I woke up at 5am this morning and had this blog running through my head. Not sure why…but here goes.
Debt can keep you from completely enjoying your retirement…or life for that matter. Debt happens to all of us…or almost all of us. It sure happened to me. If you have two kids in college and you are helping them pay for everything…you probably have debt. Heck, single people who live in small apartments often have debt. Welcome to the club.
Getting rid of debt is a process, it does not just happen. I had a game plan and worked it. I went from heavy debt in my 40’s to no debt in my 50’s and since. That I had a great job…that helped a bunch. However, the following will help anyone get debt free.
My game plan..
1. Understand your debt
This means that you have to know how you have accumulated your debt and the cost elements of it. This is the “let’s be real” part of getting rid of your debt. Did you know that the “low interest introductory rate” you have on your credit card debt may turn into “really high interest rates” if you are ever late on a payment or the introductory period of time runs out? The credit card companies know that…and they count on it…and some people never even notice it when the rate changes from great to ghoulish.
Here is one that happened to me. I signed for a loan for a relative. It was a big ticket line of credit. The relative paid monthly and I kind of forgot about it. The relative died and his estate continued to pay the debt. Then one day I got this shocking letter…the line of credit was for a ten year period of time and that time was up…like right now. Could I please send the bank the $187,000 cash by tomorrow. I did and it then took me several years to get my money back from the estate. Scary…and could have ruined my credit rating had I not had the money to pay it immediately. By the way…I am not a big fan of co-signing on other peoples loans…can bite you in the posterior when you least expect it.
2. Form a game plan for getting rid of your debt
I think most people just wander through life with debt and feel it is a natural part of their lives. It is not. If you have a game plan to get rid of it, you will. If you do not, you may get lucky and get rid of it, but more than likely it will be with you til the grave. A simple game plan might look like this…
-stop adding to your debt. Quit borrowing. Pay cash. If you can not afford it now, don’t buy it.
-Look into debt consolidation. This may allow you lump all your debt into one great big debt, spread out the re-payments to a longer period and greatly decrease your monthly interest payments. Look at companies like National Debt Relief. I do not endorse them…don’t really know them…but those are the type of companies that you want to check out. An expert on the subject of getting rid of debt, radio host Dave Ramsey, warns against these services because they are often used by people to get them through the immediate problem, but then free those people up to accumulate more debt. Use debt consolidation wisely.
-Take the money you save and use that money to pay down the principle.
-Find some simple things to cut out of your life, cut them out and use that money to pay down the principle of your loan or loans. Example…quit taking a newspaper, stop your magazine subscriptions, quit smoking, quit drinking, quit going out to dinner for a few months, quit going to the movies, quit something…and use that money to pay down principle.
-Look for big ticket items you can sell and sell them…that second car, second home, RV, boat, club membership…stuff that might bring you some cash or at least will quit eating up your cash. With the cash or savings…pay down your principle.
-If you come across “found money” like a bonus from work, a tax refund or an inheritance…pay down the principle.
-Pay down the high interest loans first…like credit cards.
-Turn debt reduction into a quest and enjoy the progress you make.
-Find someone who will encourage you in your efforts…maybe a parent or a friend. I mentioned Dave Ramsey…who is syndicated all over the country on his radio show. I don’t listen to it much, as I have no debt, but when I do…I see that he shares great ideas and encourages people to get debt free. You might want to become a listener.
-Expect a set back or two…stuff happens. When it does, turn it back around as quickly as you can.
-Do not listen to anyone who tells you that you should have a home loan to get the interest deduction. Read my book…that myth is busted. The best interest deduction is no deduction.
Once you a debt free…including no home loan nor contract payments like leases…you are financially golden. I’ve been debt free for 20 years or more and it is the greatest feeling in the world.
No advice here on how to get creditors to reduce your balance or how to file for bankruptcy. If you owe people or companies money, pay them back. If you are truly financially ruined, find an expert and get some expert advice. Either way, learn from the experience and live debt free in the future.
Ok…I feel better. I think I will go back to sleep. Aloha.
Don Hurzeler, author of Smells Like Retirement