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Photo Courtesy of Andres Rueda (Flickr)

I’ll be as transparent as possible in this article and state my position right up front: I hate debt.  (I’m usually a very positive person so this is kind of difficult to be so negative – Please bear with me!)

I don’t like paying interest.  I don’t like borrowing money.  I don’t like the idea of creditors calling me asking for money.  I don’t like tailoring my spending habits to increase my credit score.  I don’t like pay-day check-cashing businesses.  I don’t like excessive credit cards offers in my mailbox.  I don’t like borrowing $100k to go to grad school . . . you get the idea.

So what’s the deal with debt?

To put it simply, debt is dumb.  You can thank Dave Ramsey for that statement.  Now, to back it up, I have 7 truths about debt that should shed some light on why I’m so passionate about this subject.  If you can’t tell already, this is one my hot buttons.  I don’t have many, but when it comes to talking about debt, I really can talk about this stuff for hours.  So let’s get started!

Disclaimer: I do not have any formal financial education and I am not a certified financial advisor.  Every bit of information I have is from personal experience and extensive research on the subject.  If you are looking for professional financial advice you should seek a qualified CPA or your own financial advisor.  This information is intended to educate and entertain, but is not the final word on the subject.

Truth #1: Debt is a Liability, not an Asset

There is no such thing as good debt.  ALL debts are liabilities, meaning you are responsible for paying back all of them, in full, on time, every time.  Assets on the other hand, are valuable possessions that you own, in full, all the time.  If you’ve ever read the book Rich Dad, Poor Dad, or heard the author, Robert Kiyosaki, speak about finances, he breaks down our economic classes in a very interesting way.  He states that the poor have bills, the middle class have debts they think are assets, and the rich have investments.  The differences here really are astonishing.  The poor tend to stay poor because they believe they will always be poor.  The middle class tend to stay middle class because they  can never break the cycle of debt they continually spiral themselves into.  The rich tend to stay rich, for the most part, because they own property, real estate, investments, stocks, and businesses that provide them with passive income to supplement their lifestyle.  To put it simply, debt is not valuable, it is a deterrent to wealth.

Truth #2: Wealthy People Don’t Have Debt

As I mentioned, the middle class tend to be the ones carrying the bulk of the weight when it comes to excessive debt.  The problem here is that individuals tend to borrow in extreme excess of what they can actually afford.  Wealthy people don’t have debt because they know that spending beyond their means will drag them down.  Their ability invest wisely is jeopardized if they have a bill hanging over their heads that they’re struggling to pay off.  Bottom line: if you want to be wealthy, you have to act like a wealthy person.  Check out This Article on the spending habits of millionaires if you’re curious as to what I mean.  To break it down, don’t spend money on something you can’t afford to pay for in cash, right now.

Truth #3: You CAN Live Without ANY Debt (And You Should)

So far I haven’t told you to never have any debt, but I will say it now.  Don’t borrow money ever again.  Whooo!  That’s a bold statement.  For most of you reading this you probably have at least one credit card in your pocket, a student loan or two, maybe even a car payment or mortgage.  Even worse, you may have all these things.  I’m here to tell you that IT IS POSSIBLE to live without any debt, ever.  What this means is that after 7-10 years your credit score (FICO score) will become zero.  This is a great thing, because a credit score measures how much debt you have and how well you pay it off.  Without any debt, your score will be zero and you could quickly become one of the wealthiest people in the world.  You will become wealthy because you will have the opportunity to build up massive amounts of money without having to stop and pay a fee to your bank every step of the way.  I’m sure I raised more questions here than I answered, so for more information about living debt free check out my greatest influence, Dave Ramsey.

If this blog post is inspiring you, just click on the links to the left or at the bottom of the post and share it with someone who you think would find it valuable as well. I’d appreciate it and I think he or she would as well.

Truth #4: Funding 401(k)’s While Paying Off Debt is Counterproductive

Retirement savings is a good thing.  Putting money in a simple savings account for future purchases is a wise decision.  However, if your goal is to put money away for future use and you’re making small monthly payments on all those debts you’re carrying around, you’re really getting no where.  The trick here is to pause your investing, and focus that money on paying off your debt quickly.  This will reduce your monthly payments, the total interest you would have paid, and your overall balance.  After you’re debt free, you can resume investing, and this time around you will have a lot more money available to save up because all the debt payments are gone.  Add up all the money you spend every month on house payments, car payments, credit cards, and student loans.  Now imagine if that total was being transferred to your savings, and not to the bank.  It’s a bigger number than you think.

Truth #5: Student Loan Debt is Not Bankrupt-able

I mentioned this fact in a previous blog post, but it’s true.  If you run into massive financial trouble in the future and you make the decision to file for bankruptcy, you will still owe every penny on your student loans.  This may not be so bad if you borrowed a small amount for your public undergrad education, but it’s a mountain to climb if you went to a pricy private or graduate school.  My point here is that debt is a liability.  It follows you around and haunts you until you get rid of it.  In many cases, you could find yourself getting behind in your payments and wind up with creditors calling you every night and harassing you for the money.  Don’t go there.  Just pounce on the debt today and avoid the hassle.

Truth #6: Debt Consolidation Does Not Equal Debt Elimination

Some of you may find yourselves wanting to tackle your many debts by simplifying the mess.  With debts owed to multiple credit cards, cars, houses, etc., you might consider a debt consolidation, which would give you one large debt and one monthly payment.  Though financially this is a simple solution, and may actually lower your monthly payments, it does not change the core of the problem, which is your spending habits.  You have to change your daily behavior to change your future.  This is true for many parts of life, but it’s especially true for your financial health.  Learning to control your impulse purchases, saying no to dessert, buying a $2 coffee instead of a $7 latte, and many other small steps will get you started.  You then can upgrade to larger decisions, like saving $2,000 in cash to buy the computer of your dreams instead of just throwing it on the credit card because you have to have it today!  At this point I probably sound like a nagging parent, which is not my goal.  However, it is my goal to help you make smarter choices and accomplish great things.  These steps can help lead you there.

Truth #7: You CAN Get Out of Debt, No Matter How Much You Owe

Paying off debt is like training for a marathon.  Sound familiar?  It requires discipline, a thorough plan of action, and extreme persistence through every obstacle.  What will inevitably happen is you will run into financial hurdles that will hinder your ability to pay off what you planned.  That’s why it’s important to plan for the worst and hope for the best.  Create a savings account that will act as your buffer to tackle those unexpected expenses.  Personally, I’ve been working off my debt for 2 years, and I still have a long way to go.  It’s a hard road, but because I’ve completely stopped borrowing money, and I have a plan in action, I’m making significant progress that otherwise would not exist.  I will end up like the wealthy people I described earlier because I have a plan I know will work.  It takes some guts to set goals that sound that far-fetched, like being a millionaire before I’m 30.  But that is seriously one of my goals.  The best part is, even if I don’t actually get to the million marker, I will be incredibly closer than if I had never tried.  Financial goals are no different than any other goal in life.  Make a plan, get serious about it, ignore the critics (they are always there), and just make it happen!  It doesn’t get any simpler than that.  Well, you could take some advice from Nike, Just Do it!

Good luck on all your financial goals and stay positive!  Don’t forget you can always contact me with ANY of your questions, comments, or feedback.  I’d love to help wherever I can.  Thanks!

Resources

Mint

Dave Ramsey

US Debt Clock

Millionaire Habits

Don’t forget to check out my new revolutionary eBook for conquering life after college!

The Clueless Graduate,



Jeff Sanders

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