Getting Out of Debt

I’m a math nerd, I like depriving myself of stuff, and I really like to live simply…and getting out of debt still sucked.

BUT – it was one of the best things I’ve ever done.

In case you don’t really know my story, here’s the sequence of events:

  • Graduated from college, had $18,000 of student loan debt
  • Got married (yay!)
  • Together, we paid off the $18,000 and built up an actual net worth
  • Got divorced (booo…), kept the house, and therefore was thrown back into debt because I owed my ex $22,000 of our equity
  • Paid off the $22,000 in 6 months (whew!)
  • Paid off the remaining $54,500 on the home mortgage in just 12 months!

In other words, I’ve been in debt, got out of debt, was thrown back into it, and then came out of it faster and stronger than ever. I quickly became a get-out-of-debt machine.

How did this happen? It certainly wasn’t by accident. Through the unfortunate life events listed above, I discovered the absolute best tool for getting out of debt.

 

Getting Out of Debt – Discovering the Tool

No, I’m not trying to sell you something. The purpose of this post is not to jack up your spirits and then tell you that it’ll cost you $49.99 to experience euphoric bliss. First of all, I’m not that cruel. Second of all, this tool for getting out of debt shouldn’t really cost you anything. Just a few moments of your own time and thoughts.

So what the heck am I talking about? What is this tool for getting out of debt

 

Discovering My Tool: The 1st Time

When my ex and I were first married, I distinctly remember the day that my general nervousness turned to panic.

Our student loans came due, and that fateful bill came into the mail. The bill that we couldn’t afford.

It was in that moment that I put my foot down and shouted, “NO MORE!!”

No longer was I going to lie back and relax while my bank account was obviously plummeting toward the negative! It was either we fight this evil giant called “Debt” or we were going to let it rule us for the rest of our lives.

From that date when we said, “No more!”, we paid off $18,000 and cash flowed a $6,000 car in just 14 months.

 

Discovering My Tool: The 2nd Time

“I don’t love you anymore,” She said matter of factly. “I want a divorce.”

I crumpled to the floor and looked up in disbelief. I didn’t understood non-physical pain until that moment. But once I felt it, all I wanted in life was for it to go away. The only chance I had was to cut all the strings – to pay off my debt to my ex.

From that moment, it only took me just 6 months to pay her the $22,000 she “deserved”.

Whats The Debtors Speaking About Debt Reduction

November is Financial Literacy Month, and Monday evening of this week, I spoke at a local public library about our journey out of debt. Most people who attend talks about personal finance are already financially literate. They seek out opportunities to learn more in an ongoing effort to keep their financial health strong. My talk wasn’t going to fit the bill for these people. It was a presentation for debtors who who don’t normally set foot in a room under the banner of “financial literacy”.

Twelve people had registered for the event, and my hope was that at least one person would come away from it with a strong sense of encouragement. My talk was promoted on the library’s website with the title “Getting Out of the Red” and as “A Personal Journey”. It stated that my experience would be “presented in a language that resonates with many, and hopefully will inspire others to get out of debt.” I hoped that people actually struggling with debt would be drawn to it. Much as I  admire financial whizzes, they weren’t my target audience.

 

Nervousness . . .

As the day approached, I had to make a real effort to keep my focus where it was supposed to be: on the people who would be listening and on the message of hope I had to share. It was a challenge to keep that focus as so many worries crept in:

  • There was no way I was going to be able to present without reading. Would that be OK?
  • Would the 12 people who had registered actually show up?
  • Would the right people show up? Debtors who would be able to relate to what I had to say? Or would there just be personal finance keeners who would find it a waste of time?

My talk was scheduled for 6:30, and  at 6:25 there were 2 people in the room. “This could be really awkward,” I thought. But within a few minutes, there were 20 people. It was time to start.

 

Personal mixed with perspective and advice

Over the next 50 minutes or so, I shared our story as DH advanced the PowerPoint slides. If you’ve been reading  this blog and/or Prudence Debtfree for any amount of time, you already know the chapters of that story:

  • My many, many years of head-in-the sand chaotic finances
  • DH’s  job loss during the high-tech bust
  • Our 6 years of financial stress
  • The launch of DH’s successful home business and our return to “normal”
  • Our financial wake-up moment
  • Our journey out of debt – both the practical side and the deeper side
  • Our encouraging progress after 4½ years

Interspersed with our personal story, I included national trends and statistics to give the context of increasing and widespread indebtedness in society, as well as advice and insights from the sources that we’ve tapped into – especially Dave Ramsey’s book The Total Money Makeover.

How to handle for debt

The book stays true to its root —Melanie’s blog DearDebt.com—which she started in January 2013. The book includes Melanie’s experience, as well as “Dear Debt” letters (similar to Dear John letters) that she and some of her readers have contributed over the years.

As introduced above, the book’s format is straightforward, yet it includes some gems, and unique features you won’t necessarily find in other debt reduction books:

  1. A focus on the individual
  2. The hidden power of side hustles
  3. How reducing debt affects your outlook

These points are valuable and so merit a deeper dive.

 

#1. A Focus on the Individual

Melanie is aware of what someone reading “Dear Debt” needs: support from someone who can say “I’ve been there”. Her writing is full of hope, without dismissing what it’s like to live with the weight of obligation.

Of particular note is what she writes in a section called “You Are Not Your Debt” (pg. 35). Debt can make us feel lesser than, like a loser, and Melanie—a person who’s now debt-free—helps her readers keep things in context, despite the emotional nature of their current situation. She’s also a realist, addressing those times when we all lose steam as we head toward an overwhelming goal, and shares how she felt and overcame her inertia.

 

#2. The Hidden Power of Side Hustles

“Dear Debt” changed the way I think about side hustles. At first, Melanie presents side hustles as a way to increase your income and that they’re often necessary when a primary occupation is just not enough to live on and also make a significant dent in debt in a reasonable amount of time. But she then also emphasizes side hustles’ potential to help you learn new things, expand your skill set and your confidence over time.

She points out that, because side hustles are usually associated with a willingness on the part of the employer for the hustler to “learn on the job”, it’s a great way to try our hand at something new and unexpected. In her view, our default should be “yes” to any opportunity for a side hustle because we never know what we’re going to learn and we can always find something else if it doesn’t turn out to be a great fit.

[S]ide hustling is all about gaining experience and trying something new. You’re not applying for a salaried job making $100,000. What I’ve learned is that being confident and owning your skills and talents are extremely useful when it comes to landing gigs. (pg. 90)

 

3. How Reducing Debt Affects Your Outlook

As I read “Dear Debt,” I felt I was right there by Melanie’s side, experiencing every stage of the debt cycle: from getting into it to repaying it to thriving after debt. In her words, you can feel the change in outlook, in her emotional state and in how she experiences life. It’s almost as though she wrote about every stage of it at the very time she was experiencing it.

The Advantages of Using Online Debt Calculators

Debt calculators are some of the most useful tools when it comes to managing finances. They help in estimating and calculating how much interest you have to pay as well as the time limit in which the loan can be paid for. Well, the interesting thing is that they are available for free all over the internet, which exposes people to a couple of benefits. Today, more and more people opt to use these free tools to calculate their debts online before choosing a certain program.  To get credit card debt relief first you must know how much you owed.

In addition, one of the primary reasons to use online debt calculators is the doubt of whether debt help agencies in the market can give accurate estimates or suggest an amount that would make you pay more that what is required.

Online debt calculators are not just free from such scams, but they give faster results compared to debt help companies. You don’t have to travel to a financial advisor’s office, wait in long queues for the consultation or even move around everywhere with your financial documents. Also, once you talk to one advisor, you may feel the need to consult another professional just to ensure you got the best solution. All this can be avoided by using the best online debt calculators which can be availed for free without having to travel anywhere.

So, how to they really work? Well, debt calculators format is quite straightforward. They ask you a few simple questions such as how much you owe, the monthly income and how much you can afford to remove from your salary to cover the monthly debt payments. Once you have provided this information, all you have to do is click the submit button, and the estimates will be displayed on your screen. These estimates may not always be perfect, but with careful planning, you can create an ideal debt management program. Also, the sites that host these calculators also offer free debt management tips and possible solutions that may be of help to you.

Once you’ve cleared a part of your debt, you can then use the program to see how much of the debt has been paid off and how much time the remaining part can be settled. An important fact to keep in mind is that while the debt management program may be essential, determination and the will to clear your debts is what you require most. Once you find a solution, stick to it, and you’ll find repaying the loans easier that you had ever imagined.

Reaching A Payday Loan Debt Settlement

When people take out payday loans, they usually have every intention of paying those loans back. Unfortunately, things don’t always work out as planned. If you’ve taken out a loan and have failed to repay that loan, you’re going to want to try to reach a payday loan debt settlement from a reputable payday loan consolidation company.

Coming up with a loan settlement shouldn’t be too difficult for you. Here are a few tips that will help you to pay off your debt.

Communicate With The Payday Loan Company

It will be a lot easier for you to resolve this situation if you stay in touch with the payday loan company. Don’t ignore their messages. Let them know what is going on.

If you are able to communicate with this company, you’ll be able to work together to resolve the problem. Most companies will be more than willing to reach some sort of settlement.

You Don’t Have To Pay Off Everything You Owe

If your debt seems like something you won’t be able to overcome, you should keep in mind that you don’t have to pay off every single cent that you owe. You should be able to come to an agreement that you can actually afford.

If you explain your current financial situation to the lender, they should be able to work with you. In many cases, lenders are willing to write off some of a person’s debt as long as that person is willing to come to a settlement with them.

You Can Put All This Behind You

You aren’t going to want your debt to be hanging over you years in the future. Eventually, you’re going to want to be able to put these things behind you.

If you seek out the right sort of settlement, you’ll be able to move forward. You’ll be able to take care of what you owe, and you’ll be able to complete your obligations. Once you reach a debt settlement, you’ll be able to get yourself back on track. You’ll have a much brighter future ahead of you.

You should work to reach a payday loan debt settlement as soon as you possible can. Once you and the lender come to a settlement, you’ll be able to take care of your debt. You won’t have to worry about the money you owe anymore. Instead, you’ll be able to think about what you would like to do next.

Until You Do The Math

I’ve never gotten more push-back on a post than I have for my 30 Financial Milestones You Need to Reach by Age 30. It’s still Money After Graduation’s most popular post of all time, and since making the checklist the download that you receive when you sign up for my email newsletter, more protests are coming in.

In the time I’ve been doling out personal finance advice online, I’ve been called everything from privileged and out of touch, to colorful names I will not repeat. I know I don’t have the soft touch many other personal finance gurus have. But I have to be harsh with you because you need to know the truth:

If you do not get your financial shit together, you will not be okay.

If you do not aggressively save for retirement, you will not have enough money saved to leave the workforce on your own terms and live comfortably. If you do not pay off all your debt as fast as possible, you will not have the flexibility and security of keeping every dollar you earn. If you do not set aside money for emergencies, you will not be ready to deal with what life throws at you (and it will throw many things at you, and a handful of them will be horrendous).

But the painful truth is I cannot make any of the above easy for you. I can tell you how to do it and I can give you motivation and inspiration, but I cannot lighten the load. I cannot reduce your debts, earn you more money, or increase your investments. You have to do that part.

I also cannot (or at least, will not) lie about it. Which is why my advice sometimes comes across as “harsh” or “mean”.

 

It’s not easy.

Getting your finances under control is not easy at all. That’s actually why most people don’t do it. It is far, far easier to buy a house you cannot really afford, finance a car with a 7-year loan, make the minimum payments on your student loans, and use credit cards to fill in the gaps.

Top Frugal Habits and The Right of Money

Many of our grandparents were born between 1910 and 1925. This is what Tom Brokaw dubbed “The Greatest Generation” when America was developed and defended on the backbones of its hard-working citizens. Anyone with silver hair, no matter their birth date, has spent an entire lifetime making choices and reaping consequences. It is our choice whether or not we will learn from our grandparents’ experiences and advice. That is why I’ve comprised a list of frugal habits I’ve learned from watching my own grandparents as a child.

It only just dawned on me that I’ve been learning from their example all of my life even though they’ve all passed on.

Even my grandpa “Big John,” who passed away from a heart attack when I was four, left a legacy in his community as a reliable and trustworthy man others looked to for business advice. Things like that, 25 years later, stay with me.

I titled this piece “Grandma’s Top 10 Frugal Habits” because many of us had “that grandma” who wore the same three outfits and that one pair of shoes.

But this list will also include other grandparents who had a powerful influence in my life.

 

1. Driving a used car.

My grandma Dorris drove the same used car through my entire childhood. It wasn’t new or flashy, but it was nice, reliable, and paid for.

 

2. Gardening

My grandpa Lloyd plowed Michigan soil every season of his adult life. In retirement, his favorite pastime was taking care of his beautiful garden.

Grandma Dorris and I spent time picking and snapping green beans straight from her garden into the dinner pot.

When I graduated from high school, grandma sent me a letter with two packets of seeds to start my own garden. That was my grandparents’ legacy.

 

3. Scratch and dent.

Grandma helped me shift my mindset and think about things like manager’s specials and clearance racks. She went a bit too far some days, coming home with food that looked like it was ready to crawl out and burrow itself into the ground, but the lesson was still valuable.

I probably won’t hunt for nearly spoiled food and cereal boxes that look like they’ve been flattened by a forklift. Still, finding food on sale because of a simple blemish or dent is a win in my book.

Would Should You Do When PERFECT Credit Score

I’m in the military. People around the office ask me for for financial advice. They know I’m a “money guy” and word gets around that I like talking investing and real estate.

I warn people they won’t like my advice. They usually don’t.

This guy didn’t.

Recently a co-worker told me he’s got $20,000 burning a hole in his pocket, and what I think about investing in the British Pound. With the Brexit, it seems like a sure thing!

I told him this kind of speculation in currency isn’t for everyone. Even those who devote their lives to studying this are wrong more often then right. I warned him this would be a fun way to lose money quickly on something he doesn’t understand. It seemed like he took that to heart.

Guy: “Ok, I got a better idea! What about gold!?!?!?”

Me: Shit. (silently in my head)

I told him I have a different approach to investing. With an extra $20k and with no debt (awesome), consider fully funding retirement accounts first.

Guy: “O no, I still have debt!”

Me: How much?

Guy: $20,000 in credit cards.

Me: Pay off your credit cards. Then we’ll talk.

Guy: Won’t paying off my cards ruin my credit?

Me: WTF are you talking about?

Guy: A financial advisor told me to carry credit card debt to boost my credit score.

WHAT THE!!!!!!

This is a high-ranking, intelligent military member.

Who spreads this crap around? The idea of taking out debt on purpose to raise your credit score so you can qualify for more debt sounds stupid if you say it out loud a few times.

I remember in college how I was targeted by credit card companies that told me their cards would help build my credit. They set up booths on campus with attractive woman giving out gifts for signups.

Yes, they gave me some free shit when I signed up (frisbee), but I didn’t read the fine print, and paid annual fees and high interest.  I maxed them out and paid late fees a few times.  CREDIT ROCKS!!!!!

Debt and know more about it

Oh, hi. I’m assuming 90% of you are here because you saw the title of this blog, had a mini fit, thought about how stupid the writer must be, and well, now you’re here shaking your head and fuming even further.

When I say “good debt” doesn’t exist, most people fire back with the usual responses like:

  • My student loans ended up tripling my income.
  • My mortgage provides me with a roof over my head
  • Investments, my business, my blah blah blah blah and one more blah for “good” measure.

These are all great things. I mean, do I have anything against people who take out student loans for a career that will help them become financially successful?
No. In fact, I did the same.

Do I have anything against people who take out a mortgage on a home that they needed, wanted, and could afford?
No. I’m actually pretty jealous.

But do I have a problem with you (yeah, all of you) who say that some types of debt are good? Yup.

Why? Because of the following sentence I once heard someone (AKA Preet Banerjee) say:

Calling it bad debt and good debt is like calling it good sh*t or bad sh*t. At the end of the day, it’s all still sh*t.

When I tossed the question out to my internet friends, asking what “good debt” was, most of their responses were what I mentioned above.

In my personal (and charming) opinion, one of the worst ones anyone will ever tell you is “the best one” is a mortgage.

I mean yes, I’m happy for you and your home. But what makes us think we can just call that good debt?
Is it the BEST POSSIBLE investment you can make? No. Absolutely not. But is it an investment none the less? Yes.

A house is the one I could argue the most. I mean, if we’re going to call anything “good debt” here (which we’re not), it’s the investment that increased your net worth by a lot more than this:

“Over 30 years, stocks made 8.5 per cent and houses 5.5 per cent.”

So maybe “good debt” isn’t a thing at all. Maybe instead we should call these “good debts” investments, or better yet, side effects of bad and good investments.
Because just tossing an adjective in front of the word debt is pretty easy to do.

 

Exhibit A

Happy Debt: The type of debt where it’s still debt but it made you happy for a split second in time.

LOOK AT ME, I coined a term.

Maybe the idea was invented by some insanely brilliant marketing agency who was trying to sell the first piece of property ever.

“You know what would go great with that cave, sir? A ridiculously high mortgage.”

Money on dating

Samantha: When we first dated, in Toledo, it was cheaper. We would go on dates a lot, and he would pay. But now that we’ve moved to L.A., and it’s kind of pricey, and we’re budgeting, it’s just easier if we do everything 50-50. I think that started with the first meal, seriously. But my reaction was like—I understood it.

Branden: She understands that I have a lot more bills, and that I’m investing in something that is risky as hell. The band is called Bonavega. I never want to turn down a music opportunity. It’s like I need to put all of my eggs in that basket right now, because in another five years it’s going to be a lot, lot harder. I’ve got this span of time where I just have to f—ing laser focus. I’m in the right spot, where if you hit the jackpot, you can really, really go far.

Samantha: He has a new video coming out that’s super high-quality, and it’s going to blow the other ones away.

Branden: She’s overly honest. Imagewise, I almost always take her advice, because she knows what she’s talking about. She’s supportive, and I like letting her take the reins in some things, because I’m in a relationship with her and I need her support. So I totally let her run with ideas. She actually lent me money at first.

Samantha: I definitely feel like I’m invested in Bonavega in some way. I would feel—I would want to kill him if he made it big and then we didn’t date anymore, because I basically am the mastermind behind it all. So it would be an issue.

Personal Finance Rules That You Need To Know

Meb Faber asked a bunch of us bloggers to give him our top 3-5 most read blog posts of the year. I looked back at my trusty Google Analytics for the first time in a while and discovered that two of my top three in terms of readership were personal finance-related posts. I’ve always said that personal finances are more important than portfolio management, but I still think there’s probably not enough people writing or providing education on the topic.

So I’m going to make a concerted effort to write more about personal finance in the coming year.

Here’s my list of 20 personal finance rules:

1. Salary is not the same as savings. Your net worth is more important than how much money you make. It’s amazing how many people don’t realize this simple truth. Having a high salary does not automatically make you rich; having a low salary does not automatically make you poor. All that matters is how much you save out of your salary.

2. Saving is more important than investing. Pay yourself first is such simple advice, but so few people do this. The best investment decision you can make is setting a high savings rate because it gives you a huge margin of safety in life.

3. Avoid credit card debt like the plague. Carrying credit card debt is a great way to negatively compound your net worth.

4. Live below your means, not within your means. The only way to get ahead financially is to stay behind your own earnings power.

5. But credit itself is important. Likely the biggest expense over your lifetime will be interest costs on your mortgage, car loans, student loans, etc. Having a solid credit score can save you tens of thousands of dollars by lowering your borrowing costs. So use credit cards, but always pay off the balance each month.