“Be Debt Free!” Excerpt

Jun 24, 2019 by

financial well beingI wanted to share with you today an excerpt from “Be Debt Free!“, volume 1 of my 5-volume Simple Guide series. If you’re inspired to read more, click on the link in the previous sentence or at the end of the excerpt. And if you’d like to read any Simple Guide but cannot afford the modest price, I’ll consider emailing you a free digital copy if you send me a note and explain your circumstances. Really!

Throughout “Be Debt Free!” I use fictional consumer Sally to help illustrate and make easy to understand, as the Guide’s subtitle says, “the simplest, fastest system to kill your debt.”

“Be Debt Free!” Excerpt

You might say Sally is the typical American. She likes to shop, and she cannot resist a bargain. Sally has four credit cards, issued by fictional creditors Alpha, Beta, Gamma, and Delta. She has tried to keep the balances on these accounts down, but Sally finds that a bill always seems to pop up—school tuition, the car insurance, a new dishwasher, holiday gifts—that forces her to pay just the minimum monthly payment on each credit card account. The account balances have crept up steadily over many years.

Compounding her debt challenges, a year ago Sally’s employer abruptly laid her off. Luckily, she found work after just a three-month search. But with modest savings Sally had little choice while unemployed but to use her credit cards to pay many of her expenses. Even after finding a new job, Sally has never been able to make much headway paying off the bills she charged while she job-hunted.

Here is Sally’s credit card debt:

typical credit card debt

After building up over $15,000 in credit card debt over several years due to habitually spending more than she earns and her layoff, Sally is now making a minimum monthly payment over $400. Only $157 of Sally’s $411 payment is going toward paying off her debt. The rest—over $250 a month—is interest on the debt!

So What’s the Problem?

Sally is able to make the $411 monthly payment, so you might ask, “what’s the problem?” Here are the problems:

  • Sally is in a potentially precarious financial position. Maybe Sally is content to work forever and continue doing what she’s doing with her credit cards: making the minimum payments. Working forever doesn’t sound like fun to me, but if Sally’s okay with it, that’s her choice. But what if Sally does not get to make that choice? What if Sally has a stroke at age 58 and can no longer work, or what if the latest Wall Street catastrophe tanks the economy again and Sally is laid off at age 62? Being over age 50, and especially in a bad economy, she may then have difficulty finding another good-paying job and end up working for minimum wage. What then? A bad situation will be made even worse by her unpaid, and now unpayable, debt.
  • Sally has no safety net. If she’s hit with a money emergency, Sally’s options will be few. She does not have much credit left—about $4,300. With the large amount of credit card debt she has today, a high credit utilization ratio (Sally’s using 75% of her available credit), and a few late payments she couldn’t avoid on her credit report, Sally’s mediocre credit rating means she cannot get more credit. While more credit is the last thing she needs, sometimes access to credit to deal with unexpected events is critical. What would Sally do if she were laid off again or her house or car needed a major repair? With little savings or unused credit, Sally is financially vulnerable.
  • Sally isn’t contributing to a retirement fund. Well, that’s not entirely true because Sally is contributing to the retirement of the executives at her credit card companies. But she is not contributing to her own retirement. The $254 in interest she sends monthly to the card issuers has zero benefit to her. (What other household expense can you think of that has no benefit to any of the household’s members?) If Sally instead were saving $250 per month and earning a modest 4% annually on her savings, in 30 years she would have $175,000!
  • Sally is limiting her options. Sally’s secret ambition is to turn her graphic design passion into a business. She would love to go part-time in her job while she works to develop a design business. But because of her debt, she can’t take the risk. If the design business develops slowly, she might not be able to make even her minimum credit card payments. Her debt load is preventing Sally from pursuing her dream.
    The bottom line is that Sally is not saving for her future, she is forgoing opportunity, and she is at high risk of being forced into circumstances where her only option may be bankruptcy.

The Good News

Sorry if this story sounds a bit grim so far. But here is great news: Sally (and you) can choose to be credit card debt free.

Nope, becoming debt-free will not be painless, and it will require sacrifice, and it will take time. (Remember, I warned you: there is no magic wand in this Guide!) After all, it has taken time for Sally to build up her debt. For years Sally has been consuming more than her income would cover, and her unfortunate layoff contributed to her debt load her. She borrowed money through her credit card accounts to make up for shortfalls. To pay off her debt, she will need to do the reverse: spend less than her income, and send the difference to her creditors.

Sally is facing a big challenge. But it will feel oh so good to enjoy the wonderful feelings of achievement and freedom that erasing debt inspires and to reclaim the cash being sent to creditors.

To learn more about how Sally can most effectively tackle her credit card debt and reclaim her money life, click the image below!

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