The four-letter word is debt. Debt is killing Americans, not physically but emotionally. Debt causes stress and strife. It can cause couples to argue. Couples blame one another for the albatross of debt they have. It almost seems insurmountable. However, there is a way out. Let’s see how you can eliminate the four letter word from your home.
Most people think that the reason they have debt is because they have a money problem, i.e. they lack money. No, you don’t have a money problem. You have a management problem. You need to learn to manage money. You manage money by using cash, using a Money Blueprint, and dealing with your debt head-on.
First, you need to figure out how much debt you truly have. Many people don’t want to deal with their bills. Instead, when a bill comes they stick away in a drawer. I call this the Ostrich Syndrome. The Ostrich buries its head in the sand to avoid detection. When you don’t know how much debt you have, you are essentially mimicking the Ostrich.
You could say that the US recently experienced the Ostrich Syndrome. As a nation, we suffered one of the most severe recessions in 2008. It is now being referred to as the Great Recession. Our housing market and stock market didn’t just tumble down the hill, they were in warp drive down the hill.
Our government is still in the tight grip of the Ostrich Syndrome. Our National debt is out-of-control. Every second it grows and grows. To the point, where we’ve encumbered our grandchildren’s children’s children and maybe beyond.
As individuals, we need to take control of our debt. As they say in the vernacular, “You need to own our debt.” So how do we go about doing this? First, we need to go against the current way of thinking about debt. Americans and many people around the world think that debt is normal.
Debt is not normal. Nor is debt a way of life. We don’t live the American dream by using tomorrow’s money today by buying things we don’t need. We need to stop thinking about debt as normal and as a way of life. Saving for things we need is the way to think.
Credit card companies do a great marketing job. Or is it a snow job on us? Are you able to complete these slogans and identify which credit card they are touting? “Life takes _____” How about, “Don’t leave _____ without it?” Or how about, “There are some things _____ can’t buy. For everything else there’s ________.” The first one, in case you don’t know, is Visa. The second one is American Express. The third is MasterCard.
The credit card industry is a very well marketed industry. In a recent year, the combined gross revenue of the credit card industry was larger than the gross domestic product of Egypt, Puerto Rico, and the Bahamas—combined! Credit card companies make money when you don’t pay your credit card bill completely each month because they charge you interest. They also access late fees and balance transfer fees and annual credit card fees.
Second, we need to stop trying to keep up with Joneses. Why? Because the Joneses are broke. We don’t outspend our wages. We live within or below our means. We don’t buy things on credit unless we can pay them off completely when the bill comes in. We don’t use tomorrow’s money to pay for today’s wants and desires. We pay for emergencies with an emergency fund.
Third, we cannot expect to achieve the same standard of living that took our parents thirty-five or more years to achieve within five or seven years of our moving out. When you try to do this, you are going to be using credit to buy your wants and desires.
Did you know that credit was not always a way of life in America? If you were to poll Tom Brokaw’s Greatest Generation, we would find that they did not believe in debt. They saved for what they wanted to buy.
When did we become a nation that lived and depended on future earnings to pay for current wants? I think this happened right after World War II when the GI Bill was passed on June 22, 1944. Before then, the government stayed out of loan guarantees. Yes, the bill had some great intentions, but it also opened up the future for credit debt.
In 1950, Diner’s Club and American Express created something new “plastic money” better known today as the credit cards. In 1951, Diner’s Club issued the credit card to about 200 customers. The card could be used in 27 restaurants in New York, ergo Diner’s Club.
In the early 1960′s, the London Transit Authority installed the magnetic stripe system. In 1970, with the establishment of standards for the magnetic strip, the credit cards became a part of the information age.
Americans embraced credit cards with a newfound passion! The beauty of the card was instant gratification. If you wanted a new TV, washer, clothes, whatever caught your fancy and you did not have the cash, why there’s the credit card. No longer did Americans have to save for their purchases, as their parents had done. They just used plastic money. Saving for these purchases was all but forgotten.
In 1944, Americans saved 26% of their income. By 1970, this savings dropped to about 14%. In the 1980′s, it dropped to 5-7%. In 1990, savings dropped to almost zero. Why the decline? It’s quite simple, really.
If Americans are charging everything their hearts desire, when the credit card bills come in they must pay those bills. Unfortunately, most Americans have several credit cards that are “maxed out”. When Americans receive their paychecks, they have to pay for their everyday living expenses (necessities) and their credit card bills. They end-up paying the minimum amount on their credit cards each month. This causes the credit card balance to never go down. They might also have student loan debt, high mortgages, home equity loans, car loans, unsecured loans, etc. After all the bills are paid, there is nothing left over to save.
Americans have mortgaged their future incomes by buying items on credit now instead of saving for them. We must learn to delay our instant gratification. We must go back to saving. Most importantly, Americans need to learn to get out of debt and to stay within a budget. Being debt-free is a liberating experience.
The first step to Owning Our Debt is to gather all of unopened bills. Next, you need to weed through the statements and find the current statements for each of your debts. Shred the other statements. Do not just throw them away because they can easily be used by someone to steal your identity. Get into the habit of shredding documents that contain any type of personal identifying information. Third, look at the pile of bills you now have. It should be considerably smaller than the stack you had in the beginning.
Now comes the fun part. Open up each statement. Download the Debt Worksheet. Then, enter the information from your statements onto the worksheet. The worksheet will show you how much each monthly payment has to be in order to get out-of-debt within 12 months, two years, or three years.