The Simple Rules of Money #2

Avoid Debt. If you cannot avoid debt, then do something about it. Now.

Previously, I discussed how saving was the most important thing to do with your money. This time around, we discuss the most important thing not to do with
your money - which is borrow it. Debt is the anti-saving instrument of money. It's the most important thing you shouldn't do with money because of all the negative ramifications it brings to you and to others.  And, if you must go into debt, the goal is to get out of it quickly by any means legally possible. 

By definition, debt is the amount оf mоnеу owed to somebody or something else. I don't think anyone ever wants to be in debt, but the numbers don't life. The amount of overall debt in the US has risen year after year after year. In 1973, tоtаl соnѕumеr dеbt owed bу all Amеrісаns was $8 bіllіоn dоllаrѕ. Today, it is over $800 bіllіоn dollars and it keeps on rising. Most of this money is accrued from lаtе fees, penalties, and ridiculous interest rates that are charged. The credit companies reap in the awards. 

Granted, debt is difficult to avoid because debt is all around us:

The National Debt - in which every second of everyday increases to all time highs. Check out the US Debt Tracker!
Credit Card Debt- which most Americans have, be it for one month or 10 years. 
Student Loan Debt - which our graduates have to pay back over so many years. 
Financing Debt - on big ticket items like a home or an automobile.

Indeed, there are times when going into debt might be necessary - like getting a student loan for college or a mortgage for buying the house you will live in. While my former ultra high net worth clients never had to go through this burden because they paid in cash for most things, the average couple doesn't have that luxury. Life happens and sometimes you have to roll over. A kid graduating high school shouldn't have to wait years before going to college, after all. But, we are talking extremes here - life changing purchases. A college education goes a long way, so does living in a house. They both build equity in their own ways.

Debt comes in many shapes and forms and they are all out there to get you. I read in the media and see on tv the gross glamorization of debt. TV commercials are the worst. Credit companies spend millions of dollars to show you what you want to see in order to get you. Many times it's happy people buying things with a credit card. I've seen loan companies actually encourage viewers to go into debt. I remember one ad of a happy family saying they were able to get married, to go to college, to buy a car, and take a vacation. There was lots of smiling faces, joyful children, and lots of dancing around. At one point, the wife is thanking the loan company for the freedom to buy whatever she wants.  

Here and there, you will see writers of articles and books will argue that there is “good debt” and “bad debt”. Don't believe them. 

As a experienced wealth manager and as a former financial professional, I've seen the ramifications that debt can cause, so let me tell you:  Strike all of that poppycock from your mind. I have seen the ramifications of people falling into debt. Especially the ultra wealthy. Nothing good comes from it.

There are only three classifications of debt: bad, worse, and scary. Don’t let credit companies or anyone else try to fool you. 

Let me re-emphasize that there is nothing good about debt. Just because it might be necceary for people to burden themselves with, does not make debt a good thing to have.

Here are some of the negatives that can arise from debt: 

It саn рrеvеnt уоu frоm еѕtаblіѕhіng еmеrgеnсу ѕаvіngѕ 
It саn аffесt уоur реrѕоnаl life 
It соuld lеаd tо garnished wаgеѕ 
It саn delay your lіfе goals 
It can prevent retirement
It can result in bankruptcy.

So for readers who not indebted, try your best to stay that way. There are many ways of doing this: use cash instead of credit cards;  live within your means ; only use a bank debit card that subtracts from your checking account, ignore the credit card commercials and all the jazz about reward programs they have. Most rewards programs are not worth it. If you are living a debt free life, you probably are doing these things already. 

But for readers who are in debt, you need to do something about it, and quickly. Now. Because everyday you owe debt, you are being charged interest on it. 24/7, 365 days a year - time is the enemy of the debtor.

Fortunately, there are many ways to help you get out of debt. The best way is to conjure up the cash and pay off all your debtsI As this is not an option for most people, I will discuss some of the other ways to get out of debt.

How to get out of Debt 

1. Check all the Debts you have.

Get a list of all debts you have and learn your credit score. I get my free credit report and debt information for free on Credit SesameThey give you your current credit score, do a credit report analysis, and have identify theft protect all for free.. Obviously, there are other products you can buy from them, but that's up to you. After all, they need to make money   (probably to pay down their own debts). 

2. Find Out Everything About The Debts You Owe

Now that you haver your credit score and have a list of who you owe money to, it’s time to figure out everything else about your debt. Here’s a list of what you’ll need to know about each debt:

Exact amount you owe
Payment amount
Frequency of payments (monthly, quarterly, etc)
How many payments left Interest rate and whether it is fixed or variable
Payment due dates

3. Take Action - Now

After completing steps 1 and 2, you are prepared and ready to do something about your debt. Don't wait. Time and money are against you. Here are some ways to help with your debt situation and even save you money. 

Consider a Personal Loan  I like this method a lot. Companies such as Upgrade and LoanExchange will give you up to $100,000 to pay off your current debts right away. In return, you will have a single, fixed rate loan to pay back.

They have fixed rates starting at 6.7% that won't fluctuate. Reducing the interest rate on the debt you owe will save you thousands of dollars in interest. Credit card rates are variable and are running at 29% or more these days. Those rates are rising in today's higher interest rate environment.

Through a personal loan, you have all of your debt in one spot so it's easy to keep track of, peace of mind that your interest rate will not go up and you will save thousands of dollars due to reduced interest rate charges.  

Consider Credit Counseling - A credit counseling company like Credit Pros Credit Repair & Education will review your credit history and clean up any inaccuracies like bankruptcy, that can hurt your credit score. Your mоnеу spending ways аrе analyzed and you are presented with a nеw рlаn for spending. Crеdіt counseling teaches people how tо gеt out of debt bу themselves. The biggest benefit of using a credit counseling service is the education, the second biggest thing is that  they repair your credit history. 

Debt Management Plan - The way this works is that you’ll be assigned a counselor who will develop a plan to manage your debts and then present it to your creditors. Your counselor will negotiate with credit companies to get your interest rates reduced and fees waived.
If your creditors sign off on the plan you’ll stop paying them. You will make a fixed payment each month to the credit counseling agency instead.

Debt Settlement & Bankruptcy - Consider these as very last resort options. While they will help with your debt situation, your credit and your financial credibility will be blown out of the water. You will be considered an extreme risk in the financial sense. You will likely be rejected when trying to get a mortgage or other loan. And if you do get a loan of any kind, it will likely be from a sub-prime lender in which you will be paying a tremendous amount of interest. Getting your credit status back normal can take 7-10 years. Avoid these like the plague. 

Please remember, there is no such thing as good debt. 
ALL debt is either bad, worse, or scary. 
Avoid debt if possible. 
If you are in debt, act quickly to get out of it 
Once you're out of debt - do not fall back into it.

Everyday that you are in debt will cost you more money to get out. 

Take action now.