Consumer debt is an anchor that weighs down the majority of the wallets across America. Taking on too much leverage will cripple any household or business. Just ask Long-Term Capital Management, a group of the smartest guys in finance who built a multi-billion-dollar hedge fund and then wrecked it all just a few short years later due to being over-leveraged. Look at the housing/credit bubble in 2008 – using the equity in one home to buy a second or a depreciating asset (i.e. car, boat, etc.) just because “home values won’t drop nationwide all at once…”
If you have credit card debt, stop using it for the “points” because when you look at the interest rate charged and the points you get, it’s not even close. Put them away, consider a balance transfer, and put that new card away too. You are wasting money if you are carrying a balance on your credit cards. Plain and simple.
Next is a car loan, and while the interest rates (for some) may be low, that car will not be worth the same dollar amount a year from now. I have a car loan myself and it irks me each month paying it, even though it’s at 1.7% for the next 3 years. In the last 3 years, I have owned it, the price of it has dropped by 50%. Painful.
Some people may have personal loans, or debt consolidation loans too. Those interest rates vary; however, I have seen some at 10-12%. For every dollar you use to pay off that loan, you are saving 10-12% of the interest you would have otherwise owed. That’s not a bad ROI.
For every debt you have that also has an interest charge, that is money you are losing – and there is a steep lost opportunity cost on each dollar. Some people say there is good debt and bad debt, however, debt is debt. You borrow money from someone else to obtain something, and you promise to pay them the principal back over a specified time frame plus interest. You need to be in the opposite position – to have the ability to loan people money and they pay you back plus the interest (of course having all the legal and financial protections in place, not just handing out money to random people).
When the economy is good, that’s the time to take advantage of bonus’, pay raises, and tightening up the spending habits to get out of debt and save. Because when it turns, the last place you want to be is holding a bunch of debt with no savings. The consequences can be dire, and you may have an immense amount of undue stress.
Do you have a game plan to get out of debt? What is your strategy to get out of credit card debt? Most people have credit card debt so don’t feel bad, take the steps now to pay it off. What about student loans? There are over a TRILLION dollars of student loan debt outstanding, so again you are not alone. But don’t be the norm who drowns in debt. Have a plan. Stick to the plan. And work like crazy to make it happen and pay it off.
Email me at [email protected] and I will help you come up with a plan to save and get out of debt ASAP. There is no obligation to work together, just an opportunity to help you get better sooner! :)
Now let's review what we have accomplished over the last few weeks together...
1) We have outlined what is important to us, and how we define success for ourselves.
2) We have a game plan to save money consistently, creating a habit of flowing money into various wealth building tools.
3) We shared a story of my friend, Mike P, who is on a mission to open a beach bar. And live out the rest of his life like that Zac Brown Band song... "I've got my toes in the water..."
4) Defense wins championships, and we have outlined the keys to creating defensive strategies to win your "championship."
5) We then shared a few thoughts on debt, accepting that it is there and what it is doing to us, but not letting it control our "success."
Next, we will have a few tips and strategies on how to efficiently reduce debt to save you time, money, and most importantly, your financial freedom.
Joie de Vivre!