The first option you have is to whip out a check and pay it off. If you’re reading this now that’s probably not an option for you. There are possibilities you may not have thought of. You may be able to borrow against a 401k. You may be able to pull money out of your home through an equity line of credit or by refinancing and pulling cash out. You may have assets you can sell to come up with the lump sum to pay the debt off.
Overall, here’s the thing you want, to find a way to stop paying and start earning interest. Why is this debt such a bad thing? Debt is a very bad thing if you have to pay the interest.
Debt can be a great thing if somebody else pays the interest for you and you’re financing an asset that’s putting money into your pocket. That’s good debt. Bad debt is when you’re paying interest, especially on a depreciating asset. Buying a car is a good example of a bad thing to do with money overall. You’re buying something that goes way down in value quickly while you’re paying interest on it. You’re paying for it again and again.
They asked Einstein:
“What’s the most powerful force in the universe?”
Einstein said, “Compound interest.”
Now, when you’re in debt like this, you’re not feeling the full force of compound interest if you’re making some payments. That’s the problem! You’ve got the most powerful force in the universe working against you 24/7. So, one way or another when looking at these options to get out of debt or to deal with your debt, you want to find a way to stop paying this interest and start earning interest.
Why?
The basic formula for wealth, no matter who you ask, all boils down to this (if they’re telling the truth):
Simply spend less than you earn and invest the rest for compounding interest so your money grows. If you do this, eventually you’re going to become wealthy!
If you can do this, your money will be working for you rather than against you. I imagine the goal for everyone is to retire one day, maybe sooner than later. If we ever want to do that, we’ve got to get out of BAD debt! When we have to work for money to pay someone else interest, that’s a financial hardship!
I have a client in Oklahoma. A good old boy, a really nice man, in his elder years and for seven years straight he has been on social security. He has been taking cash advances from his credit cards so that he can make his minimum payments.
Think about that one… He’s taking cash advances from his credit cards, where he has to pay 30% interest to make his minimum payments.
Those minimum payments are 80% interest or more. It’s just a ridiculous cycle! It’s like running on a treadmill and expecting to get to the next county. It just won’t happen.
So let’s take a look at these options again…
Number one is paying off your debt. Whether through a refinance, a 401k or by pulling money out from under your mattress, if you can write a check somehow you can pay your balances off and stop paying interest.
Always think about the math. For instance, if you’re earning 10% interest from a 401k you have to pay taxes on the capital gain, and it’s also not guaranteed, it’s uncertain. It goes up and down. Let’s say you’re earning 10% or even 20% on some kind of aggressive 401k, you still have to pay taxes on it. Maybe it’s a good rate of return, but think of the credit card debt you have. Your interest rates are probably between 10% and 34%. The average rate in America is 18.9% (probably higher these days). Just look at your recent credit card statements and look at the minimum payment, then the finance charges for the month. You shouldn’t be surprised if 70% to 90% of your minimum payment is going towards interest but you should be very disturbed about it. If your interest rates are 20%, you are be doing better than my average client.
Think about the 20% interest you’re paying on credit card debt. If you were to pay it off by taking money out of your 401k, where it’s earning 10%, to pay off an equal amount of debt you’re paying 20% on, that means a 20% after tax guaranteed rate of return. Paying taxes and still getting 20% on your money, and it’s guaranteed! I don’t know of any other investment paying this kind of return.
Remember the Big Idea! (See Blog: “The Big Idea- How to Solve Your Financial Problems” if you haven’t!)
We’re going to look at a couple of ways to get some leverage and pay off the debt you have for even less money, an even better return on investment! You want to find a way to stop paying interest and start earning it, allowing yourself a chance at retiring in this lifetime!
The resolution I’m going to ask you to make today has the power to change your life in many profound and specific ways.
* People will respect you more.
* You’ll have more power to control your life, your career, and your future.
* You’ll be richer, happier, and more confident.
* You’ll have a much easier time getting people to do what you want them to do … on your timetable and on your terms.
I’m talking about becoming debt free with strong cash flow and credit, even to build wealth and become a cup overflowing. You’ll have much more success if you’re debt free with strong cash flow and credit.
10 BIGGEST REASONS TO BE DEBT FREE WITH BETTER CREDIT & CASH FLOW
These reasons have to be your own. Are they your children, grandchildren and the quality of life you can offer them? Or are your reasons taking a cash pre-paid vacation, with no worries, owning a specific home or car free and clear? Resolve to find the reasons unique to you, and put that into action!
I’m sure you have your own reasons to get and stay out of debt, manage your spending, save money, and have good credit, right?
How do I know?
Because you are here right now.
So WHY do you want to become debt free with better credit & cash flow?
Take a minute right now to think about WHY you want to get and stay out of the “bad debt” you’re in.
I know you “need to do something” about your debt.
I’m right here with you.
My success in life is directly proportional to how much I help others solve their financial problems. Only if these words are valuable and useful to you will you recommend this to your friends and family. It might be the biggest gift you ever give them.
PLUS, SOME OTHER THINGS WILL HAPPEN.
Financially healthy people are automatically held in higher regard than those who struggle with debt and bad credit. You’re seen as someone who’s intelligent, successful, and dependable. Your thoughts and ideas carry more clout. People respect your opinions more and give more credence to what you say. They trust you more, because they can “feel” the sincerity and confidence that’s associated with being debt free with good credit and positive cash flow.
As Adam Smith said, “What can be added to the happiness of a man who is in health, out of debt, and has a clear conscience?”
I think you’re getting the idea here. Your financial health can be the difference between getting people to champion your ideas – and having your ideas set aside (or, worse, dismissed altogether).
Was this valuable to you? Feedback? Question(s)?
Please share your thoughts and ideas below. I respond to any questions posted as a comment in detail by email.
Thank you for the opportunity to serve you!
Here To Be An Asset To You,
Jesse Niesen
DebtGoToGuy.com
