Have you ever met anyone who wanted to stay in debt? Very unlikely! In fact, most if not all want to live debt-free; yet, we choose to continue to live beyond our means. We rationalize it with "Well, I can afford the monthly payments." If one were able to afford it, then one wouldn't need to finance it. Our mindset has bought into the marketing ploy and tactics from our financial firms that "easier is better".
What do I mean by this? Well ask yourself, "Am I better off having an automobile that is mine and not the banks, meaning no interest payments, no debt, and the title belongs to me?".
Obviously it is better to have an asset such as your SUV, truck or car in your name but we find it "EASIER" and more "CONVENIENT" to pay small portions each month to the bank. These portions are principal payments (amount borrowed from the bank) plus a little extra (interest payments) as the bank's reward for letting you borrow their money. This has become the norm in our society and has made the financial institutions vastly wealthy with your hard-earned money.
The latest report as of July 9, 2018, the Federal Reserve Bank of St. Louis published statistics reflecting the total Motor Vehicle Loans Owned and Securitized, Outstanding (basically those who have automobile loans).
The last few decades we have become addicted to debt. We have replaced common sense with convenience and it is considered "normal" in today's society. Like the personal financial radio-host syndicate Dave Ramsey's says on his podcast or radio show, "If debt is normal, then be weird." and he is so right in this matter.
In another chart below, we see how consumer loans, credits cards and other revolving debt (not mortgages) have skyrocketed the last four years. (Note: 2010 was due to government injecting billions into our financial system to avert a financial depression.)
Now that you see how easily it is to obtain credit and the addiction to it, you must now learn how to unplug yourself from the norm and make a change. But why change? Things are going so well right? The economy is picking up steam. The stock market is up. Unemployment is at its lowest point since the 1980's.
These are good signs and everyone wants a prosperous nation. With that being stated, you must recognize and reverse your thinking. It is conditions like these where debt needs to be reduced and paid off and investments and savings being built to prepare for the future such as retirement, to purchase a new automobile, or a new home. It is also there being collected for a worst case scenario.
Only a handful of people saw the doom of 2007/2008 financial crisis coming. The economy was doing well and people had jobs but what we learned is that we have to be ready...financially.
What would happen if you or your spouse got fired or laid off from work tomorrow? According to CNBC, "65% of Americans save little or nothing" while NerdWallet reports that the "Average American saves less than 5%". The average credit card debt in U.S. households, according to ValuePenguin, carry a balance of approximately $5,551.
How do you compare to these figures above?
With so much debt and not enough savings, it is time to start preparing for a Marathon. The type of 26.22 mile run that is designed to get you out of debt. I consider this a marathon because hardly anyone I know, can payoff debt overnight. It is why you hear stories of families taking two years to pay off $30,000 in debt or five years to pay off $220,000.
It starts with a Smart Plan and the first priority in this plan is to live BELOW your means. That's right! You need to sit down (with your spouse if married) and review your expenses, debt, and income to come up with a Get Debt-Free Plan and set a target date.
For instance, if you have a $165,000 in mortgage debt, $6,000 in credit cards, student loans, or other consumer loans, you need to identify these and determine which debt to pay off first. (See Debt Stacking)
For some families this will be a lifestyle change because it may require getting an additional job, downsizing some household expenses (cable, cell phone plans, etc), or perhaps selling your car. This might sound drastic to some which is why you have to get your mind right and be able to work as a team.
Another way of looking at this is to consider how difficult it may be to lose weight. For some, it may be easy while others it can be extremely hard. But with focus and determination, you can pay off your debt.
I recommend you write down your goals and visit them often as this will be your main motivator and will assist you in staying focused.
When I prepared to run a 10K race, I didn't decide to start training a week prior, the preparation was far more difficult than the run itself. I would prepare almost daily in running hills, strengthening and conditioning, changing my diet, whatever it took because I desperately wanted to run a 10K. Because of my determination, I placed fifth place in my age group. What is more exciting is that I placed first in my group for the 5K run, an event I hadn't planned to run but my determination paid off and I accomplished two amazing feats.
Be sure to review the Debt Stacking strategy and get a copy of our Budget Planners to better assist you. Remember that becoming Debt-Free isn't a sprint. It is a marathon. You must have a plan and target in site and then stay focused and on track to pay off those debts.
If you want to check your Financial Health, then head over to BudgetingInTheFunStuff.com and read Crystal's "Diagnose Your Financial Health".