This is the last post in a series of Money Fails.

Money Fail: Broke on Thursday
Money Fail: Dead End Job
Money Fail: The Payment Mentality
Money Fail: Ignoring Unpaid Bills
Money Fail: Spending to Impress
Money Fail: Never Track Finances
Money Fail: Lenders of Last Resort

Borrowers Wanted

To a financial institution, a profitable customer is one who frequently overdraws their account and takes advantage of the lending services the bank offers.  In their eyes, the more struggling and disorganized a person is the more money they can make off of them.

Debt is Servitude

Even though debt is marketed as a status and convenience product, the truth is it’s financial slavery.  But, instead of owning a person, the lender owns part of that person’s future income.  Who do you suppose came up with the concept of “good debt”?  Was it the college student who owes $100,000 in student loans and can’t find a job?  Was it the family who lost their home to foreclosure after their interest rate ballooned?  No, it was probably someone in the financial services industry.

The moral of the story is, never take financial advice from the people who benefit from your spending.  This includes bankers, insurance agents, car dealers, real estate agents and mortgage brokers.  Their advice will always be influenced by their commission.  And, their recommendation will often be to spend the largest amount possible.  Debt is a liability to you, an asset to the lender and income to the agent.  Remember that before you sign on the dotted line.

Be Your Own Banker

I know it’s becoming a tired theme here on the blog; but think about paying yourself, instead of the bank.  Think about having the ability to make your own financial choices, without relying on the bank.  Think about living a life free of worry, instead of living on the debt-treadmill.  Every debt or loan increases your financial risk, decreases your future lifestyle and reduces your chances for prosperity.

Every dollar you save and invest could turn into many dollars for your future.  It could mean the difference between keeping or losing your house.  It could be the difference between sending your kids to college or sending them into debt.  It could be the difference between a comfortable retirement or working until you die.  Banks make money from the future earnings of debtors.  Be your own bank, pay yourself every payday and create future earnings from the savings of your past income.

The Bottom Line

The bottom line is that you can’t get ahead financially, by falling into debt.  Even people who are barely scrapping by can save a little money to avoid emergency borrowing.  It’s as easy as making the choice and then sticking with it.

“Borrowing is not much better than begging; just as lending with interest is not much better than stealing.”

Doris Lessing – British Novelist

Recommended Reading

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Len Penzo - My teenager’s Sly Attempt to get his own Credit Card
Magical Penny – What Motivates Us to Spend and Save Money?

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Revolving Debtors are the Target

San Clemente Walmart

There is an ongoing debate of whether credit card companies are preying on consumers or people in debt are just irresponsible.  It’s my opinion both are true.  Companies are directly targeting their customers with credit offers, to help sell more merchandise and bring interest revenue to the bottom line.  They are definitely aware that a large percentage of the population is indebted and financially vulnerable.  In fact, these are the customers they are targeting.  Let’s face it; customers who avoid impulse purchases and pay off their credit balance each month aren’t nearly as profitable.  Nor are they as likely to sign up for a new card, since they probably have other credit cards with a zero balance.

Are you a victim or a contributor to debt accumulation?

How Badly do you Want It?

The $1,000 question is: do you need that $799 flat screen enough to pay 22.9% interest?  If so, you may be the kind of customer Walmart is looking for.  By the way, I’m not just picking on Walmart.  There are plenty of other retailers engaged in the same lucrative practice.  And, there seems to be no shortage of customers willing to pay steep interest rates to avoid waiting.

This example comes from someone I know and love.  Two weeks ago, he complained about being in debt and the interest rates on his credit cards.  Then, he mentioned how I really needed to upgrade my TV.  And, he recommended the exact Samsung model he had just bought for $799 at Walmart.  It was a great deal.  Of course, that didn’t include his new entertainment furniture, Blu Ray player and cable service upgrade.

How much extra are you willing to pay to have it now?

How Much are you Willing to Give?

I’m in the middle of reading the classic personal finance book Your Money or Your Life.  The primary theme of the book is that everyone should consider how much each purchase costs in life energy.  In other words, how much of your precious time and energy do you have to give up to pay for an item?  Was it a fair exchange?  Or, did you pay too much?  Money comes and goes in our lives, but time is a precious commodity.  Once you have squandered your time and life energy, you can never get it back. 

Would you work 100 hours for a new TV, if you couldn’t use credit?

Is it Worth the Risk and Stress?

In my opinion, the biggest downside to being in debt is the dramatic increase in financial risk.  Every small payment becomes a huge liability, if your income drops.   And, the higher your debt-to-income ratio, the higher your chances of becoming bankrupt or homeless.  Easy credit can become a hard liability.  Millions of people figured this out during the mortgage crisis after they lost their homes.  Millions of others have lost their jobs and are struggling to pay their debts.  The risk and stress are rarely worth the purchases.

How much risk are you willing to take in your financial life?

The Moral of the Story

This is usually the section where I toss in some nuggets of wisdom and highlight the moral of the story.  But, there is no right or wrong answer here, only an important decision.  Do you pay more for having something now?  Or, do you wait until later and pay less for the same or better item?  Do you pay down debt and contribute to savings?  Or, do you upgrade to the hottest new gadget or drive the latest model car?

I have been plenty foolish with credit and I have paid for it dearly.  I warn anyone who will listen to avoid getting into debt.  Most people have to make their own mistakes, before they realize what a slippery slope credit is.  Like any tool, credit can be useful.  But, you can also smash your thumb or lose an eye, if you aren’t careful.

The Bottom Line

The bottom line is that credit is the siren’s song of a desperate retailer.  And it’s beautiful music to the ears of a debtor.  The surest way to keep your ship afloat and safely off the rocks, is to avoid the enchanting lure of credit.

“I had plastic surgery last week. I cut up my credit cards.”

Henny Youngman – King of the One Liners

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Money Walks - 7 Stupid Things We do with Credit Card
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Attention Suckers, I mean Shoppers

Image by MJB84

Wednesday, I figured out why Walmart is pushing so hard to sign shoppers up for their credit card.  I read in Fox Business News the Walmart Discover card now has an annual APR of 22.90%.  This card previously had rates starting as low as 13.90%, but only the highest rates are now available for all new customers. 

I’m not sure why such a consumer-friendly company like Walmart would have such unfriendly interest rates on their credit card.  I suspect they are trying to make up for what is expected to be a tight Christmas season this year.  But, taking advantage of loyal shoppers at Christmas doesn’t seem like the Sam Walton way.  There is definitely a new mantra at Walmart and it is buyer beware. 

New Higher Rates

Right now, everyone should be very cautious when signing up for any new credit cards.  Because of the CARD Act of 2009, credit issuers have a much tougher time raising interest rates on existing cardholders.  So, the strategy is to target new cardholders with higher rates.  Unless you are paying attention when you sign up for a new card, you may get a very unpleasant surprise with the interest rate.  After you ring up a balance, you may be stuck with that interest rate for a long time.  Creditors are way less likely to lower their rates or offer balance transfers.  Those days are over.

Beware of Store Cards

During the recession, shoppers have become much more frugal and it’s starting to affect the bottom lines of most retailers.  So, they are working harder than ever to put merchandise into shopper’s hands, by extending credit.  They offer some nice discounts on the first purchase to sign up for their store card.  They also have loyalty programs to encourage customers to spend more.

As you can see, the interest rates on store cards are criminally high.  Since store cards often have high interest rates and consumer unfriendly terms and conditions, I recommend avoiding them altogether.  Most of these cards are underwritten by Citibank, HSBC Bank or GE Money Bank.  So, the store and the bank are both taking a share of the interest. 

Credit Card Alternatives

Layaway – If you remember the ’70s like I do, you probably remember bell-bottoms, disco and layaway.  My Mom worked at Sears and she was a layaway technician.  She could shop for a family of seven on a very limited budget and she never went into the red.  Sears and Kmart have great layaway programs, to help shoppers avoid using credit. 

Cash or Debit – Going on a cash diet right before Christmas can help start the New Year off on the right foot.  Instead of paying off credit cards for the first half of the year, people could save or enjoy some of that money.  They could skip the New Year’s resolutions about paying down debt and concentrate on losing that holiday weight instead.

Spend Less- The concept of going into debt each Christmas is relatively modern.  Before the 1980s, people rarely used credit cards.  So, they rarely spent more money than they had on Christmas.  In the last 30 years, it seems like credit has allowed consumers to spend way too much.  Kids don’t need 20 toys for Christmas.  Adults don’t need luxury cars or jewelry.  The last couple of years, we have spent less on Christmas and everyone in our family enjoyed it every bit as much.  A few thoughtful gifts are enough.

Would Jesus want people going into debt to celebrate his birthday?

The Bottom Line

The bottom line is that a lot of people are broke this year, because of the recession and high unemployment.  Those who are fortunate enough to have a steady income are paying off debt and saving part of their income.  This hasn’t made the banks or the department stores happy.  They are taking out their frustration on unsuspecting cardholders.

“No man’s credit is ever as good as his money.”  

Edgar Watson Howe – American Novelist  

Recommended Reading

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Invest it Wisely - The Skinny on Credit Cards: A Book Review
Bucksome Boomer - 3 Top reasons to have Credit Cards

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The Debt Trap

Image by Cdrussorusso

This huge quagmire of American debt is no accident.  The banks and other interested parties have lobbied hard for these tax incentives and they protect them ferociously, whenever they are threatened by budget cuts.  They have taught us to believe this is “good debt”, because of these incentives.

Our debt represents a bank’s future income and it pays them generously every month.  That’s why our loan is an asset on their balance sheet.    Banks would like every American to remain in debt forever.  We are the geese that lay their golden eggs.

This relationship is great for banks, but it is terrible for consumers.  We must work much harder to afford the basic necessities, such as an education and transportation.  Debt puts us at a much higher risk of foreclosure and bankruptcy.  It increases the amount of stress in our lives, affects our sleep and contributes to divorce.

Life without Debt

Forget the whole good debt vs. bad debt debate for a moment and just think about what you could do with that $1,000 every month.  If you invested it, instead of giving it to the bank, you could become a multi-millionaire, in a working lifetime.  In fact, if you invested just half of what you probably pay in interest, you could become a millionaire.  You could take more vacations or save more income for your future.

Think of how your life would be if you had no car payments, no credit cards and no student loans.  It probably seems impossible to live like this and yet many people do.  They haven’t bought into the debt-treadmill lifestyle and they are doing just fine.  Forty years ago, people rarely had any debts beyond their mortgage.  They did just fine living on a cash basis.  In fact, they lived on a single income and still saved a lot more than we do today.

I remember my folks buying a new car for cash in 1975 and many others in my neighborhood did the same.  They saved up for a couple of years and bought the car they wanted.  My Mom, my brothers, my sister and myself all worked our way through college and paid as we went.  We all have degrees and graduated without any student loans.  It wasn’t easy, but it was definitely worth it.  It’s possible to reduce or eliminate the debt burden you carry.  It just takes a different way of thinking.  It takes patience and commitment.

My Debt Free Dream

For all the things I have done right in my financial life, there are a couple of things that I have done wrong.  One of the worst was to ring up a credit card balance when I was young and let it hang around.  I now think about all of the things I could have done with the money I threw away on interest and it makes me sad.  I could be years ahead in my goal to become financially independent.  Instead, I sacrificed my precious income to Citibank.

Last year, I decided to change my life and I got serious about eliminating debt.  At the rate I am paying, my credit card balance will be gone in a little over a year.  And, my mortgage balance will be paid off in about six years.  Then, I will start to live my debt free dream.  I will have the flexibility to choose what I do for a living.  I will have the freedom to travel and share new experiences.  I will have the capacity to help others who are less fortunate.

The Bottom Line

The bottom line is that consumer debt benefits others, at our expense.  Debt is not prestigious; it’s not a convenience and it’s not an advantage.  It’s a parasite on our finances and a threat to our independence.  Only by understanding the true nature of debt and the agenda of those who covet our incomes, can we live in peace and prosperity.

“Interest on debts grow without rain.”

Yiddish Proverb

Recommended Reading

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The good news is that money problems can often be overcome.  Even the worst financial conditions can be turned-around or at least improved.  There are simple steps to mitigate money problems and turn the corner towards prosperity.

Step 1 – Face the Problem

Photo by What Meg Said

I read a sad story in Yahoo Finance about a woman with $555,000 in student loan debt.  Her loan balance was around $250,000 when she graduated from medical school in 2003.  But, she deferred her loans and then defaulted.  So, the interest and penalties more than doubled the outstanding loan balance.

This illustrates an important aspect of personal finance and life in general.  Ignoring a problem almost always makes it worse.  You can’t make money problems go away by ignoring them.  You have to face them head on.  Even if this is unpleasant for you.

Step 2 - Identify the Cause

Every situation is different.  But, here are four main causes of money problems:

• Too little income to support yourself
• Too high of expenses for your income
• Lack of spending or budgeting discipline
• Debt interest undermines your finances

If you don’t know which of these items is the cause of your money problems, I would start by looking at your budgeting and spending discipline.  I don’t live on a strict budget myself, but I do know where my money goes.  And, I have dealt with all of the above circumstances.  So, I understand exactly how frustrating each can be.

Income - Living on a poverty level income is something I don’t recommend for anyone.  In fact, I consider it to be the single biggest mistake I have made.  Income can be increased, but it’s not easy and it can’t be done quickly.  First, try to improve your wages at your current job.  If that doesn’t work, look for a better paying job.  The best long-term solution is to increase the amount of money you earn per hour.  If that can’t be done, pick up a second job or start a side-hustle.  For the short-term, this is often the easiest solution.

Check Out: Practical Advice for the Career Challenged

Expenses - Reducing your expenses may be the easiest way to improve your finances in the short-term.  And, you have a lot of control over discretionary expenses.  The big problems come from big fixed costs, such as mortgages and car payments.  These costs can’t be easily reduced and they can haunt your finances for years.  Avoiding the new car treadmill and too much house pitfall are two of the best things you can do for your finances.

Check Out: Living Large on what you Earn

Discipline - If you can’t say off the top of your head where 90% of your money goes, you probably lack spending and budgeting discipline.  This is crucial, because you may be squandering the money you need to be saving.  Otherwise, you will never get ahead.  Whatever budgeting method you use, you need to get a handle on your spending and plug those money leaks.

Check Out: Why I Never Budget

Debt - The problem with debt is the interest, which depletes your finances.  And, the worse you are in debt, the more vicious the fees and interest become.  It can seem nearly impossible to climb out of debt, because it keeps piling on faster than you can pay it off.  Take heart and check out the plan below.  It is a sure-fire way to help pay off debt.

Check Out: The 10-20-70 Plan for Paying Off Debt

Step 3 – Formulate a Plan

Most people don’t want to look at the reasons why they are having financial problems.  It’s something they would rather avoid.  But, having a plan is very empowering.  It gives you the courage to face these problems and the enthusiasm to overcome them.  Without a plan, you will continue to fail.

When formulating your plan, make sure you put everything on the table.  Look objectively at the reasons you are in trouble and the costs associated with each item.  Don’t give any of your indulgences a free-pass.  I know someone who may lose their house to foreclosure, but is unwilling to get rid of one car payment.  And, they have two new cars.  In order to make changes to your finances, you will have to make changes to your lifestyle.

Check out: Four-Step Debt Evaluation Plan

Step 4 – Implement your Plan

Planning is worthless without action.  And, action is worthless without commitment.  If you haven’t formulated a solid plan and aren’t committed to its success, you won’t be successful.  You will either fail to make the decisions that are necessary or sabotage your efforts and blame circumstances.

You also need to implement your plan in a way that is sustainable until completion.  If your plan is too strict and doesn’t allow for any fun or entertainment, you may give up.  There will be setbacks during your journey and you should plan for this now.  Prepare yourself for small disappointments and keep your momentum going for the long-haul.

The Bottom Line

The bottom line is that small changes can add up to big results over the course of a lifetime.  The habits you chose to cultivate now may make the difference in the future you create for yourself.  Think of pleasant times ahead and then go out and make it happen.  Here’s to a life free of stress and money worries.

“Empty pockets never held anyone back.  Only empty heads and empty hearts can do that.”

Norman Vincent Peale – Preacher, Author & Motivator

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So, without further delay, here is the plan:

The 10-20-70 Plan

1. Save 10% of your Net Pay
2. Pay 20% of your Net to Debt
3. Spend 70% to Live Joyously

Why the 10-20-70 Plan Works

There are a number of reasons why this simple plan works so well.  The most important reasons are that it is balanced and sustainable.  There is no shortcut or magic to debt reduction.  Any permanent solution requires lifestyle changes that keep you spending less than you earn.  Having a sound repayment plan is a great start.  But, then you need to remain debt-free forever.  The best way to accomplish this is to have enough spending money to live comfortably.

It is well known and documented that people who discharge or refinance their debt have a greater than 80% chance of being back in debt within a short period of time.  The banks call this “reloading” and they have it factored into their risk models.  So, if you think you can shed or shuffle your debt, you will only be treating the symptom and not the cause of your problem.  Instead, you need to break the spending habits that caused your debt in the first place.

Where the Plan Came From

This plan came from my favorite little book, The Richest Man in Babylon.  In the book, a number of characters were in desperate trouble with debt and they were helped tremendously by this plan.  My personal experience is that it definitely works, although I’m much better at saving than debt reduction.

I use a modified version of this plan that is 20-20-60.  I’m very fortunate to be making good money right now and I am taking advantage of the low market prices to invest more.  The living joyously part is my own addition.  After a little practice, it’s quite easy for most people to live on 70% of their income.  And, the best part of this plan is not having to squeeze pennies to reduce debt.  You can and should have fun while you are working yourself out of debt.

Saving while you’re in Debt

The 10% savings is the most controversial part of this plan.  Many people believe the debt should take precedence over savings because the debt usually has a higher interest rate.  Although this may seem to make sense mathematically, it never makes sense to pay everyone but yourself.  Being broke is always a bad financial plan.  If you aren’t saving, you aren’t accumulating wealth.

That’s why Saving 10% is the number one item on the list.  Pay Yourself First, before anyone else gets their money.  Some people call it an emergency fund.  I call it my wealth fund.  Either way, it always makes sense to have some money put away.  Savings and debt reduction are separate goals that must both be accomplished.  So, don’t neglect one for the other.

Special Circumstances

Everyone’s financial circumstances are different.  If you have little or no income, this plan isn’t going to help you.  Your plan should be to generate more income.  If you have extreme debt that cannot be reduced with 20% of your income, you may need to seek help from professionals.  If you can’t live on 70% of your income, you may need to make some lifestyle changes.  For example, you may need to sell a car or move to a cheaper housing.

The Bottom Line

The bottom line is that debt is very hard to pay off.  But, it’s a pretty simple matter to take control of your debt.  You just need a plan and a commitment to eliminating debt from your life.  Otherwise, you may remain in debt forever.

“Debt is the slavery of the free.”

Publilius Syrus – Roman Author

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Credit is the Root of All Evil
Cardholders Bill of Rights Act

Pending Legislation

President Obama, Congress and the Treasury Department are slowly starting to shut down the deceptive practices of credit card companies.  Each has a slightly different plan in mind, but all three provide comprehensive protections.

Credit Cardholder’s Bill of Rights Act

I have been following this bill (H.R. 5244) for well over a year now.  It’s sad that it’s taken so long for this bill to come to the floor.  The banking lobby is very powerful and has done everything in their power to kill this bill.  Amazingly, it has finally passed committee and may start debate on the floor as soon as today.  The Senate is considering a similar bill, which makes it likely this will pass in some form.

The main components of this bill are:

• Protects cardholders against arbitrary interest rate increases
• Prevents cardholders who pay on time from being unfairly penalized
• Protects cardholders from due date gimmicks
• Shields cardholders from misleading terms
• Empowers cardholders to set limits on their credit
• Requires card companies to fairly credit and allocate payments 
• Prohibits card companies from imposing excessive fees on cardholders
• Prevents companies from giving credit cards to people who can’t afford them
• Requires Congress to provide better oversight of the credit card industry

President Obama’s Plan

President Obama made campaign promises of credit card protections and now he is following through.  Last week, he summoned representatives of the major credit card issuers to Washington.  He discussed “strong and reliable protections for consumers” and provided some core principles for reform.

Reforms outlined in President Obama’s plan include:

• Banning unfair interest rate increases
• Forbiding abusive fees and penalties
• Ending late-fee traps
• Forms and statements must be printed in plain language
• No more fine print or confusing terms and conditions
• Contract terms must be accessible for comparison shopping
• Require every issuer to have a plain vanilla, simple terms credit card
• The Government will have more effective oversight and enforcement

The Treasury Department Plan

The Office of Thrift Supervision enacted the first legislation for credit card reforms and it was similar to the Bill of Rights Act.  Unfortunately, the OTS gave banks until July of 2010 to comply.  Banks responded promptly by raising fees and interest rates.  Either they felt they could circumvent the reforms or they considered it a license to steal for another 18 months.

In the past, banks may have gotten away with such an arrogant response.  But, in the current economic climate, they may have caused a backlash that brought about the reforms by Congress and the President.  Either way, I applaud the reforms taking place and I’m hopeful consumers won’t be exploited for another year.

Doing what’s Right

Many people believe irresponsible consumers are solely to blame for their own credit card problems.  I’m not one of them.  Although consumers have been irresponsible with credit, that’s no excuse for banks to cheat them.  And, it’s no excuse for the Government to allow them to be preyed upon.  In my opinion, this is an example of kicking people while they’re down.  It’s disgraceful and it never should have happened. 

The best way to keep consumers responsible is to not extend credit they can’t afford to pay back.

Besides, these deceptive practices also harm consumers who are responsible with their credit.  Delayed billing, shifting due dates and 10:00 AM cut-offs create late fees even for those who pay their bills on time.  One of my credit card companies was sued for delayed processing of their mail just to create more late fees.  This type of fraud generates millions of dollars for banks and goes unpunished.

The Bottom Line

Credit card companies have been allowed to use deceptive practices on consumers for far too long.  Reform is way overdue and definitely welcome.  One thing is crystal clear to me.  Irresponsible banks are the primary cause of the financial crisis.

Consumers have also been irresponsible.  Their excessive borrowing was encouraged by banks to generate higher profits.  Now that it has backfired on everyone, consumers are paying a heavy price, while banks are receiving a bailout.

It’s time for banks to become accountable for their actions.

Sign on a Bank:

“We can loan you enough money to get you completely out of debt.”

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Here are the Grim Statistics

• The delinquency rate on residential properties was 6.35%.
• The percentage of loans in the foreclosure process was 2.47%.
• Loans with foreclosure actions started this quarter were 0.99%.
• The number of homes in foreclosure is around 1.1 Million

The Vicious Cycle of Foreclosure

Unfortunately, the foreclosures contribute to a breakdown in property values, as the market is flooded with vacant properties that must be sold.  This drop in property values then causes more foreclosures as delinquent homeowners realize that they owe significantly more than their houses are worth.  The temptation to just walk away increases as it becomes obvious that it is impossible to sell a house at market value in this environment.  Soon, desperate For Sale signs plague the neighborhood and continue the cycle.

The Haves and Have-Nots

Surprisingly, even in this disastrous environment, most homeowners are just doing fine.  Those with good jobs and good loans aren’t in much danger of defaulting.  Unfortunately, for people in the mortgage, real estate, housing or construction industries, it’s going to be a bumpy ride.  And, for people with adjustable-rate mortgages, the situation is getting desperate.  Subprime ARMs represent only 6% of outstanding loans, but 39% of the foreclosures.

The Bottom Line

The bottom line is that opportunity is knocking for those who are thinking of buying a house or a rental property.  These conditions are ideal for buyers and they won’t last forever.  Even if you think you can’t buy a house right now, you may be able to buy a foreclosure property.  Just don’t be like the previous owners and get in over your head.  And, for god’s sakes, get a fixed loan if at all possible.  Inflation is on the rise and interest rates are definitely going to have to be raised.  They may need to be raised a couple of percent.

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Four-Step Debt Evaluation Plan

1. Make a list of every debt you owe.

2. Next to each debt, put a minimum payment amount.

3. Total up all of the minimum payments and write it down.

4. Decide how much you can pay each month and write it down.

If You Can’t Afford the Minimum Payments

You are in real financial trouble and you need to take immediate action.  The longer you avoid this situation, the worse it is going to get.  You need to decide right now if you are willing to make the kind of lifestyle changes that will allow you to crawl out of debt.  My recommendations would include downgrading your lifestyle and getting a second job.  Cutting back on lattes and bagels isn’t going to be enough.  You need to take more drastic action, like a cheaper car and cheaper rent.  You should probably avoid eating any place where you need to leave a tip and put off buying new clothes.

If you aren’t willing to make these types of changes, you should admit this to yourself and consider the consequences of being insolvent.  Face the facts, straight up and deal with it.  There is no fantasy world when it comes to bankruptcy.  It’s no longer easy to discharge debt.  And, you will pay for your indiscretions in many ways in the future.  I recommend bankruptcy only as a last resort.  I think this may be a good time to talk to professionals and I don’t mean those debt services on TV.

If You Can Barely Pay the Minimums

This may not be as bad as it seems.  First and foremost, stop accumulating debt.  Then, consider some of the lifestyle changes listed above.  If you can increase the amount you can afford to pay by only 30-50%, you have a great shot at getting out of debt in a reasonable amount of time.  Start by paying everything on time, so you can avoid late fees.  If any debt is over-the-limit, pay this first to avoid the penalty.  Avoiding these fees and penalties is a big key to dropping the balances.

If You Make Good Money but Can’t Get Out of Debt

There is no income level at which debt stops being a problem.  Often, debt grows even faster with increases in income.  Some millionaires have declared bankruptcy a number of times.  There’s no shame in being in debt.  But, it’s a shame if you choose to remain in debt, when you could be getting ahead and providing for a more secure future.

The problem of debt is three-fold.  First, you pay a lot of money to service the debt that you could use for other purposes.  Second, you greatly reduce your financial security, by increasing your required monthly expenses.  Third, you reduce your ability to save and plan for your future.  It’s a fiscally inefficient and insecure way to live.  And, it enriches the banks at your expense.

The Bottom Line

The bottom line is that crawling out of debt is hard.  I have personally struggled with debt and it doesn’t get any easier as your income goes up.  It takes a dedicated, committed effort, sometimes over a long period of time.  And, backsliding is inevitable, so be prepared for this.  Your car will break or you will face unexpected expenses at the worst possible time.

Keep paying and don’t lose hope.  Try to visualize how your new lifestyle will be, with a debt-free existence.  Calculate the future date, when you will be rid of your debts and pulling ahead financially.  Keep the faith and you will be rewarded.

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