As I develop this website i have decided that I must include debt in the equation. After all why are we seeking multiple streams of income? For most of us it is to create wealth and increase net worth, to provide comfort and security now and in our future. The biggest killer of this would be debt and the accumulation of debt. With debt not only is your hard earned income going somewhere else, but if you are like most and only pay minimums then these debt payments can go on for years and years and end up costing you much more than your original purchase. This ends up crippling your your ability to grow your wealth and net worth. Take the following that was in a recent statement of mine for a card that had a balance of about $650:
MINIMUM PAYMENT WARNING: If you make only the minimum payment each period, you will pay more in interest and it will take you longer to pay off your balance.
Approximate Time to Pay Off Statement Balance 8 Years
Estimated Total Cost $1,222
What ever I bought for $650 will end up costing me double and take 8 years to pay off! thats money that could have been spent on something else I wanted (ok ok needed) or into savings or investments where it could have been making me money instead. Nice of them to put the warning in though 🙂
Personally I have been in debt since I was at least 19. I have always been the type that likes to have the best toys and wants them now. So I would apply for credit cards all over the place. Getting the best sound system, biggest tv, fastest computers. Something new and better came along I had to have it, so new credit card or credit limit increase. Needless to say this got me in a lot of trouble with bill collectors as I would forget or put off payments. As I got older and with family I would at times try to buckle down and pay down the debt with a goal of elimination, but was unable to change my habits so the debt would eventually go back up. Even recently I was using credit to pay off bills just because I didnt want to see my bank account go down (yes stupid I know). Also since I was 20 I have always had a car payment. Trading in when I got tired of the old one. This would always increase my payments a bit cause of course the last car wasn’t paid off yet.
Well I have gotten a bit better 🙂 Im actually down to 2 credit cards and the 2nd mortgage. My expedition was finally paid off early this year and… Im still driving it. Ipad2 came out and…. I actually didnt buy it (dont hold your breath when the ipad3 comes out). I have got in the habit of paying cash for almost everything and working on paying off the debt sooner rather than later. Im doing this while still feeding my money market and stock accounts a little each month, but having the lions share of extra money go torwards paying off the debt.
I recent blog I have read, The Debt Myth, talked about snowball debt reduction, which is something I had done in the past, which is to put every extra cent you have towards a debt and when its paid off tackle the next one the same way. She even talks about paying it to the debt as soon as you have it, dont wait till the due date (but dont forget it either). I recommend this to anyone with to much debt but also they must work on the habits that got them there in the first place or else it will be useless.
A word of advice to all the younger folks out there to not even get to that point. Stay out of debt as long as possible. If you can afford credit card payments, put that money into savings instead then pay with cash. In hind sight if I had done this I know I would have several thousands of dollars saved or invested just from the saved interest paymetns.
With all that being said I will be adding debt goals to my goal page and including them in my monthly report which will also start showing wealth and net worth. In a post coming up I review a new online service that I found that will help you in setting your debt reduction goals as well as savings and tracking your financial life, best part is its free!
How are you doing with debt?