Debt Reduction
I want to give you some staggering statistics about American’s and their debt.
Average personal debt as of 2019 is $90,460.
Amount of debt for an average American at death is $61,554.
Four top debts are Mortgages, Auto Loans, Student loans and Credit Card
The average credit score in the U.S. is 680 which is fair to good.
As of 2020 any type of debt owed by an average U.S. household is $137,729
As of 2020 average credit card debt is between $6k-$20k
As of 2020 average Mortgage is $197k
As of 2020 average Auto loan is $27k
As os 2020 average Student loan is $46k
In 2019 it was found that the majority of bankruptcies were due to unaffordable mortgages, living beyond their means, student loans and divorce or medical issues.
How alarming are these statistics? But, as I grow older I see more and more people willing to sign on the dotted line so that they can have NOW what their parents worked almost their entire lives for. Our “microwave mentality” has convinced us that we don’t and shouldn’t have to wait on on luxuries or pleasure that we want. All we have to do is swipe the plastic or sign on the line for a loan. We are even willing to risk losing our homes by taking second mortgages (equity lines) in order to feed our appetite for the things we are no longer willing to exercise our patience and work for.
I can remember my parents setting aside a certain amount of money each paycheck for the home upgrades they wanted. It may have been carpet for the entire house, new furniture, an attic fan to use instead of the AC on cooler nights, or a vacation that would only be enjoyed every 2-4 years….certainly not annually!! The only bills I observed my parents paying were the mortgage, utilities, insurance and in my teenage years a small used auto loan. It was out of the question to “buy on time”. Getting something before we had the money to pay for it was not a readily acceptable way of doing things in my younger years (in the 60’s).
What has happened that now so many young adults feel entitled to have things before they can pay for them? Why do young people marry with no place to live and no prospects of good employment? Why have parents that grew up between the 50’s - 70’s decided to change the financial principles they were raised by? If you can’t afford it, you don’t buy it! I have some ideas as to why this may be and these are just my opinions.
I think many people have adopted the idea that they don’t want their kids to do without things they didn’t have when growing up. But why would we think no longer working to earn what you want is to be abandoned? Also, many women entered the workforce starting in the 70’s and as a result loan companies sprang up that saw how much the average family income had increased, making “buying on time” easier. Now we have companies that advertise 24/7 by T.V., radio and internet, convincing us how easy it is to get what you want now! Additionally, parents have abandon the idea that children need to contribute to the welfare of the family. In other words, few children are required to do any household “chores”. Many parents do not require that their children even pick up after themselves, let alone do things that help the entire family unit thrive and enjoy success. Most children that grew up in the time frame I mentioned, if not all, were REQUIRED to help out around the house. It might be doing the dishes, vacuuming, mowing the lawn, taking care of the family pet, etc. These were things that taught us the value of hard work and the reward for doing it…which was a warm place to sleep, meals on the table and clothes to wear. There were no “expectations of being owed” anything. We all worked together as a family unit so that we could ALL enjoy a little down time when our parents were off and school was out. We worked together because we couldn’t afford to live any other way. Our help was just considered part of what you do in order to have the privilege of being apart of a family. If we wanted something extra, we did things that were outside of the everyday expectations, at even at that, having our needs met were more important than getting a few extra “wants” at the expense of our parents that really couldn’t afford them.
Whatever the reason for this attitude that I “deserve to have this now”, we are finding ourselves up to our necks in debt that we may never be able to repay. It’s even being advertised now that “it’s not your fault you’re in debt and our company will settle your debt for half of what you owe”! How crazy is that! You borrowed it and now you don’t deserve to be made to repay it!!! That is just Cra Cra!!!
Let me just take a few moments to address debt and what it does. Debt is a task master! Debt is bondage. The bible says “Owe no man any thing, but to love one another; for he that loveth another hath fulfilled the law”. Romans 13:8. “The borrower is the servant to the lender”. Proverbs 22:7. And Deuteronomy God told his people “to lend but not borrow”. Why? Because when you owe someone something, they have power over you, especially in finances. When you owe money and do not have it to repay, you may have to forfeit something much more precious than money. Think of how it would be to lose your home and have to move to a substandard property. Think of losing your car and having no transportation, except for maybe paying Uber! Think of the embarrassment of bankruptcy and the impact on your mental welfare and the self image you take on as a result.
Debt is also a killer! I causes excessive worry and anxiety. I can’t tell you how many people I know that are on antidepressants due to the massive amount of debt they have and the level of anxiety and depression it has brought. Some have no one to turn to such as family or friends that are able to help them or even assets that they can liquidate because everything they have is tied to a note! In order to live your best life now, debt reduction is a must!
Of all the systems I’ve seen and read about, I highly recommend the Dave Ramsey Snowball Effect for reducing debt. I want to briefly explain it and then encourage you to buy his book, “The Total Money Makeover”. “A Proven Plan for Financial Fitness”. I know you may be thinking, “I’m in hock up to my neck I can’t afford that”. Yes you can! It will be the best investment you ever made in YOU!.
Mr. Ramsey begins by debunking debt and money myths, keeping up with the Joneses, emergency funds, and retirement, college and other topics. But the one I want to cover here is the one that I actually used and it TOTALLY works!! It’s the Debt Snowball. It is a simple but yet effective concept. It goes like this:
Make a list of your debts, in order smallest to largest.
Pay the minimum payment in order to stay current on all your debts except the smallest.
Every penny you can come up with past those minimum payments goes toward that smallest debt until it is paid.
Now that the smallest debt is paid, you take the payment from that debt, and all the extra money you can find and pay toward the next smallest debt. You continue this formula by using all that you paid to pay of the smallest debt to pay toward the next.
Here’s an example:
Who is Owed . Amount Owed. Minimum payment
Mastercard $1,200.00 $20.00
Visa $5,100.00 $200.00
PayPal $6,200.00 $300.00
Equity Line $40,000.00 $1,200.00
Each month you will pay those minimum payments on the far right. Each month, you pay MasterCard $20 plus all the extra you can manage…let’s say it’s $75 for a total of $95 each month. In 13 months MasterCard is paid off. Then the next month you will pay Visa, PayPal and Equity line the minimum payment as well but we will now add that $95 you were paying on Master card to the $200 minimum for a total of $295 plus any extra you can come up with. Let’s say you have an extra $35 so the Visa payment is now $330.00 each month. In 15 months, Visa is paid off. Now you will take the $330.00 that was being paid of Visa and add it to the $300.00 minimum for PayPal and any extra you have. Let’s say it’s $25.00. So now each month you will pay Pay Pal $655.00. In 9.5 months Pay Pal is paid off. In three years you will have paid off $12,500.00 in debt. If you continue the process and add to that PayPal payment an additional $345 you will pay off your equity line in just a little over three years instead of 15-20!!!!
You find your “extra” money each month by setting up a budget and sticking to it and acquiring NO additional debt. Dave Ramsey has an AWESOME budget for monthly expenses and for snowball reduction. What I just listed as an example is actually something I just did but it only took me 9 months to pay off $15k of debt. How did I do it? I set up a strict, but reasonable budget and I didn’t budge off of it! I also took on extra work that helped me earn more to put toward the minimum amount each month. The goal is to see just how much and how quickly you can pay on that smallest amount. Once you pay off one to two of those debts, you actually have LOTS of money to pay on that next debt. Before you know it….you are “Snowballing” your debt reduction!
It actually became an obsession with me to stay on task with this. It was so liberating to have the stress off my shoulders each month. To be able to purchase things paying with cash and no anxiety attached! I want to encourage you to sit down and review your debt. Purchase the book. Make a budget and stick to it! You can live your best life NOW, if you will purpose to “owe no one but to love them”!!! You can do this and when you do, you too will experience TOTAL FREEDOM!!!!
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