Is Debt Reduction Finally Getting It's Due Recognition?

While channel surfing the other day (7/8/07) I caught this program on CNBC. Seeing that I actually was able to watch from the beginning I was able to tape (yes I still use a VCR) it in order to "study" the full contents. Following is an outline of what was presented.

[Note: there are four seperate but connected programs in this series. I happened to catch the show dealing with debt.]

The Millionaire Inside--Debt Free hosted by Erin Burnett. Mentors for this episode include:

• David Bach author of The Automatic Millionaire: A Powerful One-Step Plan to Live and Finish Rich
• Robert Kiyosaki of Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money--That the Poor and Middle Class Do Not! fame
• Larry Winget is the author of It's Called Work for a Reason!: Your Success Is Your Own Damn Fault
• and Jennifer Openshaw author of The Millionaire Zone: Seven Winning Steps to a Seven-Figure Fortune and founder of WFN.

Introduction

• becoming a millionaire has two key components--get out of debt and use debt to build wealth
• MI looks at the new face of debt...debt doesn't discriminate, it touches everyone...Americans are spending too much and saving to little
• recognize your mistakes, debt can creep up when you lest expect it
• controlling $$ means controlling destiny

Q: What does it take to motivate most people to change?

• before things can get better they must get worse
• it's OK to feel bad about what you've done BUT turn the negative into a positive change

Q: What are the first steps that will get people out of debt?

• figure out exactly where your $$ is going
• find a way to make more $$ and pay yourself first, save even while paying down debt

Q: Is bankruptcy an option for someone in debt?

• NO--bankruptcy should not be your first choice
• bankruptcy will destroy your credit and your future
• BUT if you do go bankrupt, don't despair, there is hope

Q: What can people do to avoid making financial mistakes?

• investing in financial education is very important
• rich or poor, smart or not smart we all use $$
• the more you know, the more money you'll make
• take responsibility for your actions, have integrity
• stand by agreements and honor your word
• doing the right thing always pays off in the long term

PROFIT POINTS

1. control your money & your life
2. plan your future now
3. avoid bankruptcy
4. you can get out of debt

You keep turning to plastic and plastic keeps turning you upside down--we are a maxed out nation

Credit Card Debt

• Sharon Epperson author of The Big Payoff: 8 Steps Couples Can Take to Make the Most of Their Money--and Live Richly Ever After
• CC companies prey on people who make $$
• average person carries way too much debt, most have carryover monthly balances
• CC companies don't want you to pay, that's how they make money (ie. late fees, over limit fees)
• CC companies profit from penalty fees, it's big business, don't get sucked in
• how can you beat the CC companies at their own game? implement a plan to help you reduce your debt
• Americans love to overspend--a lobster lifestyle on a tunafish budget
• if you have to charge it, do you really need it?
• don't stoop to competing with the neighbors
• do what's right for you and live on a budget
• only spend $$ on things you really use--every penny counts, think about every purchase

Tips that will get you out of debt

• start by paying debt with highest interest first
• ask for a lower interst rate, especially if your a long time customer
• wipe out CC debt as fast as you can
• use other CC offers to negotiate better rates
• know your CC rate
• be persistent, be firm and stand your ground
• it's important to knock debt out fast, attack debt that you know you can eliminate

Q: Is consolidation a good way to reduce debt?

• plastic isn't the problem, your spending is
• consolidation is an option, but paying more than the minimum is better
• consolidation scams are everywhere, BE CAREFUL
• don't use a home equity loan to pay down debt--that's converting a short term debt into a long term debt

Q: Is it smart to borrow on CC to invest?

• only borrow to invest IF your return rate is higher than your interest rate

Q: Should you use your retirement savings to pay down debt?

• NO--under no circumstance should you cash out a 401k
• change your habits and cut back
• there are penalties for cashing out a 401k early
• your 401k should grow, leave it alone
• make contributions to your 401k so your comapny matches (if an option), it's free $$

Q: What kind of CCs are the worst to have?

• department store cards are the worst, they are designed to rip you off; high interest rates and they will not negotiate
• get rid of all CCs but one, use only for emergencies

PROFIT POINTS

1. call and negotiate interest rates
2. tackle small debts first
3. beware of debt consolidation scams
4. don't waste $$
5. mistakes are OK, learn from them

Medical Debt

• the #1 cause of bankruptcy
• the US is in a health care crisis, people with no insurance or the under insured drowning in medical debt
• need to make health insurance a priority
• cut spending and get yourself health insurance

Q: Should medical and consumer debt be treated the same way?

• debt is debt, make payments and work it off
• try and negotiate a payment program; if you have been delinquent explain it on your credit report
• scrutinize your medical bills for mistakes and/or over billing
• try to communicate with your creditors, this will help you deal with your debt
• with 44 million people without insurance check with your states high risk insurance programs

Q: How can people cope with aging parent's healthcare issues?

• reverse mortgage
• a VIATICAL can be used to get cash for medical bills
• long-term insurance(s) for parents a must

Q: How does medical debt impact your credit?

• medical debt can destroy your credit
• medicare/medicaide don't cut it anymore, keep yourelf healthy and avoid getting sick

PROFIT POINTS

1. negotiate with medical providers
2. consider long-term care insurance
3. carefully review medical bills
4. stay healthy

Student Loans

Debt can make ou rich, the secret is knowing how to leverage to build wealth.

Q: Are student loans good debt?
Q: How should people approach paying down student loans?

• take our time especially on low interest loans
• prioritize--home purchase, consumer debt, etc.
• consolidate to cut costs

Other ways to use debt to build wealth

• eliminate bad debt and take on good debt
• BAD DEBT--debt you have to pay for
• GOOD DEBT--debt other people pay for
• your home is a good investment, but a bad debt; buy an affordable home that you can pay down
• invest in rental properties, let tenants pay the mortgage

Q: When is the right time to buy a property?

• by a property when tenants can pay the loans

When it comes to real estate, timing is everything.

• real estate is a finance deal
• owning a property is a way to get tax deductions
• know the rules of the game and play it well

Q: Is it smart to save and invest as you pay down debt?

• get a business partner, this will allow you to invest as you get out of debt

Q: How should savings be invested?

• place your savings in interest bearing accounts
• gear up to find good deals on home purchases
• always invest in yourself first, get educated and make smart decisions
• you want high returns, so think through investments

PROFIT POINTS

1. don't rush to pay of student loans
2. leverage to build wealth
3. save and invest as you pay down debt
4. educate yourself on the rules of money

Closing

Q: What is one thing we can do tomorrow to start getting out of debt and on the road to wealth?

• make a list of all the "people" you owe money to and hang it on your frig--decide which debt you are going to get rid of first and start making lines through each as you eliminate them one by one
• open up your checkbook, take a look at your top five expenses and look for ways you can free up $300 and put it in a savings account until you can make your first investment purchase or start a business
• call all your credit cards and ask what your interest rate is--then negotiate for a lower rate, be persistent and keep calling
• figure out how much money you are making, then figure out how much you owe, cut back your lifestyle so what you owe is less than what you earn

Upcoming Programs

• Your Guide to Wealth 8/8/07
• Your Guide to Retiring Rich 8/13/07
• Debt Free 7/24/07 & 8/20/07
• Get Inspired 7/28/07

Two Interesting Articles

Frugal For Life posted this gem of an article Surviving (and thriving) on $12,000 a year.

"...I'm accustomed to lean living. Here are some of the mantras that have kept me going thus far:"

It's not what I have, but how much of it I can keep--the question often asked "can I do without this?" if not...
How can I get it free, or almost free?--thrifty shopping is the key.
Enough is as good as a feast--filet mignon is not an option!!
Every day is casual Friday!--Versace is out, Goodwill is in.
Announce my intentions, "put it out in the universe," which is also known as "prayer."--your faith can be your strength in times of trouble
$20 to feel rich, increasing my monthly church tithe--priorities are important

This article can be found in its original forum at Surviving (and thriving) on $12,000 a year

---

The first article was was originally referenced by Frugal For Life. It is a must read along with the follow-up article:

I make $6.50 an hour. Am I poor?--Here's how I slipped from the middle class into near poverty, and what I'm doing about it

and

Back from the brink: Poor no more--A Montana woman finds new opportunities and new optimism as she rebounds from a crippling job setback.

All I can say is WOW!!

An Interesting take on a Familar Topic

I found this How to Stop Accumulating Debt back in March when I was first started looking for information and guidance.

The pointers given to stop accumulating more debt:

Cut up your credit cards--keeping one card for emergency use is OK (ie. car rentals).
Leave social status at the door--Wish I could get my partner to understand this concept--we don't have to keep up with the Jones. I could care less about what other people have and comparing my situation to others is a deadly game.
Don’t borrow money from friends--Now that I have a second income this is no longer an issue, altho the most I borrowed was $20 for two days. Most times I would go without whatever, and if I did borrow money it was usually used for food items.
Use cash all the time--This is something I am doing I do have a CC but it's only used in emergencies (I don't even keep the card in my wallet.) With my second income I haven't had to use it. I do use my check card tho as I do not like to carry cash on me when I shop. I also have stopped using paper checks for the time being. I have/had a terrible habit of trying to "float" checks. Again with having a second income the "need" to do this has lessened, but why tempt fate. Some far this game plan seems to be working OK, I just need to be more disciplined.

I Like the "Debt Journal" Idea

I found this post back in March How I focused on getting out of debt. As I re-read it now after a few months into my debt clean-up efforts I find that the the simple concepts presented can be more than helpful for those of us just starting out in the debt reduction game. I especially like the "debt journal" idea.

First I created a debt journal. This was a notebook that I kept with me at all times. I listed all of my credit card, student loan, and car loan balances in it. Everytime I made an installment payment I updated the outstanding balance in the journal. I also listed any income made during the month in the journal and noted how it could be used to pay down the debt.

I haven't yet created a physical notebook per se as my debts are fairly simple when compared to others I have seen; in essence my blog has become my debt notebook. I do use a notebook tho to help stay on track so I do not need to rely on my stored computer info. I use my notebook to list what payments I need to make, for tracking my grocery/household shopping and make notes as to future payments coming due. As I become better organized this may change.

As I write this I realized that organization is my biggest problem. Not just in regards to my finances but life in general. Working 2 jobs has been casuing havoc and most times I do not know if I am coming or going. I have discovered that if my life in general is frazzled my control on my finances is just as frazzled. Something that a debt journal as mentioned in bostongals post may help with.

So Busy

I haven't been able to write much been working so much,,,the last 3 weeks averaging over 70 hrs per week. I really can't complain too much tho since I'm slowly making progress.

I have lots of stuff to add hopefully will have some time this weekend!!

Wow #2

Keeping Motivated to Become Debt-Free

You can have all of the advice and all of the debt-fighting tools out there, but they will not mean one thing without motivation and determination. You have to finally decide that you want to become debt-free and you are ready to commit to making that dream a reality.

1.) Start a Blog! Having your financial situation out there for all to see has created a sense of accountability--
Even tho I found this article after starting my blog I have to agree with this point. The sense of accountability is not only a great motivator but an organizer as well. As I have stated in a previous post trying to keep all the information I am finding from becoming overwhelming is important.

One point I have to keep in mind is the fact that I have had my head in the sand for the last few years concerning my debts so I am not 100% sure of what I really owe. Using this blog will help re-organize and track my debts and payments. That is one reason why I am starting with debts that I currently know for sure that I owe and as I find older ones they will be added to my list.

2.) Read Personal Stories About Others Fighting Debt--
This is a no brainer to me. The inspiration behind my blog has come from reading other blogs; I thought it was a unique idea and figured to give it a try. I am glad I did.

At the time of this post I haven't accomplished much, I am confident I will. My first check from my second job is due sometime this week and I will be making my first payment of approximately $130 soon. That will be the first step!!

3.) Read and/or Join Message Boards--
Something I already do to a degree. I mostly read boards relating to food but given time will probably add related subject matter if time allows.

4.) Keeping Track of Your Debt Balances--
Something I am working on. As mentioned above I am paying dearly for my head in the sand routine. As I get more organized hopefully I'll get a better handle on what my actual balances are.

5.) Add Up All of Your Monthly Finance Charge--
I don't think this is an issue for me but it is something to look into.

6.) Add Up All of Your Monthly Minimum Payments on Your Debt--
Hmm...considering that prior to this blog I really wasn't making any type of minimum payments, I don't have any to add up. But my basic plan is to use my income from my second job solely for debt payments which adds to approximately $260/mth.

7.) Try Not to Get Depressed. Depression is a big motivation buster, but it is so easy to go into when your debt is making your life miserable--
This is so true, and an issue I struggle with on a daily basis but for a slightly different reason than my just my financial situation. You see I have Bipolar Disorder (aka Manic Depression) altho mania is what I struggle with the most, depression does sneak in every now and again. And yes the depressions I suffer are triggered by the frustration surrounding my finances. I will also admit that my manic episodes have gotten me into some sticky situations. It is for this reason I do not have a credit card, much safer that way.

I have a big BUT to add to this issue tho,,,my last depressive snit fit is what got me to look into correcting my life of debt. I just got so sick of all the phone calls and letters demanding money I didn't have. I decided that I was the only one who could fix it. The rest will be history...

8.) Allow Yourself Mistakes!! No one in this world is perfect, and we are all bound to make mistakes--
Not much I can add to this. Just wish I could get my partner to believe this statement.

9.) Don’t Compare Lifestyles--
Comparing lifestyles can be a killer to any person trying to make ends meet. It doesn't matter if you are "in debt up to your eyeballs" or getting by month-to- month. Keeping tabs on the Jones is deadly!!

10.) Realize How Strong You Are!!! When you have a lower income, you do have to go about reducing your debt differently and have to forgo what some consider "necessities"--
Personally I believe those of us in the lower income bracket are a different breed. We have different motivations for how and why we do what we do. Whether it is due to neccessity or because of circumstance, our "survial" skills our honed to whatever needs have to be met.

For years my survival skills have been geared towards just surviving, getting from one day to the next. Doing whatever it takes to make it through. It's not exactly something I'm extremely proud of but it is something I am planning to change.

I look at what I have been thro as stepping stones to something better. I don't want millions, and I don't want things or stuff. I just want to be comfortable and not worry about whether the gas will be shut off. Nothing extravagant, just simple!!

I Found this Article Fascinating

Budgets are great, they keep you in line and they help you reach the goals that you’ve set for yourself and your family. The thing is, there’s a point when the budget stops being a means to an end and they start dominating your life… and that’s when you start tracking things to the penny. Listen, if you’re going to budget, experts advise that you track everything but I’m going to give you a few reasons why you should track to the dollar and not down to every last cent.

Don’t Budget To the Penny

Key points to keep in mind:

1] If It’s Hard, You’re Less Likely To Keep It Up--
2] That Level of Visibility Not Necessary or Useful--
3] That’s Not The Point--

I would have to say I fall in the middle on this issue. Our monthly bills are fairly stable from month to month which makes for easier planning. But when I first tracked out expenses I found that going to the penny was more appropriate.

Our biggest problem has been not saving what we don't need to spend. (And that issue is very complex and gets into messy family dynamics.) One thing I am trying currently is eliminate access to unused income by no longer keeping checks on hand, and not carry my debit card with me thereby using a cash only method of purchase. I am hoping that this will help eliminate spree spending (for lack of better word).

Only time will tell how this will work. Staying motivated will be the biggest issue but I believe that once I actually see some progress in paying off old debts will help keep us on track. It will definitely be and issue to keep tabs on.

Wow

This post really struck a chord with me.

How to stop nickel and diming yourself into the poorhouse!

Found at Kirby on Finance

After looking at my monthly expenses there are only 2 that could possibly be considered "unnecessary"--DirecTV and Earthlink. But can they be eliminated??

Currently our DTV bill is about $90/month; we do subscribe to Showtime and I do have "insurance" on our equipment. Regretfully the only other alternatives to DTV is either Dish Network (similar in price) or Zito Media (formerly Adelphia). Both have major drawback so DTV was our only choice. The sole purpose for Showtime--the L Word. So after the season is over Showtime will be canceled for the remainder of the year. That will save us about $75/yr.

As for Earthlink. The only way I could save a little bit of money is to pay full year up front, which at this point in time is not feasible. Some would say get rid of internet, but being that it is my only form of entertainment, it is not something that is so easily parted with.

Other than DTV and Earthlink, the remainder of my "big" monthly expenses (ie. living expenses) are necessary.

---

"While those big expenses were hurting me, I found it was the little expenses that were killing me. Eating out a couple of times a week, even though it was at cheap places, began adding up. All of the times I’d stop to get a Red Bull during the week were adding up too. Basically, at $2 to $3 per expense, I was nickel and diming myself into the poorhouse."

Now this I can definitely relate to and I believe this is where a majority of my problems are. If it's not soda, its cigarettes. If not those two, it's "fast" food items. Or a quick run into the store and I come out with $50 worth of stuff. Oh it's stuff we can use, but not necessarily stuff we need.

Steps I need to follow:

1] Get real with yourself! Before you can even begin to do anything seriously with your finances (or really life in general), you have to “get real” with yourself and be honest and somewhat critical with the financial choices you’ve made.

For me it is time to seriously consider the smoking habit. I am giving it serious consideration, I just ordered a freebie of Nicorette gum to try. If this is successful I could eliminate $23/wk ($1183/yr) of unnecessary expense. I am crossing my fingers and toes.

2] Identify where you’re nickel and diming yourself.

I think I have a good idea of where I am nickel and diming myself (see above), but it is something to definitely keep tabs on. One thing I have changed prior to this blog is taking my lunch (including snacks and enough soda for an 8 hour shift) to work. Just the soda saving alone has been enormous-- $8/day vs $1.23/day.

3] Once you realize you’ve got a “problem,” promise yourself you’re not going to make the same mistake twice.

One way I have helped myself is by not taking any more than $2 to work with me. then I make a "game" of it by seeing if I can go without spending it. I have done very well with this. It works the best when I pack enough in my lunch bag that I have no need to look at the vending machines.

4] Stay “real” and hold yourself accountable. Just making decisions like these are only half of the solution. Action is often meaningless if you’re not going to set out to hold yourself accountable in the end.

As the saying goes "actions speak louder than words." Something I need to keep in mind.