Reading: How To Get Out Of Debt Fast!
LESSON 8: THE FORMULA TO
GET OUT OF DEBT ASAP!
Review: The First Step Towards
Financial Freedom
Ask Yourself: “Do I have the soul of a slave? Or the soul of a free man?”
“Where the determination is, the way can be found!”
Have you a desire to repay the just debts you owe? If thou contentedly let the years slip by and make no effort to repay, then thou hast but the contemptible soul of a slave. No man is otherwise who cannot respect himself and no man can respect himself who does not repay honest debts.
Determination is The First Step Towards
Financial Freedom
The soul of a slave whines, “What can I do?”
The soul of a free man looks at life as a series of problems to be solved and solves them.
Determine to find a way to become Debt-Free!
Your debts are your enemies.
The people you owe are your friends because they trusted and believed in you.
Do you want self-respect?
Do you have a desire to pay your honest debts, however many they may be?
Sound Principles for Borrowing
“In using any kind of debt, ask:
Does it make economic sense?
There are two rules to follow:
The cost to borrow (after-tax interest) must be less than the economic benefit received (interest, yield, and/or growth in value).
There must be a guaranteed way of repayment.
Do my spouse and I have unity about taking on this debt?
Do I have spiritual peace of mind or freedom to enter into this debt?
What personal goals and values am I meeting with this debt that can be met in no other way?”
― Ron Blue
4 Types of Bad Debt
BAD DEBTS
Credit card debt. Credit cards which always have a high interest rate, to accumulate the consumptive and depreciating items makes no sense economically.
Consumer debt. Debt used to finance cars, furniture, vacations, etc... same as credit card debt and should be avoided.
Mortgage debt. In previous years, a home purchased with a fixed interest rate was the safest and surest way to build personal net worth and equity. That is No Longer True! Never become so attached to a home that you cannot give it up if the debt can not be paid.
“Investment Opportunity” debt. Two general rules:
First, if you cannot explain the deal or investment to your wife in such a way that she totally understands it, don't do it.
Second, even if you can explain it so that she totally understands it, but she feels uneasy or unsure in any way about it, don't do it.
3 Types of “Good” Debt
POSSIBLY “GOOD” TEMPORARY DEBTS
1. Business Debt. Sometimes it is necessary to borrow money to start a business. Generally banks ask you for 2 years of history. There are two types.
Term Debt. Always make minimum payments on time and try to add extra payment to the principal to pay it off ASAP.
Line of Credit. Use it only when it’s absolutely necessary and do your best to pay it off as soon as possible.
2. Investment Debt.
Many people want to invest with borrowed money. In the stock market this is called “Margin” – but it can be dangerous. Leverag can magnify gains or losses.
3. Real Estate Debt.
Many people borrow to buy a property with the goal of renting it or fixing it and flipping it at a higher price. The most important thing is to make sure that there truly is a profit. Consider you will spend money to renovate it, interest, property taxes, HOA dues, utilities, broker commissions, property manager, plus the time the property is not rented and generating income.
The GOOD Policy
The GOOD Policy: “Get Out Of Debt! And Stay OUT!” – Peter J. Daniels
"The wicked borroweth, and payeth not again: but the righteous sheweth mercy, and giveth." – Psalm 37:21
When people don’t want to pay back what they borrowed, it indicates a lack of integrity, a lack of character – in a sense dishonesty.
If we are in debt, it is something we should make a concerted effort and goal to get out of debt as soon as possible.
Some people will make excuses to justify themselves for not wanting to pay back what they owe.
It is dishonorable to borrow money and not pay it back. The person who borrows and does not want to pay back is a thief or a crook, plain and simple.
What is Compound Interest?
Linear Interest – The Same Each Period – It Adds Up
Compound Interest – Builds on Itself – It Multiplies Exponentially Over Time!
Understand the Power of
Compound Interest
"Do not let interest work against you; if you do there is no chance for success in life so far as money is concerned." – P.T. Barnum
"Those who understand compound interest are destined to collect it. Those who don't are doomed to pay it.“
– The Motley Fool
Compound interest is “The eight wonder of the world” – Mayer Amschel Rothschild
“Compound interest is the greatest mathematical discovery of all time” – Albert Einstein
The Real Cost of Purchasing a Home
You Can End Up Paying 2-3x What You Borrowed!
Total Debt After Payment ($)
Total Paid to Principal
The True Cost of a Mortgage
" If you buy a home with a 30-year conventional or adjustable rate mortgage, you will pay for that loan about THREE TIMES. Just multiply your monthly payment times 360 months and you'll see that the total you'll pay the mortgage company or bank is about three times the amount you borrowed from them.
That means that two-thirds of the total amount you'll pay your mortgage lender is INTEREST. Interest is the profit the mortgage company makes for lending you the money to buy the house, and they obviously feel you should pay them 200 percent interest! ― John Cummuta
Let's put some real numbers to this.
If you buy a $250,000 home, with a $200,000 mortgage, you'll end up paying about $600,000 over 30 years. This means that you'll pay nearly a HALF MILLION DOLLARS IN INTEREST!
That means you'll have to work... week after week... year after year... to earn a HALF MILLION DOLLARS or more... so you can net FOUR HUNDRED THOUSAND DOLLARS after you pay income taxes - just so you can give it to the bank to make them rich! Ask yourself, do they deserve a half million dollars of your hard-earned wealth more than you do? ― John Cummuta
By the way, if you have an accountant who tells you that you should never pay off your mortgage, "Because it's the last tax shelter for the average consumer," GET A NEW ACCOUNTANT. Think about what they're saying. Let me translate it for you. They're really saying, "Keep on paying a dollar of interest to get back 28 cents in tax deductions."
Because that's exactly what's happening. Each dollar of interest you pay the mortgage company is deductible from your taxable income, which saves you the 28 cents (assuming you're in the 28 percent tax bracket) you would otherwise have paid to the government on that dollar. But... if you never had to pay the dollar of interest to the mortgage company... yes, you would then have to pay the government their 28 cents... but you'd get to keep the 72 cents of the dollar you DID NOT sent to the mortgage company.”
― John Cummuta
The Minimum Payment Trap
People get trapped by credit cards because they are fooled into thinking they only need to make the Minimum Payment!
Even a small balance compounded at a 12-30% rate of interest can balloon very quickly and get out of control if a person only makes the minimum payments.
It can take years or decades to pay these debts off.
Debt is like a downward spiral.
How to Use a Credit Card Properly
You should only use a credit card if you are able to completely pay-off the balance each month.
If not, immediately cut it up and don't use it anymore!
Uf you are in debt, try to transfer the loan to a credit card with a 0% teaser offer and work as hard as possible to pay it off within a year.
The Master Key to Financial Freedom
Interest in and of itself is not bad. It simply depends whether you are on the paying end or on the receiving end.
The master key to financial freedom is to become debt-free. That is, to stop paying interest on debts you acquired to make purchases or to consume.
As long as you are paying interest, you are wasting valuable time, money and effort making someone else rich, with the money that you should be using to make yourself financially free.
To Become Debt Free
It Must Become a Top Priority for You!
We become what we think about all the time.
Realize that if you want to become financially free in a relatively short amount of time, you need to make becoming debt-free a top priority in your life.
Otherwise, you will continue to be in the rat-race for a long-time and will never understand why even though you make more and more money, it just never seems to be enough.
The key is to short-circuit the power of compound interest by paying down debt as soon as possible.
How to Get Out of Debt
“The best way to get out of debt is
1.) Stop going into debt, and then
2.) Set up some type of repayment plan.” – Ron Blue
“Your goal has to be to eliminate all your debts and begin building toward a stable economic future. To accomplish this, you need to stop wasting money on possessions you don't need and stop paying too much for those crucial to your everyday existence.“
― John Cummuta
"Pay your debts with all the promptness within your power, not purchasing that for which you are unable to pay.”
― George S. Clason
The Goal: Become Debt Free!
Negative Net Worth
(Deep In Debt)
Assets: $100
Debt: $200
Net Worth: ($100)
Pay Down Debt
(On the Way to Freedom)
Assets: $100
Debt: $120
Net Worth: ($20)
Become Debt Free!
(Create a Positive Net Worth)
Assets: $100
Debt: $0!
Net Worth: $100
The Formula for Getting Out of Debt
Read: The Clay Tablets from Babylon (Chapter 9 – The Richest Man in Babylon)
Becoming debt free requires a plan to pay off all our debts.
This plan will work, but requires a certain level of sacrifice.
We must be willing to pay the price to become debt free.
Otherwise we will pay the price of financial bondage when the weight of debt crushes us.
Its really your choice.
The Plan For Paying Off All Debts
Pay Off All Your Debt Before Your Try to Save or Invest!
List Out All Your Debts – the balance and the interest owed on each one.
Sort them in the order of the highest interest rate to the lowest interest rate.
Reduce Your Spending to a Minimum to Generate a Positive Net Margin.
Use the Power of Focus to pay off the first one – the one with the highest interest rate using the Net Margin that you are now generating each month by Paying yourself first.
The Plan For Paying Off All Debts
6. Make the minimum payments on all the others until you pay this one off completely.
7. Once you have paid that one off, focus all of your Net Margin, which now includes the money that was going towards the first debt on the second debt with the next highest interest rate.
8. Once this one is paid off, focus on the third one. This process starts to compound on itself until sooner or later you will become debt free.
With sufficient focus and determination, it is possible to become completely debt free within 7 years.
Is it worth it? You better believe it!
Your Debt Payment Will Begin to Snowball
Paying Off Debt is the BEST Investment!
Many people try to get ahead financially by investing in their IRA, 401k, pension, annuity, life insurance, mutual funds, stock market, etc. BEFORE they are debt free – that is a Major Mistake!
First Become Debt Free BEFORE You Try to Invest!
Why? Paying Off Debt is a GUARANTEED Investment. The Returns on an Investment are NOT!
Trying to Invest Before Becoming Debt Free is like Trying to fill a bucket full of holes. It Doesn’t Work.
The Bucket Analogy
Think of the first Bucket as Your Financial Life.
The Water is like Money.
The Water Level in the second bucket is your Net Worth.
Your Income
Your Debts
Your Debts
Your Net Worth
Your Net Income
Your Expenses
To Increase The Water Level Plug Up the Holes in Your Financial Life
As you begin to plug up the holes, there will be more water left in the bucket
The Water Level can begin to rise.
Your Income
Your Debts Shrink
Your Net Income
Less Debts
Your Net Worth Rises
Your Expenses Shrink
To Goal is to Cover All Debt Holes
When You Cover All Debt Holes You STOP wasting money making your bank rich.
Your Net Worth will begin to rise exponentially from here on out!
Your Income
Your Net Income Grows
Your Net Worth Rises Exponentially
Your Expenses Shrink
How to Save Thousands of Dollars!
Kill your debts as soon as possible by paying extra to the principal each month!
How to Save Thousands of Dollars!
Kill Your Debts ASAP by Paying Extra to Principal Each Month!
Personalized Financial Freedom Plan
Book an Appointment to Do
Your Financial Freedom Plan
We can sit down with you to help you create a personalized Financial Freedom Plan.
Most clients can pay off ALL credit cards within 1-2 years.
Most clients can reduce paying off their car from 5 years to 2-3 years.
Most clients can pay off their entire home mortgage within 5-7 years.
Most clients can become 100% Debt Free within 7-10 years!!
To Book an Appointment for
Your Financial Freedom Plan
Email us at: abarron@financial-freedom.org
Call us at (915) 637-5040
We will schedule a 1-2 hour session to create a month by month plan to set you on the way to Financial Freedom!!!
You will save Years of Work and $1000’s of Dollars!
You can put those $$ to Work for You!
Keep a Solid Credit Record
The ability to get credit and the interest rates you pay for a loan are highly dependent on your credit history.
Your credit record is a reflection of your soul – your integrity. It tells creditors what type of person you are and how seriously you take your debt obligations.
“Remember that your reputation for paying debts on time is far more important than your money. Lost money can be replaced; a good name cannot.“
"Your most valuable possession is your credit rating — your reputation for financial responsibility."– Paul J. Meyer
Do NOT Co-Sign For Anyone
“Be not thou one of them that strike hands, or of them that are sureties for debts. If thou hast nothing to pay, why should he take away thy bed from under thee?“
― Proverbs 22:26,27
JUST DON’T DO IT!!!
In the Bible, we are warned that we should never co-sign for someone else’s debts. This is typically done for a friend or a relative thinking that we are helping them out. If they cannot qualify for a loan on their own, there is a reason why. If you co-sign for them, you may end up paying for their purchase without getting the benefit of enjoying it and straining the relationship. It’s just not worth it. Don’t Do It!
Creditkarma.com
mint.com
Conclusion: Determine to Be Debt Free!
“One of the surest ways to financial success is to avoid the major mistakes, because not only do you have to make up for the lost investment, but also you lose the earnings that this money could have generated, and the earnings that the earnings could have generated, and so on.” ― Ron Blue
In order to enjoy financial freedom, we must become Debt-Free!
It must be a top priority in our life.
We must make the determination to be a free person and make the commitment to get there no matter what the cost.
This requires an understanding of how debt works and how the power of compound interest works against us.
Conclusion: Become Debt Free ASAP!
Debt not only keeps us in financial bondage, but it also prevents us from reaching our dreams in life. It robs us of future earnings.
Decide to make a plan to become debt free TODAY!
Don’t postpone it until tomorrow.
Take action and fight for your own Financial Freedom Now!!!
Review of Next Steps To Be Financially Free
Learn to Live Within Your Means. (Spent Less Than You Earn).
Pay Yourself First – at least 10% into a separate account.
With that savings pay off the smallest debt you have. In a short period of time you will pay it off and liberate extra free cash flow!
Once you finish paying off the first debt you will break the debt cycle and will have started the “snowball effect” going in your favor working for you!
Share with the Financial Freedom Alumni group your Financial Success!” You will receive support and encouragement!
Review of Next Steps To Be Financially Free
Learn to “Become Your Own Bank” (next lesson).
Use “Your Own Bank” policy to protect your family and to profit as you become debt free.
As you pay off more debts, this will increase your motivation, your focus and your cash flow!
Invest in Yourself and seek ways to Expand Your Income.
Learn to Make Money Work for You and Multiply.
As you increase your income you will Accelerate the process and over time will increase your standard of life – This is the true path of Prosperity!
Ask to Join the Financial Freedom & Success Institute Alumni Group
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Last modified: Tuesday, May 28, 2019, 11:17 AM