Tuesday, July 28, 2009

Getting Out Of Debt

By Flea - Be A Survivor

I have said many times before that debt is the evil that hangs like and albatross around the necks of many hard working Americans. The key to freedom is financial freedom as well; you cannot have the former without the latter unless you consider indentured servitude freedom.

Debt has grown and grown in this country and has reached a tipping point, people extending themselves, buying more than they can afford because damn it, they have “THE RIGHT“ to that iPod and cable TV. People actually believe that somewhere in the Constitution there is a clause that guarantees cable, telephone and Internet access.

Living beyond your means is a mistake and one that can quickly spiral out of control. Living within your means is a skill because we are brainwashed from a very young age to be good little consumers. Spending our money for the good of the hive (hive=economy), capitalism at its best. Don’t get me wrong I am no socialist or communist, capitalism is where it is at…we have just perfected selling people shit they don’t need.

You don’t need to throw money away on trinkets to support a capitalist economy but I must digress before I stray too far off topic, back to financial freedom.

I have always been good with money, I am not a spendthrift and I don’t fancy fast cars and the latest electronic gear. I do spend money on things I need and sometimes even want…geez I am human, I do “want” things occasionally.

I am lucky enough to be married to a woman who is a mirror image of me financially in female form of course. Together we have managed to do some pretty amazing things with our money mostly because we are on the “same page”. We just paid off her vehicle and are working on paying mine off. We wanted a pop up camper, we saved and paid cash for it, we want a small boat and we are scraping money together so maybe next year we can go get one and pay cash!

Other than our mortgage we don’t have any debt, none, zip, zero, nada. We have one credit card that we pay off every month. How did we do it?

Debt snowballing…

Let me give you an example because that will clear it right up. Say you have 3 bills:
Car - $10,000 your payment is $300 a month
Credit card - $15,000 minimum payment is $45 per month
Student loan – $5,000 payment is $125 a month

I would pick the one with the lowest balance and attack that first. In the above example it is the student loan, if our payment was $125 I would find a way to pay extra on it and pay the minimum on the other two. Say I paid $175 or $50 extra, once I pay that student loan off I now take the extra $175 I have by paying the bill off and add that to the payment of the next debt.

In this example that would be the car, you paid the student loan off and have an "extra" $175, add that to the car payment and send them $475 a month instead of $300.

Once the car is paid off take the "extra" $475 you have and add that to the last debt. Instead of sending your credit card $45 you now send $520 ($45+$475).

You will be amazed how fast debts get paid doing this. How quickly you pay things off depends on how much “extra” you can afford to start with and if you have the discipline to avoid adding NEW debt. Avoiding new debt is key, if you can’t pay cash for it don’t buy it. You may have to sacrifice or even get a second job to try and come up with extra cash but continuing status quo will surely get you nowhere.

One book I recommend highly is Debt-Proof Living: The Complete Guide to Living Financially Freeby Mary Hunt. My wife and I BOTH read it a few years back and she covers debt snowballing in great depth. She offers A LOT of good advice on breaking free of the chains of debt. It is a quick and easy read and can change your whole outlook on your finances.

...that is all.

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  1. Great post Flea. Debt is a killer to an individual or the government. You are right, everyone is brainwashed from birth that spending is what drives our economy. It only drives the phony, unsustainable economy. What drives economies is their productive capacity; which we have none. 70+% of the GDP is consumption. Our country is in a lot of trouble.

    Kentucky Preppers Network

  2. I'm latching on to one particular part of this post, you said, "Say you have three bills..."


    I only have 3 bills.
    I only have 3 bills.
    I only have 3 bills.
    I only have 3 bills.

    Maybe it will come true.

    Seriously, great post.

  3. Matthiasj,

    Good points and thanks!


    Yes I guess it is reasonable to assume most folks have more than three bills! ;)

  4. In response to MattiasJ - they're not even being subtle about the brainwashing anymore...I passed a sign for a gas station convenience store yesterday on the highway that was just a picture of assorted sweet & salty snacks with the word "Consume." Terrible.

  5. Flea,

    There are several ways to attack debt. As someone who has come to believe that debt free = FREEDOM & LIBERTY, I researched several ways to reduce my debt load. I finally decided on the debt snowball/snowflake method that you sort of hit upon in your post.

    Taking the bill with the lowest balance (or the highest interest rate -- don't get me started: there are literal arguments on the financial freedom blogs over this small point), pay 10 times the amount owed, reducing the other payments you have to make to minimums. Then, when this is paid off, move up the line -- but you have to take the money you were previously paying and roll it into the next bill. You're still paying the same amount every month, but you're now paying the second bill faster than if you simply paid the minimums on every bill.

    I've retired over $40K in debt in less than 3 years using this snowball method. The snowflake comes into play when you take whatever extra money or "snowflakes" you get, MUST go to the bill you're currently maxing out paying. Whatever side gigs you get, the money from those goes to the bill with a target on its back.

    Just my two cents.

  6. Flea,
    Great post. One of the best things we can do for the NATION, is become more frugal! The the standard of living will APPEAR to go down, the reality is that we will live more free, and with less worry. Americans will become more productive and innovative. The rest of the world will stop sending their refuse in his direction because we won't be trying to live off their labor.
    Best regards,
    Albert A Rasch
    Fallow Deer: Hints and Tips
    Chronicles Interview:Scott Croner Part I

  7. Great post. Part of the problem is when people compound debt the other way because of a fundamental difference between earnings and spending plus interest on consumer debt. People who have a bad 3 months and rack up a couple grand in credit card debt (car repair, etc, etc) generally dig out of it reasonably well. The ones who just fundamentally can't live within their means are where the problems are.

  8. This is something I am lucky to have little of. Only one bill,and it is under $5000,and currently being worked on.

  9. Anon,

    You have nailed it!


    Yes it will appear to go down BUT it should have never been as high as it was :)


    There is a large population that cannot live within their means, you can preach til you are blue in the face and they refuse to listen...I have several family members like this!


    You an me both...I have my mortgage and 1 car and we are working hard to pay the car off.

  10. I am lucky enough to be married to a woman who is a mirror image of me financially in female form...

    Gos bless you, sir....and your lovely wife...you're a lucky man.


  11. Very, very good post and an example we all should try and follow!

    Good for you and the missus!

  12. Hi,
    I used ”Credit Solution” to settle my debt and avoid bankruptcy. They managed to reduce my debt up to 58% and improve my credit score. It's legitimate . I came across this company on NBC News Special Edition. Check it out here:

  13. Anon,

    I am quite lucky and thank you!


    Thanks as always for dropping by and taking part in the conversation...best regards!

  14. Flea, another good summary post. Several folks out there will sell you a book or plan to do exactly what you described in one paragraph. One fantastic non-profit I have done some work for is COEinc.org the website is full of resources and tools to help folks take hold of their financial life and get it straight. I can't agree with Jennifer (above) about debt reduction companies, it seems inherantly dishonest to "elimitate" debt. Once you make a commitment to pay money for a good or service, you should be honest enough in your dealings to follow through with that payment, even if it means you take two or three jobs to get the money, sell some "stuff" or whatever.

  15. Thank you for sharing. I'll keep on visiting your blog and hope to read more topics and informations!

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