How to get out of Debt

Discussion in 'Lounge' started by Quahom1, Mar 10, 2006.

  1. Quahom1

    Quahom1 What was the question?

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    When we owe someone something, they "own" us...would you not agree?

    I wanted to tell you all something that you might appreciate and find as avantageous for your own financial well being.

    I share this information with you because I was encouraged by the man who shared it with me, to do so.

    Let's say one has $40,000.00 in loans and revolving credit debt, and is paying interest on each of the loans and or revolving credit, to the tune of 7 - 25%.

    And let's say that the one in debt earns $4,000.00 a month (take home pay).

    Take paycheck in hand, and subtract 10% from it ($400.00). With the remaining $3,600.00 pay utilities, rent, mortgage, food, etc. (all the neccesities for living). Let's say one has $1000.00 left over (not including the $400.00 one put aside earlier).

    Now pay the minimum payment on all but one loan or revolving credit debt. Let's say this leaves one with $500.00.

    Now let's say that the minimum due on the remaining loan is $25.00, the interest rate on said loan is 20% and the remaining balance on the loan is $1000.00.

    Take the $25.00 for the minimum payment (from your remaining funds), and the 10% ($400.00 you put aside), and pay that debt down.

    Instead of taking 16.75 years to pay that loan off, one will have it paid in full in 2.5 months, and will have saved themselve from paying an additional $750.00 in interest. NOW (close the account, cut up the credit card).

    Next, take the $400.00 (10%) plus the $25.00 originally used to pay that loan off plus the next minimum payment and apply it to the next loan one wishes to pay off ($400.00 + $25..00 + $25.00 minimum payment for loan number two = $450.00). Let's say the next loan has a 10% interest rate and has a $2000.00 balance on it. Within 4.5 months that loan will be paid in full.

    What this means is that one will have paid off $3000.00 in debt in Seven months and saved over $3000.00 in interest (that's money back in your pocket).

    By focussing funds on one loan at a time and adding the previous debts' minimum payments Plus the $400.00 to the next loan, within 26 months, all $40,000.00 in loan debt will be paid off (instead of 30 years and $38,000.00 in additional interest).

    That also means that within 26 months one's $4000.00 monthly take home pay will have $1500.00 remaining in one's pocket (after paying neccessities for life).

    One would go from being $40,000.00 in debt and only having $500.00 left in their pockets to debt free and having $1500.00 in their pockets in two years.

    There is a catch, however. One must not use the loan accounts after they are paid off. The accounts must be closed, or the vicious cycle of debt will begin again.

    If one does follow this systematic ellimination of debt and frugal (no) use of credit, one will own one's own money. One will have no debts (no headaches either, pertaining to owing debtors).

    Does it work? I paid off $10,000.00 in loan debt in 10 months instead of 15 years...:D Now that money is in my pocket to do with as I choose, instead of handing it over to the debtor.

    Why did I bring this up? I'm certain this has caught the attention of more than a few of you. I mean, who wants to rent their lifestyle when they can own their lifestyle?

    This does however, require discipline concerning debt, and a change in attitude about money.

    It has helped me and mine financially, emotionally and psychologically, and I'm certain it would do the same for you...;)

    my thoughts, and financial tips

    v/r

    Q
     
  2. lunamoth

    lunamoth Episcopalian

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    Sounds like good advice, Q. My husband and I learned this from a few little mistakes early on in our marriage. Debt can be a life-sucking burden--best to be avoided. I think it is so totally unethical that the credit companies send those credit card offers and "checks" out to everyone just hoping to trap people into spending more than they have. That kind of temptation is diabolical. But, after all, this is the land of the free, and with that comes personal responsibility.

    cheers,
    lunamoth
     
  3. Bandit

    Bandit New Member

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    'sometimes' those offers & checks you get from your visas can be a good thing if you are in debt. if you read all the fine print to make sure & take advantage of the opportunity. then you can roll & juggle your high interest onto a new low interest. i have all my charge cards down to 1.9-2.9 % & they are just about all payed off. it is a game, but if you play it right you can beat the system.

    it is like they know, i refuse to use the card at some 20% interest rate.
     
  4. Quahom1

    Quahom1 What was the question?

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    Taking responsibility means ultimately having, response - ability ;) It also means taking control back of one's own life.

    v/r

    Q
     
  5. Quahom1

    Quahom1 What was the question?

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    Even the low rates take 1.9-2.9% of your hard earned money, and that is compounded interest. So you end up paying 10-15% more in interest overall (which means on a $4000.00 debt at 1.9 - 2.9% interest, you give the bank $400.00 to $600.00 more of your hard earned money, on top of what you borrowed). That is money you could keep in your own pocket. It also means that whatever it is you bought on credit, cost you $400.00 to $600.00 more than someone who paid cash out right.

    Now do you see where I am going with this? ;)

    v/r

    Q
     
  6. Bandit

    Bandit New Member

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    yes.
    but i have to run a business also & many instances i have no choice but to charge up a storm. i figure if my APR is below or equal to what the bank is offering in interest, i am still doing ok. in the long run i am still coming out equal.

    my charge debts in my personal accounts are due to emergency. again there was really not much choice. when i charge something for pleasure, it is always paid off real quick. i am even thinking about paying the house mortgage off this year by using a lower interest promotional rate, through a visa.
    just juggling in my mind the best ways to do things.
     
  7. Bandit

    Bandit New Member

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    but hey Q, i will tell ya this...i saved about $3,000 this winter by burning wood. i am not kidding. my cords only ran me about $900 & i still have tons left over for the cold spring days.
    900 dollars to heat 6,000 square feet for about 6 months is not too shabby.:)
     
  8. Quahom1

    Quahom1 What was the question?

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    I'd like to point out that no one offers simple interest loans anymore (wherein you pay a flat rate of say, 10% to be given the loan. You have $1000.00 loan and when all is said and done, you pay $1,100.00). Compounded interest is wherein you pay interest upon the interest you accrue each month. So when the fine print says 10% compounded monthly or weekly or daily, that means you are paying 10% interest on the say, $1000.00 loan, plus 10% on the $100.00 interest you owe, plus 10% on the $10.00 you owe, plus 10% on the dollar you owe, pluse 10% on the dime you owe, plus 10% on the penny you owe...so your 10% on the $1000.00 loan is now $111.11. And that is only for the first month. Now if you get to month two without paying off the loan in full, it becomes $122.22 in interest payments, minus what ever principal you paid the month before (about $20.00), which means your total debt did not go down at all...in fact it went up by several dollars...

    Now if you continue to pay your minimum only, in time you will exceed your credit limit, and then have to pay an additional amount of usually $30.00 for over credit limit fee (which gets nailed with a 10% interest rate). :eek:

    You would be throwing your hard earned cash right to the creditors (in interest), and yanking it out of yours and your family's hands. I tell you, it is a vicious cycle, that the creditors are only more than happy to keep you hooked into.

    Why should you owe your soul to the "company store"? :mad: Why not own your house, your car, your furniture, your land, instead of renting it at such high rates?

    Don't believe me? Stop paying your monthly credit debts for a few months...then you will see who really owns what you call, "yours".

    Here is the amazing thing. Kill your debt one loan at a time, then take that "$1500.00" that is back in your pocket and invest it in mutual funds (for example)...

    Keep investing each monthly $1500.00 (that you used to pay your credit debt), into your mutual funds, and in 5 or so years at a modest 7% interest rate, simple (that you are earning, not paying out), you have a nest egg worth (let's see,
    $105.00 per month simple interest to you, times 12 months, $1260.00 times 5 years, $6300.00 plus the $90,000 you put into the mutual funds...in five years you have almost $100,000.00 saved up! That is using simple interest configuration. But compounded interest is the way of the world, hence your actual savings could end up being $115,000.00 or more, in five years!

    How is that for making your money work for you...?

    What do you think? Nice thing about this system is it is all the individual. You don't have to pay someone to get these benefits, they are there for the taking, if you are game enough to seize the opportunity, and hold on to personal discipline, concerning your finances.

    Your money is your own, and I say take control of it. It is honest, it does not put anyone else at a disadvantage, and it is scripturally sound (for those who need to know that). It also helps the economy...YES I'm not kidding! Your financial solvency and security actuall makes our economy stronger.

    So in short you'd be helping three groups of people, by being financially secure and solvent:

    1. You
    2. Your family
    3. Your community

    my thoughts;)

    v/r

    Q
     
  9. Bandit

    Bandit New Member

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    oh yes. i agree with all you are saying. anyone trying to pay off that way will never get ahead. minimum payments is a real big lie that many people are falling for.
    there is no such thing as flat rate interest, that is for sure.

    i am a dummy at math, but i can see everything you are saying is true. they also get you by making you pay off the lower interest first while the higher interest sits & never gets paid on.
    loan sharks everywhere today.

    my only thing is, everything is put back into the business, which is my little nest egg & it makes me more money by investing that way.

    mutual funds is real good to do & it wont take long to have a nice savings.
    i just do not know very many people who do not have a house payment & a car loan. those are some real hefty loans that are real hard to get around. though i am now driving 3 used vehicles with no payments:)
     
  10. Quahom1

    Quahom1 What was the question?

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    Business issues and personal issues, I don't want to mix together (though you might be able to come up with a successful hybrid Bandit).

    I would suggest this:

    Tackle your revolving credit first (your mortgage "which literally means death grip"), will yield you equity (though slow for the first 7 years). Never use personal credit for floating a business. Secure if possible a business credit resource, and dump the personal credit debt as fast as you can. I kid you not, you will sleep better at night. If you have a more or less decent Mortgage rate on the house and land, I'd hold fast to it.

    After you have cleared and cancelled your personal credit debt, you will be amazed at what is left in your pocket at the end of each month. Then you can decide whether to keep that seperate from your business, or choose to invest in capital in your business (but the beauty is, your investments in capital will be cash based, and not subject to anyone else owning a piece of your business). That is the crucial key. You will own your own business, and not have to share it with your creditors...plus, your house and home will be safe from liquidation, should your business fail...and you have to go to work for someone else, like the rest of us. ;)

    This is how much I believe in this system my friend. I own everything in my house. I own my vehicles and motorcyles outright. I am FIVE years from paying off a 30 year mortgage to my house. I do not have credit card debt. I do not have to worry about holding part of my paycheck for creditors (except for the house). When I retire in 5 years, I will own everything including the house, hence my pension will be my own. That means my wife and I can do as we please. That means I can work when I want, wake up when I want, go into business if I want, or stay at home and be a couch potato (fat chance my wife just said...:eek: ).

    You know, the richest man on earth isn't Bill Gates, it is the man who owes nothing, to anyone. That is a grand type of freedom. I would teach this to every school child starting from age 5 if I could...:D

    my thoughts

    v/r

    Q
     
  11. Quahom1

    Quahom1 What was the question?

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    But that is just it my friend. You don't want (or have to), come out "equal". You want to come out ahead...way ahead. And you want to be able to give well earned bonuses to your employees (or yourself). And you want to cleanly invest back into your business (capital, free and clear). And you can fix the personal debt pretty quickly and then dump it. I recommend (for business debt only), American Express. Why? You have to pay it off monthly. It is for exactly what you described...emergency spending for business. But you can only charge what you can pay back in thirty days. There is an annual fee, but it is well worth it, as an insurance marker "FOR BUSINESS ONLY". Hey, they gotta make some money too. But then you tell all your constituents about them and they gain more clients, and that works well for all concerned. Unlike other creditors, American Express for business is about building American Capital, so all win, in the long run.

    And do you know how I learned to manage money so well? LOL, it was because Uncle Sam gave me a multi million dollar contract to manage on behalf of the tax payers of this great nation. In other words, I became a steward of some of your tax money...and I have no intention of screwing that up. Because I have 300 million people to ultimately answer too...My "Client", deserves that absolute best I'm able to provide. So I went to school on my own, to learn how to earn. But lo and behold the same principle used for major acquistions, can be used at home (in fact it is more effective at home). That's why. ;)

    v/r

    Q
     
  12. Bandit

    Bandit New Member

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    i agree with your system Q. i am just doing it a little different way by reinvesting back into my business. i am almost at the point i will have the cash flow you speak of;)
    actually there have been times i have seen that already but it is not regular yet. remember there are two others involved as partners in this business who have also made wise decisions. so we are working very well as a team & i am still learning.

    on the other hand, i bought this house & property for $300,000 10 years ago & had no choice but to get a loan. i have been offered a million for it today. BUT- i am holding out because in less than 10 years it should be worth about 2 million because the city plans are all moving this direction & they are going to want this property real soon.:)

    my personal debts are just nickles that i toy with (except for the emergency expense)- this is where i feel it is wise to keep some credit to the side even if you do not use it except for emergency. i am not bragging or anything, i just know the Lord has blessed me with these things & opportunities & I give all the glory (credit) back to Him.
     
  13. Bandit

    Bandit New Member

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    i agree, but what you are saying to do, takes time. as long as i am not in debt- i mean real debt, then i am doing fine. my pay off will all come at a later date. so instead of little increments, it will come in one big sum.
    i know, i cant explain that very well, but it is true. i learned this from my friend who owns two 7-11 stores. he is gray & bald but he can vacation at any time & any place he chooses...however, that is from 30 years of very hard work. when he sold the one store about 10 years ago, his ship finally came in.

    you have to remember, i spent the early years of my life playing & not so wisely...so now i am catching up.:)
     
  14. Quahom1

    Quahom1 What was the question?

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    Equity is a beautiful thing...:D
     
  15. Bandit

    Bandit New Member

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    EQUITY! that is the word i was looking for. thanks:D
     
  16. Quahom1

    Quahom1 What was the question?

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    Ask the man Bandit, he'll tell you that you don't have to wait 30 years. I bet he smacks his forhead and states he could have had a "V-8". :D

    Good luck in your business and in your life my friend. I hope something written here will help in time. (I want you to be rich today...)

    v/r

    Q
     
  17. Bandit

    Bandit New Member

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    well, i guess i could sell it all now & be kind of sort of rich, but if i hold out a few more years i will be better off & richer.
    actually my firend did not wait 30 years but has been at this for 30 years, he did in it about 15, after he sold the first store. this other store he has is just frosting now.

    thanks for the advice. i know what you are saying is true. only thing is, most of my paychecks never get cashed right now, because they all go back into the business. not that they have to, but i am seeing down the road & the long haul will be better if i wait a little while longer. i dont think there is anything that will pay as well in the long haul, so that is why i am doing it this way. but your way works also.

    you should teach the ones who insist on buying new cars with interest, not to do that either. i learned that the hard way too!

    best of luck to you also.:)
     
  18. path_of_one

    path_of_one Embracing the Mystery

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    Great post, Q.

    I read a book on this subject last year and paid off all my credit card debt, never to occur again. It just feels good not to have those bills.

    Tackling the car now- but expect to pay it off in a year or two (still a student, so it's a bit difficult) and then it's used cars for me from there on out.

    I hope to be able to get a house without debt one day, or at least a 15 year mortgage.

    Debt makes me feel icky and stressed. Freedom feels good!
     
  19. Quahom1

    Quahom1 What was the question?

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    You, just did! Why buy a new car when you can buy an older car that has all the bugs worked out by the first owners, and the actual value of the car has settled to a reasonable price (instead of a brand new car losing 25 to 30% in value as it rolls off the dealer's lot)?

    v/r

    Q
     
  20. Quahom1

    Quahom1 What was the question?

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    Thanks, and great for you! :D I just think everybody should know there is a better way, if they decide to choose it and determine to use it. I do not think they will regret it. Debt free is the way to be...

    v/r

    Q
     

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