Personal Finance: Step 3 - Consumer Debt

Almost ½ the people in the United States are falling deeper into debt. As the inflation rate climbs and there doesn’t seem an end in sight, there are some who are still looking to rid themselves of a life of financial slavery. In a report done by CNBC, consumer debt rose by 9% to 48% in the second quarter, from 39% in the first quarter of 2022. Consumer Debt was at a whopping 15.84 trillion dollar at the beginning of 2022. That number is in pace with the National debt of over $26 trillion. Some of the parameters that fuel the credit card debt numbers is the confidence that the consumers have that they can or will be able to afford to pay the debt off at another time, and then there are those who are barely hanging on to what little they have and acquired a high interest, low balance credit cards to help them get by. The biggest threat to those who are in this High Risk credit category is that they are able to obtain several of these High interest cards and soon max out every one of them only to find out that it is going to be virtually impossible to pay off the debt by paying only the minimum payments. Worse yet! The unsuspecting consumer can actually default on these cards and do a decade of damage to their credit worthiness in the process by seeking bankruptcy. I know this all to well and I am here to tell you that is not all Smooth Sailing and Fragrant Roses trying to pay these off to better yourself in the Financial Game. It took me and my family much sacrifice to whittle down over $30,000 of credit card and consumer debt, but it can be done. It can be very rewarding and You can learn how to use credit, credit cards and other features to your advantage. You have to walk through the fire first, and I am here to say that if you had the type of credit situation I was in (bankruptcy, garnishments, judgments) it is going to take you a good chunk of years to get yourself on the FICO rise again. Dave Ramsey would have you pay off your debts, cut up your credit cards and vow never to use those vehicles again. While this is excellent advice, it flies in the face of modern reality for many working families. What I will try to do is to here is to follow Dave Ramseys Debt Snowball tactics and throw in some modified uses for credit as we walk through it. I warn you now. This is a total commitment to getting you out of debt and also forces you to “put to sleep” some of the credit cards you have, while others will be eliminated and cut up as Dave Ramsey recommends. This also will force you to live within your means and in some ways below your means as we conquer our objectives of emergency funds and budgets as noted in the earlier posts. The Debt Snowball: Dave describes the Debt Snowball as a tool that allows you to pay off credit cards, one by one by selecting either the lowest balance of debt on a card or the highest balance of debt on the card. You can also select (as I did) to pay off the highest interest credit cards first, regardless of balance. This means you will pick a dollar amount to pay the first card off, while still paying minimum payments of the other cards or debt. Whichever way you chose to prioritize your cards is totally up to you, but you must keep this one rule. Rule 1 thru infinity… – Roll Over the Payments!!! Roll over the payments simply means when you pay off one credit card. You use that money from that prior card to add to the payment of the next card Example: You have 4 credit cards, all of them are maxed out and you are paying the minimum amount to each one (lets say $25 for example). You pick one of the cards and by example pay the first card off at 2x the minimum (say $50) instead of the $25 minimum. Once you pay off that card, You “Put it to sleep” which means you either destroy it or not use it EVER while going through the Snowball. With that $50 you were paying on the first card, You apply that $50 + the minimum ($25) on the next card and now you are paying the 2nd card off at $75 per month. As you go through the 3rd and 4th credit card you will be paying at least $125 per month or more to the last card or debt in the pile. A SNOWBALL!!! With the method above (the one I used). By the time I got to the last creditor, I had been able to manage to make large payments to the last creditor (my car) because I was using a Budget to run my other expenses. You will absolutely be surprised by the healthy spending habits, what you can learn while paying off debt and maintaining a budget while doing this. It would help you enormously by taking on extra jobs (income) while in this process. While you are doing this Debt Snowball tactic you might also be experiencing debt collectors and garnishments/judgments hanging over your head, and this is one of the most stressful things I encountered while doing this. I suggest you find Dave Ramseys page or listen to his podcast/ radio show to help you deal with debt collectors while doing this as Dave is an expert in dealing and teaching people how to deal with collections and negotiations. ​ The Bottom line here is to get a sound financial platform under your feet to enable you to start acquiring wealth instead of debt. To make the future of your life on your terms, not the terms of minimum payments and financial slavery. The Debtor is always a Slave to the Lender This is a horrible fact, but in future posts I will teach you how to use credit to your advantage and how to leverage it to even make extra income when you are well on your way to an 800 point FICO score.