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There Are No Easy Paths Out of Debt

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    There Are No Easy Paths Out of Debt

    If you don’t like the way Wall Street behaves — and, as an American, you have a lot of really good reasons not to like them — the very best way to hit back at the excesses of those financial titans is to opt out of the debt economy. The whole idea that we have to borrow money for homes and cars, and use credit cards for daily living, is an artificial construct sold to us by the financial industry, one that ends badly for a majority of Americans.

    The whole system of our economy is designed to make debt easy, and credit is being pushed at all of us nearly constantly. Getting into debt is as easy as signing some forms and swiping a card; many times you don’t even need the plastic. Car dealers don’t compare the cost of vehicles, they instead compare the monthly payments. One national brand even advertised getting a new car was as easy as “sign and drive.” Anything that easy in the shark tank mentality of the US economy is bad for you, count on that.

    While getting into debt is easy, getting out can be a financial nightmare. Perhaps because getting into debt is so easy, a few imagine that getting out must be just as easy, and look for a painless path out of money troubles. Some turn to credit counselors and debt management companies, others think they can borrow their way out money trouble with a home equity or other debt consolidation loan. Borrowing money to pay off debt is like firefighting with gasoline, it’s just going to make the problem worse. There is no easy way out of debt unless you’re engaged to a millionaire.

    Change Starts With You

    Awareness is the first step toward effective change. Understanding that you got into debt because it’s so convenient, and making a determination to change your financial lifestyle is job one. Without the desire to change your relationship with money will continue to be dysfunctional.

    Stash Away an Emergency Fund

    Many financial counselors suggest putting away $1,000 in cash as an emergency fund before starting to attack your debts, but these days $2,000 seems more realistic. Some people immediately develop a skewed definition of what constitutes an emergency. Vacations, movies, eating out, and the latest iPhone are not emergencies, those are indulgences. The ER, auto mechanic, plumber and HVAC repairman — those are emergencies. Being clear on the difference is critical to your financial health.

    The “Debt Snowball”

    As much as I hate trendy and simplistic financial solutions, the “debt snowball,” advocated by people like Dave Ramsey and Suze Orman, actually works. You’ll find a great explanation of the process in this video.

    Live Differently

    Paying off your debt is not something you do and then go back to borrowing — and yet, statistically, that’s exactly what many in the country are doing. During the recession Americans got religion on debt and paid down their bills but, as soon as hiring picked up and housing prices recovered, they started borrowing again.

    In some instances a short-term mortgage can be a good deal, provided you have enough of a down payment to be in a positive equity position. It’s astounding that anyone would start borrowing to live after the pain of paying off those debts. Financial health requires discipline and exercise, just like physical health. If you think of debt as the junk food of finances, maybe it’s easier to visualize the effect on the rest of your life. There are no shortcuts to weight loss, and there are no easy ways to pay off debt; both require sacrifice and commitment.
    Last edited by jeffrey; 03-21-2014, 08:27 PM.

    #2
    Getting out of debt -- and staying out -- is all in the mindset. Once you've made the mental committment to live on your actual cash flow* and stop deficit-financing a more lavish lifestyle, the rest falls into place.

    Been there, done that.

    *I do allow for carrying a mortgage, though.
    Retired To Win
    I blog weekly on frugal living, personal finance & earlier retirement at:
    retiredtowin.com
    making the most of my time and my money

    Comment


      #3
      Identical to the world of weight loss. Our environment is set up so as to make it easy to be fat and difficult to lose weight and maintain a healthy lifestyle. And as stated, it sure is easy to live a debt controlled lifestyle.

      I was unhealthy and unwealthy. To be honest, the biggest reason I went many years not fixing the issues was because I was afraid. Afraid of the horrible lifestyle that comes with being healthy and debt free. The struggle to get there and then the constant struggle to maintain there. Who wants to diet and be frugal for the rest of their lives? Being fit and financially secure are hard work. Just easier to maintain the status quo. So on I went, getting fatter and more in debt.

      I had my fitness haiku moment in Mar 2012. Just decided, F it, I'm going to fix this. Went all in, lost 70 lbs, found out I love to lift heavy things and now I'm in the best shape ever. And the best part is, it is a hellofa lot easier maintaining a healthy lifestyle than I ever imagined. I used to eat vegetables once a year, now it's every day. My preferred meal was a McDonalds #1, super sized with a hot fudge sunday. Now it's a light salad, meat and veggies with no carbie add ons. I love to lift heavy things. My GERD is gone, my sleep apnea is gone, I quit smoking, all my aches and pains are gone. If I had known this is what it would be like when I started, I would have had no fear. Now I see everyone else that's stuck in the unhealthy world and wonder why they just don't get the heck out. It is so much nicer on the healthy side. But I know their plight and their fear. I spent many years there. I empathize with them. I want to help them.

      My haiku moment with debt happened when I joined these fora just this year and you told me to read The Millionaire Next Door. I was fixing my debt problem for a few years, but only because I was getting paid a lot. I still had a serious spending issue. So I wasn't really making any progress. I now understand better how to accumulate wealth and have a plan to do so. I'll be honest, it's the early stages and I am still afraid. I recognize these symptoms, though. Identical to my early health transformation. I still find myself drawn to that new car with a great loan rate, or that cool new quadcopter with the GoPro camera, or, or, or... But we now make decisions based on how much money we have now, not how much we will have in the future. If the money isn't there to pay for it, we move on. I hope we keep that up. I hope it becomes a lifestyle instead of a struggle. I know it will. Then I will see what is so obvious to many on these fora.

      Tom

      Comment


        #4
        Discipline

        I would say that getting into debt is so easy because it does not require discipline. It invites you to the "easy life". If you overindulge, a big debt can make your life a nightmare. On the contrary, getting out of debt requires discipline. Lots of it. The waking call is when one realizes that he or she needs to make the switch from lack of discipline to discipline. And in most cases it is hard - the change is mental and not always apparent. If it happens (discipline), then there is hope. If the lack of discipline continues, God help us! - anything can happen.

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