The Debt Debacle: Free Yourself From Modern Day Slavery

Dec 23, 2012 by

I'd Rather go to bed supperless, than rise in debt.

-Benjamin Franklin

Being absolutely free of debts is a wonderfully liberating feeling.

Unfortunately though, its been my observation that all too often debt in America is one of those things that people take for granted, as if it must always be so.

With no debt you automatically have more disposable income and can therefore save more every month, should you so choose.

You're also much more prepared to deal with any temporary financial setbacks or unexpected decreases in income. 

There are many other benefits to living a debt free existence, but perhaps the most important is the feeling of freedom and overall reduction in stress that comes along with this lifestyle choice.

When I talk to people about the benefits of living debt free, most don't have a problem understanding why it's such a worthy objective - but they still tend to look at me as though they view it as some sort of 'pie in the sky' notion, as if to say 'that's great for you Amir, but there's no way I can get there in my life anytime soon, if ever.'

I say - you most certainly CAN!

First thing's first though - this is not the part where I'm going to tell you that after reading this article you can be completely absolved of all your debts within 3 weeks and even fix your fucked up credit in the process - there are no magic bullets or quick fixes here; too much debt is very much like too much fat: way easier to keep it off in the first place than to get rid of it once you have it.

Let's be honest - you're probably reading this article because you're carrying more debt than you're comfortable with. Most of us are, particularly in the form of filthy, nasty, evil revolving debt!

What to do about it then?

Maybe you've already tried ignoring it and pretending it would go away on its own. Maybe you're beginning to realize there are some critical flaws in your original debt reduction plans, as you havent even come close to hitting the lottery jackpot or winning big at the casino and every time you sneak up, then jump out and yell 'BOO!!' your wealthy 92 year old Aunt Millie with the pacemaker just looks at you like she wants to have you committed, then makes you listen to another 2 hour long sermon about how in HER day, 'people your age were already married...'

Now that you've finally recovered from your delusions of finding easy ways out, maybe its time to get down to the business of making some real plans to free yourself of the shackles of perpetual debt and interest payments.

With few exceptions if you have a job you can get out of debt, its just a matter of time, careful planning and most of all rock solid discipline; but you first have to realize and accept the fact that you're in trouble. It's like one of those AA meetings, you're going to need to stand up and acknowledge - to yourself or whomever you're riding next to on the #10 bus - that "I am *your name here* and I have a debt problem."

That's easier said than done though.

People simply don't like to admit to themselves (or anyone else) that they're in over their head. There are about 1,027 ways to rationalize things and keep 'kicking the debt can down the road' instead of making the difficult, but necessary changes to break the cycle and climb once and for all into the black.

TRUE STORY ALERT

I recently spoke with someone who has owed me a couple hundred dollars for about SIX  YEARS.

They havent paid one nickel of it and still say the real reason is that they've been living paycheck to paycheck and struggling while going to school and working full time, etc. but as soon as they get a big tax return or graduate and get a better job or whatever the next 'big break' moment they're looking forward to is, they say they will be able to pay me back (and presumably get out of their other debts as well).

When I mention 'Yo, that's great and all but unless you're careful, you'll find yourself still living paycheck to paycheck even after you get that shiny new jobor promotion or whatever' it just seems to go in one ear and out the other.

The thing is, debt mismanagement and paycheck to paycheck lifestyles are in many ways psychological addictions. Sure, there are probably some who lack the basic financial understanding required to properly manage their cash flow, but I'm guessing a good 97% of us are in possession of a sound grasp of 3rd grade mathematics and therefore understand perfectly well that its not a good idea to spend more money than you make. Period.

For those who are still in denial, here are some tell tale warning signs to look out for:

  • You've been actively trying to pay your balance(s) down, but after 6 months of effort they still aren't significantly lower
  • During the course of an average month, you have to use your credit cards because you don't have enough cash to cover bills or daily expenses
  • You're really only able to pay the minimums and not much more on your credit cards
  • You would sooner have your left foot amputated than answer the phone when the caller ID says 'Unknown'
  • You’ve paid late fees more than twice in the last year
  • You try to buy a pack of bubble gum with your Visa and the teller slaps you in the face before cutting your card to shreds and having you escorted rudely from the premises

If any of the above apply to you, then you really are going to want to examine your situation and make some hard decisions. Essentially you're living above your means, even though you may not realize it, and the solution is to change your behavior in some key areas.

The first step on the road to financial recovery is to do an audit and write down exactly how much you owe and to whom (including details such as what are the interest rates, total balances, minimum payments, etc). Compare your spending & expenses (including EVERYTHING) for the past month to your total net income to get a real picture of your financial situation. Once you have a full understanding of your situation, you can start to build an appropriate strategy for your recovery.

There are many tactics, and no such thing as a one size fits all solution because each individual's situation is different. For instance, conventional wisdom says to pay off high interest debts first - but in some cases its better to tackle a smaller balance debt that can be paid in full in short order before turning to the higher interest loans with higher balances that may take significantly longer to finally pay off.

Once you've gotten your plans laid out, there are some basic concepts that will nearly always have to be learned to one degree or another if you're ever going to shed that debt for good:

  1. You need to STOP charging. Put your cards away and dont use them until you've got the balances paid. Don't take on any new debt. It doesn't do any good to bail water out the back of your sinking ship if the boat is still taking on water in the front!
  2. You spend too much. Depending on your income and the severity of your indebtedness, you may have to accept the fact that you'll need to change your lifestyle.  This could be as simple as cutting back on shopping sprees and alcohol or as drastic as finding a less expensive place to live or getting a less expensive car.
  3. You dont earn enough. You may have to find ways to earn more money. A second job, perhaps starting a small business, selling unnecessary belongings or even renting out a spare room.

At the end of the day, all the above require discipline and accepting the fact that you cant just continue to do what you've been doing if you ever hope to finally gain your freedom.

There are always exceptions and I realize that sometimes things like medical debts, student loans or mortgage balances can create situations where the debt load is simply much too high in relation to the income and will take significantly longer to resolve, however in every case the best you can do is chart a course in the right direction and then follow it.

When you create a situation where you're paying more than the interest and at the same time not adding to the debt, its only a matter of time; meanwhile you ought to work to increase your income over the course of that time to help accelerate the process.

I promise you, while it may be distasteful at first to adjust your lifestyle - you'll quickly become accustomed to the new changes and you'll feel much better in the end when you see those balances finally going in the right direction and eventually disappear completely from your life!

A man in debt is so far a slave. 

-Ralph Waldo Emerson 

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