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Three ways to deal with debt

Updated on August 22, 2015

And get your freedom back

The last few years have been tough for many of us. Some of us have had it tougher than most. For my family we went through some pretty serious stuff a couple of years ago that left us with no house (we'd owned three at one point). A temping job that was permanently working nights and $80k in debt even when the houses were sold.

Yet in all that we've learned some really precious lessons that is helping us 'crawl out from under the burden' that I want to share with people so that they can start on the same journey.

This isn't a hub that gives you 'A+B=C' if you know what I mean. I can't lay a formula for you, but what I'm seeking to do is start to build a 'road-map' for those of us who are struggling to make ends meet so that together we can get out from under the burden of debt and start to move to where the Good Lord wants us to go. Along the way I'll be sharing where I got some of the tools from and some of the lessons that we've learned. I'm also asking that people who've got ideas on what works send us the ideas so that we can all learn.

I strongly believe that debt is the modern form of Slavery (I know that conjures up all kinds of horrible images for some people and it should but bear with me and I'll explain).

Many of us live in a world where if you don't have the resources to pay for something you won't get it, that includes life saving medical care (at times) and some of the basics that others take for granted. This hub is about giving some basic tools for those already feeling as if they are swamped by debt and a plan that can help them move towards being debt free.


Why a lens about reducing debt? - avoiding the pitfalls

What could have been
What could have been

We all want financial freedom. But for most of us it's only a dream. Many of us are swimming in debt and struggling just to make the payments that we need to just to keep the creditors away. it's so hard to make headway and so easy to slip into the old habits of 'buy now pay later'

How many of those reading this article are in this situation? If you lost your job (heaven forbid) How many weeks would you survive financially? For most of us it would be about two to three weeks at the maximum, then stuff would start to pile up on an already overloaded credit card, or would another credit card be needed?

For us, that's exactly what happened. a redundancy, overlooking a Bank mistake (which has never been admitted) and a few months later everything was gone. The sad part is it didn't need to happen!

At that point we discovered some financial tools that are slowly transforming the way we look at life and giving back so much more than the financial problems took from us.

Three simple principles that when applied release the potential to totally transform the situation and 'haul you back from the brink'

Here are the principles

(1) The Fragment

How the little things around you can change the picture for the better

(2) Pick on the little guy!

At school you were told that bullying is wrong and bullies are cowards! Well when the one you're picking on is the bills and debts that have been giving you sleepless nights it's OK to pick them off one by one!

(3) They'll still make it when.

Want that stuff right now? Guess what. they'll still make it when you've saved money for it! There's no such thing as 'interest free' they build the interest into the cost of the item.

We'll elaborate on each of these in turn


Some good tips

What kind of debt do you have - Some kind of debt is inevitable or is it?

The Mortgage and the credit cards are the biggest forms of debt that we have. But they're not the only forms. Hire purchase (interest free deals) and Car loans are also there as well as many others

But do you really need them?

(1) What's wrong with renting until you can buy?

(2) What about saving up for that new TV or Car?

(3) How do you create that extra income for the luxuries in life?


What kind of debt do you have

Loans (Car or Mortgage)

Loans (Car or Mortgage)

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    Credit cards and interest free deals (TV or appliances)

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      Some useful tools for dealing with debt - Really helpful material to help you make a start

      Sometimes when dealing with the important stuff in life it' best to get advice from experts. These folks below have a track record of helping people get out of debt. Much of the material I've read and used personally.

      Fixing the Money Thing: A practical Guide to Your Financial Success
      Fixing the Money Thing: A practical Guide to Your Financial Success

      I've used this book extensively. Many of the principles we talk about here I learned from this book.

       

      Step one - Pick up the pieces

      Finances are like a jigsaw
      Finances are like a jigsaw

      When we realized just how much trouble we were in financially, it felt as if we were overwhelmed. About to drown in a sea of red ink as everything we worked for dissipated as if they had never been there.

      To let you into a secret. I have a fairly strong Christian faith, but even that was rocked 'why did God allow this?' and all the other questions.

      One thing about Gary Kesee's book 'fixing the money thing' is that he starts with one of the most famous events in the life of Jesus. The one event that is so special it's mentioned in all four gospels!

      No. it's not raising Lazarus from the dead (raising people from the dead is only special enough to get mention in one gospel) or driving out demons (even the story of the driving out of thousands of demons only qualifies for two gospels!) It's the story of the feeding of the five thousand!

      Gary points to the words Jesus says after 'gather up the fragments so that nothing may be wasted.' When they do they get TWELVE LAUNDRY BASKETS full of fragments.

      Take a look around your life. Take a look through your house. gather together all the little fragments 5c here. 10c there. Maybe a dollar in the centre console of the car. How much did you find?

      The point is if we take a good long hard look at our lives. If we ask God to show us where the fragments are we might be surprised at the results.

      Another example for us is fresh veggies cost maybe 15% of our grocery budget. WE have very little 'garden' as such but what we do have can easily be used to grow veggies so last year we planted winter veggies (Broccoli, Cauliflower and other stuff) so we were able to cut some of the grocery budget by growing some of our own. We also had an overgrown grapevine which I spent a little time learning how to prune. The result is a bumper crop of grapes that would have cost us.

      The fragments aren't always money, they could be knowledge of how to do something or the ability to go get the knowledge (like using a library or a friendly neighbour) but each one, when you work with them will add that little bit more to help alleviate the burden that is debt.

      Like the jigsaw above. Each piece on it's own means nothing. But put them together and they all work to get you out of the situation. I've used a picture of a 'wasjig' in this part of the lens because the picture on the box isn't what you are putting together, it's what they're looking at!

      How to put together a Budget - And why you need to

      Most folks fail at this hurdle. They either think it's too hard or they just don't take the time to set things up properly.

      One important point is that Budgeting doesn't always mean that you go totally to a 'cash' society. You might like to look at the clip from the lady who uses her credit cards, the lessons are the same.

      We use a very simple and effective Budget system that works for us. Here are some ideas that might work for you. The important thing is to find what you think works in your situation

      Would you employ you to manage a financial account in a Bank?

      Simple step by step using a credit card based system

      The first one is always the hardest

      Step 2 'Pick on the little guy!'

      The only time it's Ok to be a bully

      They used to tell us at school that Bullying wasn't cool and we should always stand up for the 'little guy' but what about when the 'little guy' has been part of the crowd that's been bullying you for decades? Is it OK for him (or her) to continue?

      The 'little guy' that I'm talking about are those small bills that are there. Too big to pay off at once but too small to register on the 'critical debt' file yet every month they're there and eating away at any money you might have.

      Well here's the good news, we're going to take care of them first!

      When you've gathered all the 'fragments' and looked at drawing up a budget the next step is to start dealing with those bills that are still there at the end of the month.

      Some of them will be pretty big ones like the mortgage or the car loan, but what about the little ones?

      When we first got into this budgetting stuff we thought to get rid of the biggest interest ones first (after all they were the ones costing us the most money) but soon realized that they were stuff like a couple of grand on the credit cards that would take months if not years to get rid of.

      Yet we also had stuff like a couple of hundred dollars for school fees. We'd budgetted $10 a week to make the minimum payment so they would disappear pretty quickly. We soon realized that if we got rid of the small one quicker it would free up $10 a week for either the bigger bills or living expenses!

      Logic says get rid of the little guy first! Hence it's OK to 'pick on the little guy!' You're literally getting the 'MONKEY OFF YOUR BACK' and it's a great start.

      This doesn't mean neglecting the others. No! make the minimum payments and as the little guys disappear then take the money you release and put it aginst the next smallest bill.

      Gradually work your way up feeling great as you deal with the debts one by one

      Another one bites the dust - As you pick off the bills

      Why not sing along to this great Queen song as the bills 'bite the dust'

      Isn't this what we want? To break free of debt

      This says it all. Sing it as you pay the bills off

      Have a great time paying off the bills and singing this. Make it an anthem

      Step three

      They'll still make it when

      We live in an 'instant society' What does that mean? Well cookers take too long to cook our food so we buy a microwave and cook it that way! Coffee makes too long to make the real stuff so we drink 'instant' coffee (despite the fact that it's made from the dregs at the side of the percolator) and on it goes.

      Advertisers (and a lot of the retail industry) feed on the idea that we want something and we want it 'NOW' but the truth is many of those things that we think we need 'right now' can actually wait!

      Ever come across the slogan 'No interest and no payments for XXXXX months'? We have and like everyone else we were sucked in with the idea that we wouldn't be charged interest for twelve months and would pay the bill the day before the twelve months was up so we could get away with it. Sounds great! But never works out that way! The day after the XXXXX months are up you're stung with 15-20% interest.

      I've been watching the way that they advertise cars in the local car yards and it's really interesting as they often put the car up for say $10,000 or weekly payments of $70 not telling the buyer that over the four years that the agreement is for there's a 45% markup! Yep. That's right. The car that you wanted for $10,000 just cost you $14,560!

      By the way it's the same with every product! Not just cars but computers, Houses (what do you think a mortgage is?) basically everything that you buy using the weekly payment! Not only that but if there's a 'deferred payment' (hwere you don't pay until a certain time) the the chances of you needing another one before the first is paid for it quite high!

      We had a number of houses (our own and two rentals) that we were paying the mortgage on and just couldn't keep up with things until one day it suddenly dawned on us that they'll still be building houses when we can afford to pay for it! It just didn't make sense both financially and emotionally to go through the struggle each month of trying to make sure we had the money for the mortgage as well as fixing anything up on the house AND things like rates etc. By moving to renting we could eliminate two of these and begin the journey back to financial stability.

      Now lets talk about something smaller. Who would like that latest smart TV? I know I would! Well I could go down the path of paying a weekly amount and pay 40-50% more than the advertised price or i could save a little bit each week and next Christmas that's our Christmas present to ourselves. Which one makes more sense?

      As I said at the beginning, I want this lens to be more like a place that we can generate ideas and work together to reduce our debt so I'll sign off here and hope that folks will send through ideas that we can put into either this lens or others.

      A little update

      This article was written a few years ago, but since then we've learned some awesome lessons. They haven't all been easy but we've learned the value of celebrating the little things.

      Last year we started learning about the power of saving money! We started small (just $1 a week then $2 etc) until we got to about $30 a week.

      It was a challenge we found on the web called the 52 week challenge. The idea is you start with $1 the first week then the second week you do $2 then $3 etc for a year. At the end of the year you'll have $1,380 plus whatever interest it earns! We never got to the $52 but we did well and at the end of the year we'd bought me a new Bike (pushbike) for getting to work (we paid $400 cash!! for a brand new $900 bike!) and went to treat ourselves to a new TV (that was the goal).

      We were going to get a smart TV but in the shop we talked to the salesperson who when he found out we were paying cash told us the best way to go was a brand new LG 42inch flat screen and buy a cheap laptop for the same price we'd pay for the smart TV! We've still got the smart functions and the DVD stuff we wanted as all we do is connect the TV to the laptop.

      By the way we paid half the retail price as it was cash and they had a "special deal" that day only (which was never advertised!) So saving and paying cash works. The latest is when the bread maker and Kitchen-whizz needed replacing guess where we went! Paid cash for that too!

      This debt free paying cash works great and even though we're still paying off some debts from now on we pay cash for everything and let the money in the Bank earn interest for us!

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        • lawrence01 profile image
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          Lawrence Hebb 2 years ago from Hamilton, New Zealand

          It does work. I can tell that from experience

          Lawrence

        • Robert Sacchi profile image

          Robert Sacchi 2 years ago

          Good point.

        • lawrence01 profile image
          Author

          Lawrence Hebb 2 years ago from Hamilton, New Zealand

          Robert. I

          t also gives the 'feel good factor' of getting rid of part of the load that's weighing you down.

        • Robert Sacchi profile image

          Robert Sacchi 2 years ago

          Good advice. The pay off the smallest debt first makes a lot of sense.

        • lawrence01 profile image
          Author

          Lawrence Hebb 2 years ago from Hamilton, New Zealand

          Billybuc

          Thanks for the visit. The stuff here is taken from the lessons we went through over the last few years. The main thing my wife and I learned is the value of being 'on the same page' and working together. If you've got that then nothing can stop you achieving your goals no matter what they are

          We learned the hard way hopefully others won't have to

        • billybuc profile image

          Bill Holland 2 years ago from Olympia, WA

          Over the last eight years I have climbed out of debt. Now we're working on debt my wife accumulated before we met. Great discussion here with some very valid points.