The only man who sticks closer to you in adversity than a friend is a creditor. - Author Unknown
Since the average American carries tens of thousands of dollars in students loans, credit cards, and other forms of debt, this book would not be complete without a chapter on debt consolidation. There are some of you who may have skipped the other chapters just to read this one first. This is understandable, since it is difficult to save 30% of your income when you have thousands of dollars to pay back in loans. Like much of this book, I want to stay away from the more mainstream methods of debt consolidation. I would like to start off this chapter by saying I don't trust debt consolidation loans. This term is an oxymoron when you think about it. How can you expect to pay off a loan by getting a new one? Many people have signed up for debt consolidation loans only to find that they've been duped. In addition to the money they already owe, they may also owe additional amounts of money. Debt consolidation loans are only useful when they can combine your debts into a single payment that has a low interest rate. This interest rate should be lower than the combined rate that you're paying on all your debts separately. There are many fraudulent companies that seek to take advantage of people who are heavily in debt. Instead of helping you get out, they make things worse. There are a number of things you can do to avoid falling victim to debt consolidation scams.
However, I will give you the best solution, and this is to avoid debt consolidation loans altogether. Many of these companies are more concerned with profits than helping you get out of debt. Their employees are expected to meet sales quotas, and if they don't., they'll lose their jobs. Many of these debt consolidation services are nothing more than telemarketing firms. One minute they will be selling debt consolidation service, and they next minute they will be selling loan modifications or gas rebates. Much like building wealth, the path to getting out of debt is relatively simple. But it is not easy, since it will require a lot of discipline on your part. Many companies try to provide people with an "easy" way of getting out of debt. They promise overnight solutions, and these solutions require very little effort. Because many people are desperate, they give in. However, many of these people just end up digging themselves into a deeper hole.
Many people fail to realize that many debt consolidation services are limited in their functions. They cannot help you lower the rate on your student loans, since these loans will often come from the federal government. Many of these services will also not be able to help you take care of mortgages or electric payments. To get out of debt, you must make a lot of sacrifices. If you have a car, you may need to think about selling it or downgrading. If your debt is high enough, and you have a house, you may also need to sell it as well. If you carry large credit card balances, you will want to look for credit cards that have a 0% interest rate. It takes many people years to pay off debts because they spend too much time paying on the interest rather than the principal. Until you can pay off the principal in full, you will be in debt for many years to come. By transferring your balance onto a card that has a low interest rate, you can focus on making 100% of your payments toward the principal. This one strategy will allow you to pay off your credit cards much faster than someone who is paying 14% interest or more each month. Despite this, it is very important to research the credit card that you're interested in placing your balance on. Most of the credit cards that offer a 0% interest rate will only have this rate for a short period of time. The general time frame is about six months. Once you've had the card for six months, the interest rate will automatically go up, and it may be much higher than what you're currently paying, If you can't pay off the card during the first six months, you will need to transfer it to another credit card with a 0% interest rate.
Because the competition among credit card companies has become so fierce, there are a large number of these offers available. Perhaps you've got a few of them in the mail. Be sure to read the fine print to make sure you understand all the details before you transfer your balance. The fine print is always important, since this is the information that the credit card company doesn't expect you to read. If you use all the money saving strategies I've mentioned in previous chapters, you should have enough disposable income to begin repaying your debts.
If you're deeply in debt, you will need to begin getting rid of expenses you don't need. Getting out of debt is very similar to saving money. However, the difference is that instead of putting the savings into your bank account, you will need to pay off the lenders. If you owe $10,000 on a credit card, and you make $24.000 per year, you will need to develop a plan to free up as much of that $24,000 as possible to pay of the $10,000. The best way to do this is to get rid of bills you don't need. If you use all the strategies I've demonstrated in this book, you should be able to pay off this credit card in three years or less.
Saving money is the poison of debt. Just as saving lots of money can allow you to become wealthy in a short period of time, it can also allow you to pay off your debts in a short period of time as well. This is something that debt consolidation companies won't tell you. They may charge you money up front to negotiate with your creditors for a lower rate, but they are only acting as the middle man. They are essentially charging you to do something you're capable of doing yourself. If you owe $10,000 in credit card debt, it is logical to assume that you spent that money on something. Perhaps you purchased the latest television, or you purchased an expensive computer. Perhaps you used it to buy expensive clothes or jewelry. No matter what you purchased, you will need to sell it to use the money towards the repayment of debts. Yes, I know you may not want to sell it. But this is the price you must pay for borrowing money to pay for goods that depreciate in value.
Selling your existing goods is one of the fastest ways you can get out of debt. If these goods are not too old, you may be able to get back most of what you originally paid. This can allow you to pay back your debts quickly. You will want to sale the goods for as much as you possibly can. Once you get the money, it is important to make sure you pay on the "principal," not the "interest." Figure out a way to lower the interest rates on your loans. Calling your creditors to negotiate a lower rate can also be an effective strategy. The only thing that the creditors want is their money. In many cases, you can negotiate lower principal rates and interest amounts. If you call them to set a payment plan, they will be much more likely to work with you. But you must explain to them that you want to focus on paying the principal. Once you've reduced your interest rate to the lowest extent possible, and you've sold all your goods, the next thing you will want to do is free up your income to continue paying the remainder of the debt. This may require you to cancel your cable television, or eat out less. No matter what sacrifices you have to make, doing them will allow you to pay off your debt faster.
When you sell these items, you should expect to lose money. Most people waste their money on goods that depreciate in value. So, you will need to sell your used goods at a loss to get a fast turn over. Holding a garage sale is one good way to unload your goods quickly. You can also sale your goods on websites such as Craigslist or eBay. You will need to find the current value of all your goods to determine which prices to sale them for. If you ask for a price that is too high, no one will purchase. For example, if you borrowed $3,000 to pay for a television, and it is two years old, you may need to sell it
for $2,000 or even less. There is one key issue I want to mention in this chapter that is very important. The longer it takes you to pay off your debt, the less wealth you will have over the long term. When it takes you 15 years to pay off a loan, this is 15 years that you missed saving for your retirement. You can never get those 15 years back. You must do whatever it takes to get out of debt, and you must do it fast. Sit down and create a plan, a plan that will allow you to get out of debt. Create a date for when you want to have all your loans completely paid off.
Creating Your Debt Mastery Plan
Some of the people who read this chapter may think my solutions are simple. They may also think that they are common sense. This is a complete fallacy. Applying the things in this chapter will take a great deal of discipline on your part. To help you get out of debt, I want to show you how to create a Debt Mastery Plan. A Debt Mastery Plan is a strategy that will allow you to get out of debt. This is the information that you will need to acquire:
1. Your total yearly income
2. The total amount of your debt
3. The total value of all the valuables you have
Yearly Income
Once you have these three things listed, you will next need to sit down and figure out how much of your income you can free up to apply towards your debts. For example, if you're like the average American, who makes about $33,000 per year, and you owe $12,000 in credit card debt, you will need to create a strategy that can allow you to take as much of this $33,000 as possible to pay off your loan in a few years. This may require you to get a smaller apartment, use public transportation, and eat out less. You must lower your living expenses to the point where you can at least save $4,000 of this $33,000 to apply towards your debt.
Total Debt
Next, you will want to look at the total amount of debt. This will help you figure out how much you will need to save each year to pay it off. The more debt you have, the more money you will need to save.
Total Valuables
The third strategy is to look at all the valuables you have. Anything that can be sold for value should be considered. If you can sell your electronics, jewelry, or other valuables, these to can help you pay down your debt. If you put together a Debt Mastery Plan, and you set a "specific" date in which you want your debt paid off, you can succeed within a short period of time. The average American spends years paying off their debt because they don't plan. It is a lack of planning that got them in debt in the first place. Your Debt Mastery Plan should be a detailed strategy that you will use to get out of debt.
When you write up this plan, you will not want to be vague. You will need to refer back to it often to make sure you're following it properly. Also, it is very important to stop borrowing money if you're already in debt. When you borrow more money, you make things worse. Don't exacerbate the problem. Start using cash for everything you purchase. This can be achieved by using your ATM card as well.
Simplification is a primary key to getting out of debt. In life we tend to complicate many things and the solutions offered by many companies to getting out of debt often complicate the problem. This is another reason why I do not endorse debt consolidation companies. As the Japanese proverb says, "in simplicity lies great beauty." Life is already complicated as it is. Getting out of debt shouldn't be complicated. If you use all the simple strategies I listed in this book, you will get out of debt without a lot of headaches. More importantly, you will pay off your debt quickly, and you can begin saving money, putting it in your pocket or investments instead the pockets of a bank. While the things in this chapter may seem simple, they will require a great deal of discipline and determination on your part.
It will be tough to sell your valuables at an overall loss, especially if you paid a lot for them. It also won't be easy to reduce your standard of living so that you can apply more of your money towards the repayment of debts. However, once you do it, you will begin to embark on the path to financial security. I'm also fairly certain that after going through all these loopholes to pay off your debts, you will be less likely to borrow any money in the future. This is the simple solution to getting out of debt. Stop borrowing, start saving, and get rid of liabilities.
As you should know, a liability is something that takes money out of your pocket. These liabilities will reduce your ability to save. Once you don't have the ability to save, you won't have the ability to build wealth. Despite all the different strategies that people will try to show you for getting out of debt, the truth of the matter is that saving money is the ultimate weapon. When you're saving between 30 to 50% of your income, your savings rate will eliminate your debt quickly.
To become financially secure and prosper, you must reduce and eliminate bad debt. Many pundits consider debt to be a form of slavery, and most Americans don't realize that they've been enslaved. The best way to enslave a person is through their money. When you really think about it, the people sitting at the top of the banking industry are geniuses. They have some how suckered the population into believing they have to borrow for everything. Conspicuous consumption is a way of life for many people. Society tricks us into buying stuff we don't need. They create a need where it normally wouldn't exist. Have you ever purchased something you really didn't need, and you weren't sure why you purchased it? If you find yourself in a situation like this, you've just been a victim of successful advertising. People are literally brainwashed into buying stuff because they feel they need it. I should also note that companies spend millions of dollars each year trying to figure out how to trick people into buying products they don't need. Edward Bernays, who was the nephew of Sigmund Freud, stated it very well in his book Propaganda:
"The conscious and intelligent manipulation of the organized habits and opinions of the masses is an important element in democratic society. Those who manipulate this unseen mechanism of society constitute an invisible government which is the true ruling power of our country. ... We are governed, our minds are molded, our tastes formed, our ideas suggested, largely by men we have never heard of. This is a logical result of the way in which our democratic society is organized. Vast numbers of human beings must cooperate in this manner if they are to live together as a smoothly functioning society. ... In almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons ... who understand the mental processes and social patterns of the masses. It is they who pull the wires which control the public mind."
This statement basically sums up why so many Americans will never obtain true wealth. It also shows why many of the people who read this book will not choose to use it to their benefit. They are so brainwashed by society that they can't see things for what they are. They make excuses for why they lease cars, buy brand name clothes, and eat brand name foods. When I talk to many people about the topic of saving money, they become defensive.
These people are quick to defend their spending habits. In the end however, most people don't realize that their spending habits are a result of the manipulation of the society in which they live. While there are things that we all must purchase to survive, most people buy stuff because a corporation tells them to. To become wealthy, you must become smart about the way you shop, and the things you buy. Most corporations have no concern about you or your financial well being, whether you want to believe this or not. Profits almost always come first, and it doesn't matter what has to be sacrificed.
In fact, a recent documentary film called "The Corporation," compared many corporations to psychopaths. At one point during the film a woman who worked at a marketing company explained how they had begun using children to get their parents to buy things. The woman stated that their research showed that when children nag their parents about buying something, the chances of the parent making the purchase was very high. Therefore, many companies have begun tailoring their marketing strategies towards children. Some may feel that this technique is unethical, however it shows how far corporations will go to sell their products and increase their profits. Ethical or not, it is an ingenious strategy, and it has worked. Corporations are now earning billions of dollars per year from advertising to children. Many parents today remain completely unaware of the phenomenon. However, there is something more sinister at work. These children are being groomed to become consumers. They are being taught the philosophy of consumerism. This is likely to be a pitfall once they become adults, since they are much more likely to end up heavily in debt.
Our children are being indoctrinated on consumerism early on, and this sets up a trend that is extremely dangerous. People end up in debt because they are told that having lots of material objects will make them happy. Then, when they try to get out of debt, they are offered debt consolidation services that are mostly scams, designed to further drain money for them. To get out of debt, you must follow the simple rule below:
To escape the trap of debt, create a Debt Mastery Plan.
Calculate the total value of your valuables, and set up a plan to save 30% of your annual income or more.
By reducing your living expenses, selling your valuables, and saving a large percentage of your income, you can pay off your debt within a reasonable period of time.
Reduce your interest rate as much as possible, and focus on paying down the principal instead of the interest.
There are millions of families that grow up in very poor circumstances, because they make poor decisions. The heads of these families do not understand the importance of personal finance. Our school system does not teach the importance and many simply follow the irresponsible ways set forth by their parents. These mistakes are often very costly.
Constantly using payday loan services that force you to repay these loans plus significant interest fees will put you in a vicious trap of forcing you to borrow again. It is important that you heed the advice in this book in order to avoid the vicious debt cycle. You should want to become wealthy. But you can't do this if you remain in debt for long periods of time. The secret to wealth is to avoid bad debt, but if you already have it, you must get rid of it as quickly as you can. The faster you pay off your debt, the more successful you will be over the long term.
For me, saving money is a way of life. Each day, I come up with new strategies that can allow me to save more. However, I'm very concerned about the state of the American economy. While many Americans try to downplay the erosion of the economy, other economists and government officials have stated that the United States is in deep trouble. Many of these economists and government officials point to debt as being the main source of America's troubles. Before you reach the end of this book, I will explain why debt is destroying America. I will explain why many Americans are not as free, as they think they are.
This may be one of the most important books you will ever read. I want you to use it as a survival manual to get out of debt, save money, invest and build up long term wealth. Money is one of the most powerful instruments in the world. If you have lots of it, you will be in great shape. But if you owe lots of it, you will be in serious trouble.
Over the years, Americans have been suckered into becoming borrowers. Every time I read a mainstream article about personal finance, they usually tell you to "get a loan with a low interest rate." No one ever talks about the importance of avoiding loans completely. Is it any wonder that so many Americans owe thousands of dollars in debt? Borrowing money has become common sense!
If you want a new car, you're told to get a car loan. If you want to go to college, you're told to get a student loan. If you want to get a new television, you're urged to use a credit card. Here is the thing that I find to be quite mind boggling: The people and organizations that promote these views are the ones who loan out the money. They are the masters, while the borrowers are the slaves. The banking industry makes billions per year, and it is one of the most powerful industries in the world. The credit card companies are master minds. They are greatly responsible for promoting the myth that borrowing money is common sense.
At the same time, I have to place blame on the consumer as well. No one forces you to go in debt. It is a conscious decision that people make. However, examining the power of the banks, credit card institutions and other lending institutions, there is an enormous incentive to keep you in debt. That incentive revolves around the billions these institutions make by keeping you in debt. From interest payments, to overdraft fees and late fees, banks are making multi-generational billions because you feel that you must own the new TV or new car. You must become a master of your own future, and you must see banks and corporations for what they really are, business created to make enormous profits from you.
In the next chapter, I'm going to show you fifty additional ways you can save between $500 to $1000 per month or more. This will be a grand total of 100 techniques. Few financial books on the market today can offer strategies which are powerful, efficient, simple and highly effective.