Get out of debt

First and foremost, get out of debt. With increasing interest rates, and an unstable economy, you do not want to be obligated. Other than seeing to your health, this is the most important thing. Debt is killing the country, and is greatly impairing us as individuals. Again, I have personal experience with this. It is a large drain on the finances, which can go almost unnoticed, particularly if you can continue to finance your lifestyle by continuing to increase your debt.

At today’s interest rates, being $10,000 in debt can cost you $3000 a year – almost $10 a day. Credit cards are especially notorious, because they can now be used to buy groceries, and deal with normal day to day expenses, giving us the illusion of money that we don’t have, and tempting us into a credit dependant lifestyle that we can not really afford.

Credit cards are handy, and can actually help us to manage money; but only if they are used correctly, and with restraint. Paying off the balance at the end of every billing period will save you from interest; but few people do this today. You may be familiar with the classic Rule of 72, used by business people to calculate how long it will take interest to equal principle. It is a simple rule, and using it will really open your eyes, Lets apply it in a couple of instances, and see what we get. Lets say that you have a savings account which pays you 3%interest. Three goes into 72 twenty four times. So it would take 24 years, for you to earn  as much in interest as you put into the account. Lets say you have a CD at 5%. in 14.8 years, you would double your money. Just a small difference cut a big chunk of time off. Now for the scary part. Lets say that you have a credit card balance, and are being charged 12%, which is actually a pretty good rate these days. In six years, you would have given the bank an amount of interest equal to the amount on you card. This is pretty sobering when you consider that many of the cards out there charge 18%, 21%, 24% and even more in interest. Allowing a balance to continually roll over, while making minimum payments will cost you thousands. Don't do it - put a stop to it now.

It can be tempting to plan a strategy of borrowing money now, waiting for the economy to collapse, and then paying it back with worthless money. Such a plan takes nerve, intelligence, good luck, and a certain fineness of judgment. Even with all of the factors, it will probably still not work. Banks are in business to make money. Whatever the situation, they can generally get the best of you. In a collapsing economy, you may get into even more serious debt, as banks greatly increase interest. In the meantime, while you are waiting for money to become worthless, you are paying high interest on what you owe.

            The one exception to this, might be a fixed rate home loan, though even here, there is risk. As of this writing, real estate values have taken a huge plunge. In addition, though a fixed rate loan may not go up, required insurance, taxes, and fees may rise sharply. It is also possible that, should things get really bad, your house could be made worthless, destroyed, or become unlivable.

        Getting out of debt is a bit reminiscent of losing weight. In both cases it takes willpower, and time to get to where you want to be. In both cases there will probably be some backsliding. It is hard to resist the temptation, especially as the balance on your cards goes down, and you have all of that credit available for spending. There are all kinds of credit counselors out there, at varying levels of helpfulness and honesty. You don't really need them. Getting rid of credit card balances is as simple as losing weight, and as difficult. You must cut spending to the bone, and pay down your balances with every dollar you can muster. For most of us, it should not take more than a year or so. Banks and credit bureaus do not want to lose money, and will generally extend enough to get you in over your head; but not to completely drown you.

        In my own case, I put one car in the garage, made certain that the other was properly maintained to  prevent costly repairs, and then pulled in my belt, spending on necessities only. I rarely went out, cooking my meals at home, and packing lunch for work, rather than using the work cafeteria. I took no expensive vacations, though I did backslide a bit, and take a few small trips. I worked some overtime, when available, to pay things down faster. After about three years, I had all my balances down to zero. When I started, I had been paying over $350 a month - just in interest. this is an incredible financial burden, particularly when you consider that you are getting nothing material for your money. At that point, paying $500 a month on my cards would only drop the balance by $150.

        At one time, I had 14 credit cards.  I now have three. So many cards became unmanageable. If you miss a payment, because you thought you got them all, there is a late fee, and your interest rate goes up. It is an easy enough trap to fall into. With easy credit, and the desire to make sales, every store has its own credit card, and would love to give you one. Every bank, too, would like to have your business and your interest payments. They have found that it is quite easy to get people to act irresponsible on the drug of credit. In my own case, I was pretty young (just out of college), and it seemed a magical thing to be able to get credit. Fourteen credit cards latter, I was averaging a credit card bill every couple of days. There were so many of them, that it was getting hard to keep them all straight. It was a mess. A credit counselor would have put me on a plan, where I paid him one lump sum every month, form which he paid all of my bills as they came. I preferred to do it myself.

        In my own case, I sorted cards according to interest rates, with the highest rate cards coming first. The only exceptions to this, were a couple of cards that could be paid off quickly, due to low balances. Every month, I would select the top card of the bunch, and after making minimum payments on all of the others, put everything I had left on this one card. I would continue this, until the card was paid off, after which I would select the next card for similar treatment.

         So, did I cut my credit cards up? No, credit can be a very valuable thing to have access to, as long as you do not become its slave. I now pay off my balances in full, every month, using the cards as money managers, rather than unsecured loans. As a result, all of my credit limits have gone up, as the banks attempt to entice me back into my old habits. For a local, or short term disaster, a nice line of credit could be a very handy thing to have.

        I have never taken out a car loan, and frankly the whole thing worries me. It used to be, that a car load was for a three year period; but today they are pushing car loans out to seven years or more,  tempting buyers to make purchases way outside of what their range ought to be. Even at such long terms, many of these loans have payments that are a good portion of what a person might pay in rent. In addition, you do not truly own your vehicle until that last payment is made, at which time it may already be worn out. lending institutions may require extra insurance, and certain other considerations, while you are enjoying the use what is still their property. With one exception, I have never bought a car, that I did not have enough money in the bank to buy. I have similar feelings about buying huge home entertainment centers, and other consumer goods on credit. It is rarely worth the jeopardy in which you place yourself.

        Actually, following a course of preparedness will really help save money. Developing basic skills will save money, due to the little jobs you can do yourself. Starting and stocking a pantry will allow you to stock up on basics while they are on sale, so that they will be there when you need them, saving you the expense of getting them at full price. Keeping your vehicle in good repair can save you a great deal of money, both on gas and repairs. They are all small things, but can add up over time. Getting your house sealed against the elements, and getting your energy use under control can also save a bundle.