In this series of posts, I’m writing about how to respond to obvious changes happening in our society. Part of that response is understanding money, including debt. In my last post, I wrote about how our family used good debt to create wealth. Now that we have determined we have enough revenue to support the lifestyle we Desire, our next step is to pay off the debt quickly.
“Matt, this is the way I stay motivated to make money: I run up huge amounts of debt and then, I figure out how to pay it.”
I thought my client was kidding the first time he told me this. However, after doing his accounting for several years, I discovered that was his philosophy; and he was good at it. He repeatedly ran up tens of thousands of dollars of debt and then, made the money to pay it.
I once asked him why he didn’t reverse the order. His answer surprised me. “I’m not motivated to make money unless I have pressure on me.”
I won’t recommend my client’s strategy as a path to wealth because he often created bad debt as opposed to good debt. However, I did learn something from him about how to pay off debt.
The first lesson is that all debt is honorable debt. In other words, if I willingly agree to take on the debt, I need to find a way to pay it.
My clients often ask me about bankruptcy. I never recommend it. My lack of recommendation has nothing to do with whether or not bankruptcy relieves the pressure of debt payments or removes the debt. It is a spiritual recommendation.
In most cases, the motivation behind bankruptcy is not to pay as previously agreed. This motivation hinders an individual’s ability to create wealth. In addition, because abundance is a normal part of nature, the bankruptcy process blocks the flow of abundance. This creates significant and dramatic challenges. (See my Living the Southwest Lifestyle information on The Law of Abundance for more information.)
Once I establish that all debt is honorable debt, my plan for paying debt is simple.
- List my debts, including the monthly minimum payment amount.
- Pay the minimum on each one.
- Pay extra funds on the debt with the smallest balance until it is paid.
- Do the same with the next smallest balance.
When I share this plan, I’m always asked, “Shouldn’t I pay off the debt with the highest interest rate first?”
That is one option. However, I don’t use it. Instead, I find another lending source for those loans. There are several options for this.
- Contact the lender and attempt to renegotiate to a lower rater
- Open a credit card account at a lower interest rate and transfer the balance due.
- Pursue other funding sources, including private lenders
My experience is that private lenders are a wonderful source of capital, especially in today’s economy. I’ll write more about this strategy in my next post.