Becoming Debt-Free
by David DeFord
What keeps most people from developing wealth? What is the greatest obstacle to retirement? If you could eliminate one thing to position yourself for financial peace and security, what would be?
The answer to each question above is debt!
Imagine the freedom and peace you would feel with no debt! Imagine the small portion of your paycheck you would need to meet your needs and obligations if the all of your earnings were available to you! Think about the savings, investments, and charitable giving you could enjoy!
The safety of your family may depend upon your attention to your debt. It has been estimated that 89% of all divorces can be traced to quarrels and accusations over money.
What will it take to convince you to finally resolve to become debt free? Will you need to be cornered by a creditor? Will you have to be publicly embarrassed? Or will you respond to a milder stimulus, like the frank advice of a friend, or an article like this one?
It's not the amount of money we earn that brings peace of mind as much as it is having control of our money. Money can be an obedient, productive servant, or a brutal taskmaster.
Success has a way of passing by those who have not the discipline to handle it. Through our healthy respect for money, we can attract wealth.
Compounding interest is your enemy. It robs you of your working funds. Tony Robbins taught about the power of compounding by comparing it to a small , friendly wager on a golf course. Say that your golf partner suggested a small 10 cent bet per hole. You think, "Well, that means that only $1.80 is at stake." So, you agree. Then, he suggest that you double the bet on each subsequent hole. Here's how it would go, if your partner wins each of 18 holes: One the first hole you lose a dime. On the second, you lose twenty cents. When you add the dime from the first hole, you're down only 30 cents. Big deal! The third hole is worth forty cents, the fourth only 80 cents. Not too bad. But now watch what happens: Hole five is worth $1.60, sixth $3.20, seventh $6.40, eighth $12.80, and the ninth $25.60. When you add up your losses on the first nine, you realize you are down $51.11. Once you have finished your game, you will have lost what, maybe $150? Actually, because of compounding you will owe $19,660.80.
Now, your debts probably haven't interest rates that high, but the principle is the same – if you pay only the minimum payments on your debts, you will pay them for years and years. You will pay many times the actual principle you spent in the first place.
So, what will it take to eliminate your debt? First, you will need to determine why you are in debt in the first place. Don't spend time on the external reasons – they are excuses. What inside of you built your debt? Generally, the internal reasons center on the need for immediate gratification. Rather than saving your money for furniture, cars, or vacations, did you borrow for them? Distinguish between need and want. Maybe you wanted to keep up with the living standard of your friends or family. Or you frequently make purchases on impulse.
Search your heart deeply. Discuss your debt situation with your spouse. You can't make the needed changes without his or her help. Maybe he or she sees more clearly than you the internal cause.
Make a Plan After you have identified the internal cause, make a plan to conquer it.
Make a budget, make a goal. Decide how you will reduce your spending enough to attack your debt. Some people think a budget robs them of their freedom. On the contrary, successful people have learned that a budget makes real economic freedom possible.
Think of your debt as a cancer. You must first eliminate it's spreading, and then you must eradicate it. Use invasive treatments to kill it.
Use the snowball technique.
- Identify your smallest debt (debt one).
- Pour every available cent each payday into paying down that debt. Pay the minimum payment on the other debts.
- Once you have paid off that first debt, identify the next smallest one (debt two).
- Add the amount you had been paying on debt one to the minimum of debt two, and pay that amount.
- Let the snowball grow with each debt you eliminate.
As you continue, your snowball will get huge, and your progress will seem to multiply.
Keep a chart of your progress.
Plan ahead how you will celebrate the successful elimination of each debt along the way. But don't celebrate in ways that would slow your progress. Be tenacious. Don't let anything get in your way.
Once you have achieved your desired end-financial freedom, resolve to never have debt again – keep budgeting.
You can then begin the delightful opportunity to use your excess earnings toward building wealth, enjoying the fruits of your labors, and preparing for your retirement.
You can do it – start today!
|
