Are YOU In A Debt Crisis? HOW TO GET OUT!
WEALTH is; the state of being rich and affluent; having a plentiful supply of material goods and money. Wealth not only is defined by material goods, but also can mean to have abundance in any area of your life, but I believe that, from a monetary standpoint, wealth has become synonymous with generating great amounts of income streams coming into to one’s bank account only. This is the way of the American Culture; we only look at the inflows and tend to forget about the outflows.
Wealth, in its true sense, is building a continuous stream of assets by compounding factors, all the while, decreasing the liability side of the equation (DEBT) by compounding factors.
In America, we are taught that CREDIT is GOOD for us by allowing us spending power when we don’t currently have and playing off the myth that, someday, you WILL be able to afford it. Consequently, day after day, we compile more and more debt based on the HOPE that “someday”, we can pay it off.
The problem with debt is that it is, generally, compounded as a daily rate, meaning, the interest that was accrued on the debt yesterday is now part of the balance that the interest will be calculated off today. The more days that go by without paying it, does not grow on a 1 + 1 basis, but more like a 1 + 3 + 7 + etc, which is why we always feel like our credit card balances are never moving.
This EPIDEMIC is KILLING US as a nation. We wonder why our economy is going down the tubes and this is one of the major reasons. We have put ourselves into such debt arrangements that, now that the economy is in a downturn, we have no savings to fall back on and, to boot, credit companies are RAISING their Annual Percentage Rates (APR’s) to reflect the amount of danger they are in. They are looking towards those that do pay their credit cards on a timely basis, to pick up the slack of those going bankrupt. This has become just a downward cycle and lends to more and more people filing the big BK.
So, WHAT IS THE ANSWER? First of all, building wealth is, as stated above, not just about increasing the income in ones’ household, but is also about DECREASING THE DEBT LOAD of the family. I operated on the wrong principle for many years. Being an International Accountant, I made a very generous income and, did not spend wisely. In one year, I brought home almost $300,000 and, that year, we bought a house, brand new Mustang, drove up around $25,000 in credit cards, and several other large transactions. WHY? I grew up in a family that was continuously living paycheck to paycheck and I was programmed to live “paycheck to paycheck”. No matter how much I brought in, I would, subconsciously or consciously, bring my debt up to match my income. The majority of our nation does this.
THERE IS HOPE! Without increasing your income or decreasing your expenses, one can get their debt load eliminated in a relatively fast manner and build true wealth. About 4 months ago, I started learning about what tools are out there that can help us get out of this hole. There are also some simple steps that can be done to start to minimize the effect of compound interest on our pocketbooks. The following are just a few examples;
1) Generate a cash flow for yourself. All this means is to, put down on paper or in a spreadsheet program, how much income you bring in on a monthly basis and then how much goes out for bills. We need to see if there is any positive cash flow available (the sum of these two parts). The more there is, the less time it will take to eradicate the debt. If there is a negative cash flow, do not be alarmed, you can still get out.
2) List all of your debt by type (i.e. credit card, auto loan, mortgage, etc) and by the interest rate.
3) Get a current credit score at www.yourfreecreditreport.com .
4) Instead of taking each income check and putting it in your bank account, do “Paycheck Parking” instead. Paycheck Parking is simply putting your positive cash flow against your credit cards. Therefore, instead of depositing your check and writing checks to pay your bills, deposit your check and make a lump sum payment to the highest interest bearing credit card you have and PAY ALL BILLS (those that can be) AND LIVING EXPENSES from that credit card. This simple action creates some very positive effects; A) because you paid a large amount down on the credit card, you will not owe a minimum payment for that month, therefore creating the amount of the usual minimum payment in positive cash flow. B) Because you dropped the balance of the credit card, by a large amount, the compound interest, on that card for the month, will go down considerably. C) If this action is done consistently, you will start to see your credit score come up because the amount of “available credit” will increase on a monthly basis.
5) You continue to do this paycheck parking until your credit score goes up enough to get a PERSONAL LOAN at a bank. Personal loans are SIMPLE INTEREST, meaning they just accrue interest on the original balance of the loan.
6) With the new PERSONAL LOAN you just received, you pay down the remaining COMPOUND INTEREST debt instruments (i.e. credit cards).
7) You continue to chip away at the personal loan now. Because you have eliminated the compound interest debt, your positive cash flow should be much more than what you started with, allowing you to put bigger chunks down on the simple interest debt you have (i.e. personal loan, auto loans, student loans, etc.)
8) Once all debt EXCEPT the mortgage is paid, you will want to make bulk payment down on the principal, outside of your normal monthly payments. You are able to do this because of the cash flow you freed up from bringing the other debt out of the equation.
All of these action steps SEEM very easy, but the real struggle is to get out of the thinking that says, “We have a little extra this month, so let’s get a TV!”. That is how we got in this predicament in the first place. In order to contradict this thinking, developing a budget for yourself is a good step. Again, put down your EXPECTED income less your EXPECTED expenditures and try and stick by that as much as humanly possible.
This writing has mainly centered around eliminating debt, but we do not want to forget about generating more income. The more income streams that one has, the more they are diversified and able to take a hit if one of those streams goes down. I strongly suggest looking into other financial vehicles that will allow your money to work for you. Before you get to that point though, you’ll have to develop other primary streams of income.
Five years ago, I was in a seventeen year career in International Accounting. Again, the pay was great, by I spent the majority of my life working until I ran into a Network Marketing opportunity. My original comment was, “There is no way in hell that I am going to get into a pyramid scheme”. Because I was so uninformed, I almost let this life changing method slip right through my hands. PYRAMID SCHEMES are illegal! There are no products that change hands in a pyramid. Network Marketing is a legitimate business model which was verified by The Supreme Court in 1978. After learning more about the profession, I jumped in with both feet and, four years later, I was able to walk away from the Corporate Rat Race!
Because of Network Marketing, my income continues to grow by leaps and bounds and the debt continues to fall. I finally learned the lesson I needed to learn; that I don’t have to live check to check and that there are two sides to each equation because with only one side, it’s not an equation, but a disaster waiting to happen!
If you would like to learn more about my primary stream of income, go to www.lifeforcerewards.com and let me know if you have any questions or would like to become involved! You can email me at ben@thebalanceyouneed.com .
Written by: Doubleapenny
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Source: The Balance You Need.com
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