Lately I’ve been on a little kick with CNN Money that’s had me reading their site virtually every day.
Today I landed on an article about controlling debt and thought I should make a few comments. I’ll put all of CNNMoney’s comments in bold or italics throughout this commentary.
First off, the title is interesting: Controlling Debt. I would name the article “Abhorring Debt” – there’s no reason why you should simply control it. Get out of debt now! As fast as possible! Once you manage to stop paying creditors, and begin paying yourself, you’ll be on the road towards wealth, fianancial peace, and security.
Alright, let’s get into the article.
Americans are loaded with credit card debt
The article states that the average American household with at least one credit card has nearly $9,200 in credit card debt. Ouch! This debt is sucking away the wealth-building power of all of these Americans. Imagine the wealth you could build if you no longer had to make a credit card payment? It would be in the several hundred thousand, if not millions of dollars, when invested wisely.
Some debt is good.
Borrowing for a home or college usually makes good sense. Umm, I can’t quite agree with that one. I would maybe say some debt is permissible, but I would never say debt is good. Imagine this scenario. You take out a 30 year mortgage to purchase your first home. However, instead of taking 30 years to pay it off, you make several extra payments per year and pay it off in 15 years. Now, once the home is paid off, you just don’t feel something is quite right. I mean, here you sit with this money eacy month that used to pay the bank. So, because having house debt is good, you decide to take out another mortgage.
While that may seem like a silly example, a mortgage is permissible, but having no mortgage at all is oh so much better.
I don’t really want to get into borrowing to get through college, but I do want to say this: I am a graduate student who is debt free. I live among other college students who are not debt free. I am not debt free because I make more money. I am debt free because I manage what I make, which results in far less spending. This is not to say I’m in any way better. I’m only making an observation based on several years of this college experience. College students live like their parents before they should, and this causes them to think they need to borrow money (we won’t go into how the parents are living).
Some debt is bad.
Don’t use a credit card to pay for things you consume quickly, such as meals and vacations, if you can’t afford to pay off your monthly bill in full in a month or two. If the credit card company is making even a penny of interest off of you, you should immediately cease using your card(s), and pay off all balances immediately. Get out of debt NOW.
I would rather hear them say: “Debt is bad. And some is even worse than that.”
Get a handle on your spending.
Pay off your highest-rate debts first.
To be honest, if you’re really attacking your debts with intensity, if you really want to get out of debt NOW, it honestly doesn’t matter a whole lot which order you use to pay off your debt. Dave Ramsey suggests paying them off from the smallest balance to the largest for the motivational factor. He likens it to trying to lose weight and deriving a lot of motivation from seeing those initial pounds (small debts) drop rather quickly.
I tend to agree with him, but if you’re set on paying off high-interest debts first because it makes “mathematical” sense – go ahead. The important thing is extreme intensity and the desire to get out of debt NOW.
Don’t fall into the minimum trap.
We really don’t even need to talk about this since we addressed it above. If you’re carrying a balance, you’re not making a wise financial choice. And if you’re just paying the minimum? You’re committing financial suicide.
Watch where you borrow.
If you don’t go into debt you will never have this problem. NEVER EVER take out a home-equity loan. You’re digressing financially if you do this. NEVER EVER take out a loan against retirement. You’re playing with fire when you mess with your retirement. Be patient. Save money for whatever it is you need. Be patient. Save money. Be patient. Remember, the objective is to get out of debt NOW – not to prolong your slavery to debt.
Get help as soon as you need it.
If you have more debt than you can manage, get help before your debt breaks your back. There are reputable debt counseling agencies that may be able to consolidate your debt and assist you in better managing your finances.
No! To consolidate your debt is to not admit that you have a serious problem. For the sake of not repeating myself again and again, I’ll go ahead and do it again: Get out of debt NOW. You got in. You can get out. You will survive. I discuss the Illusion of Debt Consolidation and debt consolidation companies in other places.
The article did offer a few tidbits of good advice, but they lack the guts to tell America that they have a problem. Get out of debt NOW. Keep your money. You work and sweat for it. It should be yours to build wealth. Stop lining the pockets of the credit card companies and get intense about getting out of debt NOW. You will not regret it.