The other day I was driving home from work, and I saw a bumper sticker that read:
“One more repo, and I’ll be debt free!”
I laughed.
It reminded me of a TV skit I saw years ago. This guy would hold up his thumb in front of his face, so couldn’t see his roommate and thus ignore the roommate. Basically he was suggesting that because I can’t see you, you’re not here. At the end of the skit, the roommate starts doing the same thing back. Then the first guy says, “If we keep this up for another month, we can live here rent free.”
As with that TV skit, after laughing at the bumper sticker, I then thought, “Man that is really flawed logic.” Then I felt kind of sad for the guy driving the car, because in reality he’s probably in a pretty stressful situation.
Which should you do, pay down debt or invest? You can find different arguments for or against, but I generally say that you should pay down debt, assuming you have a minimal amount of savings ($1000) to cover emergencies. A good list of reasons for paying down debt is provided in this post at I’ve Paid for This Twice Already.
However, my biggest reason is the risk factor. I think Dave Ramsey sums it up best when he says, “I’ve done extensive research and found that 100% of home foreclosures occur on homes that have a mortgage.” Sometimes he might substitute “home foreclosures” with “car repossessions,” but it’s the same idea: If you have debt, you have risk. And don’t get me started on the issue of people willing to incur debt-related risk where they’re sure to lose money but are afraid of investment risk where they have a good chance of making money.
Ultimately it’s up to you to decide how much risk you are willing to take; my main recommendation is that you at least make it a conscious choice.
This is one of my favorites. Aside from addressing a relevant topic, and in spite of Steve Martin’s poor acting, you can’t beat the common sense or the line, “Yeah, we can put it on our credit card.”
While preparing for a presentation on debt elimination, I discovered two great calculators: one online and the other an Excel template. They are both well worth checking out.
The online debt elimination calculator is found at the Provident Living site among a list of other very useful calculators. You can enter all your debts and calculate the accelerated payoff by focusing on the highest interest rate or the shortest time left for the debt. You can also enter a savings interest rate, and the calculator will show how your your money can grow by saving and investing the money once the debts are paid.
The Excel template is buried on a site about personal finance, provided by BYU’s Marriot School of Business. This template essentially provides the same information as the online calculator, except it’s not nearly as pretty. It can even appear a little overwhelming at first, but it’s not that bad. There are two things I like about it:
You can save it locally to your computer, so you don’t have to re-enter the info each time you use it.
On any given month, you can enter custom amounts to be applied toward the principal (the same reason why I like Excel’s loan amortization calculator).
Either one of these will give you great information. However, if this is your first time trying out the debt snowball method (debt elmination acceleration), I recommend starting with the online calculator. It’s more visually interesting, and seeing what your invested money can grow to is exciting.
As odd as it may sound these calculators are fun and motivating. One person who attended the presentation said afterward, “I don’t have any debt, but I’m thinking maybe I should get some so I can play with these fun tools.” We had a good laugh.
So check them out and get going on your debt snowball!
A friend lent me the book, The Four Laws of Debt Free Prosperity, which I read in my sparse spare time this last week. Fortunately, it’s a quick short read.
The book’s strength is that it keeps the principles simple and condensed to four main points, which is a great way to go to keep from overwhelming the reader—especially considering that the readers who most need this material are likely already feeling overwhelmed by their financial situation. The four main points or laws are:
Track your spending so you know what you are doing with your money,
Target or set financial goals,
Trim your spending so that you spend less than you earn,
Train yourself in financial matters so that you spend and invest well.
The book further explains and illustrates these points. I liked the chapter on debt-elimination the best. It has some good examples of how to accelerate debt-elimination and can help you not only feel like getting out of debt is possible but motivate you to do it.
The Four Laws was produced by or for Chequemate International (I don’t know the company). This book appears to be part of a system they sell to help you get out of debt and get ahead with your money. Not knowing the company or the rest of their products, I really can’t say anything about them. However, I think this book would be helpful to those who are not sure why they should have a budget or who want to eliminate their debt. It’s one of those books that has a storyline, and the principles being taught are overtly woven into the story—or rather the story is woven into the principles. While these kinds of books do not make for great literature, using the story format makes for a more entertaining read. Plus, this story is a good motivational read for those wanting to get out of debt.
That’s my take on it anyway. If any of you have read it and want to share your two bits, feel free.
I'm Michael Crowther, and I'm passionate about sharing the peace of mind that comes from budgeting, saving (including debt elimination), and investing.
My aim is to provide useful and motivating information that keeps the process simple and manageable.
Remember, budgeting is the first step in communication.
All of us are are plagued with that awful problem: "What do I do with all this extra money I have sitting around?" Plus, money matters and investing can be both confusing and overwhelming. So my aim is to address and simplify the solutions.
The other day I was driving home from work, and I saw a bumper sticker that read:
Subscribe to RSS
I'm Michael Crowther, and I'm passionate about sharing the peace of mind that comes from budgeting, saving (including debt elimination), and investing.