Friday, September 17, 2010

Get Out of Debt

I know we hear this all the time. "Get out of debt." Sometimes I feel like we are children who's parents keep telling us the stove is hot. We still have to touch the stove and learn our lesson the hard way. Well let me sum it up for you. THERE IS NOTHING MORE FINANCIALLY DESTRUCTIVE THAN DEBT! Debt is literally captivity. Those who have debt are enslaved to their debtors. If that debt is directly or indirectly callable (the debtor and ask for payment in full) then it isn't only enslavement but it is complete control.

Types of Debt

Mortgage: There is nothing wrong with one modest home mortgage. The problem with that statement is that everyone has their own definition of modest. I grew up with two brothers and two sisters. For most of my childhood the girls had one room and the boys had another. That small one story, three bedroom house was modest and justifies. My parents never got into financial trouble while we were living in a house like that. Now is a great time to buy. The market is down, but don't be in a hurray because the market isn't going anywhere anytime fast. Buy when you are financially ready to buy. I recommend doing this after you have at least a 6 month emergency fund and no other debt.

School Loans: Education is very important, but I have seen school loans abused. Don't kid yourself, this type of debt is just as bad as any other. I remember my senior year in high school I had an Engish teacher in her mid 50's come in and tell us how excited she was because she had finally paid off her school loans. Are you kidding me!? Most people start going to college before they have any clue what they want to do for a career. A large portion of the people that graduate don't even do anything in their field of study. If school loans are the only way you can go to school then I wouldn't not tell you to stay at home, but I have respect for the man that works full time and pays for his schooling. Even greater respect for the man who works full time and goes to school full time. If you do decide to get school loans you better be living off rice and beans.

Auto Loans: Today it is almost impossible to function as a member of society without a car. Yet millions of people do it successfully. It is easier when you live in a metro area or in a warm climate. A bike is a great alternative, also walking and public transportation. If a car is necessary then try not to drive it when you don't have to.

I read a story about a man that came to the united states. He worked in a bakery owned by his brother. He also lived there with his wife and two children. He said that he didn't get an apartment because then they would have to get a car, and if they had a car they would want to go places. After working in his brothers baker for two years he had saved enough money to buy the baker and pay cash. With in a few more years he had open several other bakeries and was a millionaire.

I would never use financing to buy a car PERIOD! Despite what people think it is not a necesity and if you are still convinced it is a necessity, then you can buy a car that you can affoard. By that I mean a car that you can pay cash for. I had a friend that was getting started from scratch in a new city. He needed a car but barely had money to pay rent. He traded his T.V. for a car that wasn't worth the gas you put in it, but the car ran and it ran until he could affoard a better car. I'm proud of him for making that decision.

Credit Cards: Do I seriously need to say anything. I guess the only thing I would say is that if you have ANY credit card debt then you should be living off of rice and beans until you get them paid off. This debt is the most destructive debt and second only to the next type of debt.

Retail Credit: This is actually a similar type of debt to credit cards. The only reason why I put this below credit cards is because the credit reporting agencies do. I feel this is just as bad or worse than credit card debt, and again if you have ANY of this debt you should be living off of rice and beans.


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