nothing. I like seeing my total interest payment drop each month. So I pay $40 on the 15% account and $240 on my $2,000, 25% credit card. This way my total interest payments drop more than $10 per month. I will be debt free in 18 months.

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