Debt

Okay, so that’s a pretty bold statement, I’d say. It may be down right offensive to some, because of the time and effort that you may believe you need to put into making sure you have a high credit score.

But what is a credit score for, and what type of institution are you dealing with that bases your integrity and credit-worthiness on some sort of mythical imaginary manufactured number?

Lenders.

If you haven’t figured out by now, when you own someone money, you become their slave. Proverbs 22:7 isn’t just a verse in the Bible. If you’ve got any sense whatsoever, you’ll see it as a truth, whether you believe in God or not.

The rich rule over the poor, and the borrower is servant to the lender.

Does it have to be spelled out? Debt is bad. All debt is bad. Debt represents a purchase of some sort that was made because there was no money to actually buy whatever it was. Debt will enslave you. Some of the world’s smartest and brightest people may try to pitch to you the idea that debt is a tool used to get ahead, but I can assure you, this makes no sense in any way, shape, or form.

In fact, it is the reason our economic awareness is where it is right now. We are in the midst of turmoil in the economy due to DEBT! If you have a better explanation, I’d love to hear it…so I can laugh, and point out that you’re wrong. I apologize if I sound arrogant, but I am 36 years old, and debt has never been a source of prosperity in my life. It has always brought me down, and most recently, it has also brought down a very large number of my friends whom I love dearly.

When Do You Need a Credit Score?

When do you need to borrow money? That’s your answer. If you haven’t figured out by now that saving for what you are intending to purchase is the best choice, then stop reading now and go somewhere else, because I no longer, nor will I ever camp on the side of those who believe that a credit score is important, and I will not borrow money anymore.

If I never borrow money, I’ll never need a credit score, right? But what about buying a house? What about it? If you must buy a house, borrow as little as possible, and do it for the shortest period of time, and as Dave Ramsey continually preaches, don’t take on more than a 15 year fixed mortgage and don’t let your payment exceed 25% of your take-home pay. But we won’t be able to get the house we want! Sorry. That’s right. You won’t. Start saving until you can.

The longer you go without borrowing money, the lower your credit score will fall. Do you care? If so, why? Ask yourself these questions and consider how much freedom you may experience when you employ the behavioral disciplines that are required to persevere through your impatience towards a savings goal.

You will, I guarantee, come out ahead EVERY TIME when you save for what you want instead of depending on your credit score to get you into DEBT! Debt SUCKS the life out of you. It destroys your spirit and makes you feel trapped, but only as long as you continue to have a mindset of borrowing. Change your ways and you’ll find that even though you’ve gotten yourself into a deep pit of shit, you’ll be on your way to digging yourself out. Do not borrow any more money.

If you haven’t heard about or read Dave Ramsey’s The Total Money Makeover: A Proven Plan for Financial Fitness, I would recommend the best hydraulic rowing machine to you immediately. The audio book is fantastic, and if you have iTunes, you can download it for half the price that Amazon charges for paperback, then stick it in your iPod and listen to it in your car or on your walks, rides, etc.

My life has been completely changed by these teachings and principles and I AM on the road to financial freedom.

Dave or Susie

I won’t go into a dissertation on debt and the economy, but I will respond to an article that I read recently that posed the question, “Is Dave Ramsey’s way better, or Susie Ormond’s way better.” The question of the best way to pay down credit card debt seems like a pointless argument as there really is only one way to pay down debt. Just pay it down.

I have been listening to Dave Ramsey’s advice on managing money, and while I agree with everything he preaches, there’s a lack of practical application, and no possible way to address each and every problem out there in a few seconds on the radio. It is a “broad” transmission, after all. I have never listened to Susie Ormond, so I can’t say anything about her.

The $1000.00 Example

Credit card debt in this country is massive, and it starts with each individual’s spending habits. Before I continue, I’ll lay out a little analysis of what credit card debt actually means to you, if you have it. If you don’t, stay that way.

Let’s take $1000.00 for instance. When you purchase an item for $1000.00 using a credit card (firstly, understand you’re much more likely to purchase something if you have a credit card…retailers bank on it, literally) you’re not actually spending $1000.00. You’re spending a) $1000.00 that you don’t have yet, b) more than $1000.00 after interest adds up and c) the depreciation in value of the item you purchase. So how much are you actually spending? That depends on your interest rate. Let’s say it’s only 15% annualy. Take 15% and divide it by 365 days and you get .0004109 % per day. Now multiply that number by 30 days and you get .01232 % per month. Multiply that times your balance and you have the following.

The $1000.00 you borrowed grows in one month to $1012.32. Your minimum payment for the month is probably $15.00 on a $1000.00 balance (check your card agreement) which means that if you pay the minimum payment every month, you will pay the credit card company $1112.15 for a $1000.00 purchase for a total of $2112.15 and it will take you 11 1/2 years to pay it off. That does not take into account the decline in value of whatever it is that you purchased if it holds any value at all.

But I Rationalized My Purchase

Sure you did. Just like they planned. They know that you’ll say something like, “I’ll pay it off before the end of the month.” Thank bank on that, because it’s likely you won’t pay it off, and your payment due dates do not correspond with the end of the month. Don’t rationalize your purchases. If you have the cash to pay off the purchase, then just use the cash. Those incentive programs that they offer you, like the “no payments for 12 months” programs are designed to push you to rationalize your way into deeper debt.

“No Payments for 12 Months”

So what’s so bad about that? Well, firstly, in order to take advantage of these programs, you have to go into debt, which is not a very smart decision. It may seem great at the time, but if you’re someone with no discipline to pay the credit card off prior to the expiration date (the exact day) then you’ll be surprised at the end of the promotion period to see all of the interest for the entire 12 months slapped onto your bill. These programs are expected to attract the purchases of people who would normally not spend anything at that time. Think about all of the trips to the hardware store you’ve made that resulted in you thinking you needed more than you came to get. If you find yourself short of self control in this area, get rid of the credit cards. You’ll be surprised at how less often you browse the malls and retail stores just looking for an excuse to spend money you don’t have.

So I’m in Debt, What Do I Do?

Dave Ramsey lays it out quite simply. Look at all of your credit card statements. Put them in order of importance from the lowest balance, to the highest balance. Determine how much of your budget you can afford to pay towards your credit cards, pay the minimum payments on all of your cards, and focus the balance of your remaining budgeted payment to the card with the lowest balance. Other methods involve knocking out more than one card at a time, and this may work for you, but I have found in my life that working with one card at a time helps me reach shorter term goals more often, which gives me a sense of accomplishment, and therefore adds to the positivity that I need in my life to not feel so enslaved by the lenders.

If you aren’t familiar with Dave Ramsey, I highly recommend listening to his radio show or subscribing to his podcast. You can hear his show on his website as well. They post the show every day he’s on the air. Listening to the success stories will help you know that you can move forward in your life and get out of debt.

Credit Scores Are For Losers

The Compounding Problem of Credit Card Debt