No Debt Is Good
Have you been fooled by the banks and the media into thinking that debt doesn’t matter? It’s hard not to be fooled, with ads everywhere pushing no-fee credit cards and salespeople falling over themselves to offer you zero-interest or deferred payment terms for almost anything you can buy in a store.
Use credit wisely, the experts say, and you’ll live more comfortably. Maybe. If you’re disciplined. And you don’t overextend yourself. But is that you?
Let’s face it, the best debt strategy is debt avoidance — despite what you’ve heard, no debt is good. There are two different ways to read that statement:
Version #1: No debt is good
It’s normal to owe debts for the intangible things that others do for us. But that’s not the kind of debt we’re talking about here. We’re talking about the kind of debt where you borrow money from someone and have a legal obligation to repay them. Or else….
It’s the or else that’s problematic. Each time you borrow money — whether it’s to buy a TV, a car, or a new piece of furniture — you’re creating a potential time bomb. At some point, the bank or finance company that loaned you the money is going to want it back — usually with interest. Sure, those “no payment” plans are very appealing, but what happens when the “no payment” period is up and you don’t have the money to pay off the debt Well, they charge you a whack of interest, that’s what. And start demanding regular payments. Or else…
Do this enough times and you’ll find yourself:
- Looking for credit card balance transfer offers to move debt from one card to another
- Working longer hours and more jobs in order to make more money
- Putting off important and necessary expenses (need new tires on your car?) because you need the money for debt repayment
- Cutting back on the lifestyle you’ve grown accustomed to (and probably failing miserably at it — downsizing is much harder than upsizing)
- Thinking about extending your mortgage and other debt consolidation options
- Declaring bankruptcy to get the creditors off your back
Do any of these describe you? If so, you probably need some credit counselling. More than that, you need to change your attitude to realize that…
Version 2: “No debt” is good
Few things feel better that paying off a looming debt. Why? Because you’re getting rid of a lot of stress and worry. Being debt-free won’t make you happy, but being in debt can certainly make you unhappy. And sick. And tired. And lonely — financial problems can cause an already shaky marriage to fall apart.
There are some debts you can’t avoid, of course. Buying a house without a mortgage is almost impossible with housing prices so high. And emergencies — oops, need a new roof? — do happen. But usually there’s an asset in there to offset the debt.
Change your attitude towards debt!
What really gets you into trouble is casual debt, the borrowing of money for intangibles like travel or entertainment. Or highly depreciable goods items like consumer electronics. Credit cards and in-store financing make it so easy to spend the money you don’t really have…
So start your debt recovery plan today by changing your attitude. Pay cash. Don’t buy anything on credit unless it’s an emergency. Put off big-ticket purchases. Live with less — live on less. Stop the debt death spiral!
The “Debt Snowball” method is the solution!
Once you’ve stopped the bad habits, it’s time to work on paying down your accumulated debt. The best and easiest way to start (but it’s not an overnight fix) is by:
- Freeing up some extra cash and putting the extra money towards paying off the smallest debt you have.
- When that debt is paid off, add the total monthly payment to the monthly payment for the next smallest debt on your list.
- Continue this cycle until you’re done.
This is known as the “debt snowball method”. You can start snowballing your debt immediately. It just takes time and a commitment to pay down your debt.
The worse thing you can do is to fall back into the debt cycle!