Dealing With the Debt Monster
By Brooks Clark, CFP
Clark Financial Advisors
Reprinted from The Gadsden Times
February, 2007
Last month, we talked about getting your financial house in order by getting your debts paid. Several folks asked me to provide a bit more detail about how to “dig out from under” the debt. I thought you might gain some strength from my own story of dealing with the “debt monster.”
A very long time ago, I found myself facing a pile of debt equal to a full year’s pay. A divorce and the high interest rates of the late 1970s left me overwhelmed with debt. Here is what happened that helped me begin to dig out. One night, I listed each debt that I had and recorded the interest rate for each debt beside it. I found that a few of my credit cards had lower interest rates than others, and, fortunately, those lenders were willing to expand their credit lines enough to allow me to consolidate the higher interest rate debt with the debt on the cards that had lower rates. I then did some soul searching and knew I really didn’t need to be driving the expensive car I was driving. I decided to sell the car, took the equity, paid off the remaining high interest credit card debt, and found an inexpensive car that I was able to lease with no down payment and small monthly payments.
I then eliminated all but one credit card and started paying cash for everything. I met with a banker and found that I qualified for a consolidation loan, which resulted in an even lower interest rate and a longer monthly payment schedule, which reduced the monthly payment requirement. I then pledged that the monthly payment on that consolidation loan was the first check I would write each month. I started paying cash for all my expenses and decided that I would restrict my purchases to truly needed items for a period of three months, putting desired items on hold for that period. In 90 days, I found that I had additional cash available to make an early principal payment on my consolidation loan.
I began to create “saving games” with myself. I dumped my change in a jar each night, and if I bought something during the day, I would never use the change in my pocket; I always broke a bill instead. This resulted in me saving about $50 a month. Later, I stepped this up and began saving my $1 bills each night; this quickly added another $50 a month to my savings.
The remarkable thing about this saving of coins and dollars is that it is almost painless. The result can be the beginning of a change in your spending habits. Instead of careless spending, the seeds of careful saving are planted. Unfortunately, we have become a society of consumers that require immediate gratification. The result is that many families never get around to saving, but live beyond their means, which leads to families being burdened with debt. Some families carry debt for years, and many are not even able to remember what was purchased by the debt that they are paying off years later.
Most of us have found ourselves behind the “debt eight ball” at some point in our lives. With the exception of homes and automobiles, the debts we incur are usually because we did not want to wait to make a purchase of something desired until we saved the cash. Living within your means is a must; no one accumulates wealth unless, at least for some period of their life, they live beneath their means to begin the “savings snowball” rolling.
Now that we have addressed the “debt monster,” next month I want to discuss how can you receive a 100 percent return on invested money—on the very first day.
Brooks Clark is a certified financial planner with Clark Financial Advisors in Birmingham, which serves clients throughout Northeast Alabama. Clark is originally from Anniston. His e-mail address is brooks@clarkfinancialadvisors.com.
