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Becoming Debt Free

Posted By: Randy GageSeptember 6, 2011

Debt is a prison.  There is nothing prosperous about buying things on borrowed money.  Doing so can destroy your current and future prosperity.  It’s important that you break the bonds of debt.

Last post we looked at getting rid of credit card debt.  That seemed to resonate with almost everyone.  But let’s look at an area that most people rarely think of…

Your car and your home...

Everyone thinks that it’s just natural to finance these because they are “major” purchases.  But just because that’s what everyone in the herd does, that doesn’t mean that’s what you should do.  In fact, when everyone does something is usually a pretty good indication that you should evaluate it a little closer.  Please check with an accountant or financial planner what may be the best approach for you.

Here are my thoughts on buying a car…

Of course the goal is to get to the point that you can buy even your cars cash.  If you’re not there yet, here are two tips for getting there quicker.

First make a promise that you will NEVER buy a new car when you are upside down on the old one.  (For those of you that don’t understand the term, this means you owe more on the car than its resale value.)  This is a near-certain recipe for disaster.  Car dealers will happily tack in your negative amount on top of the financing they do for your new car.  They couldn’t care less about the situation that puts you in, as long as they get another sale for the month.  Drive your car an extra year (or even two) till you get a more positive position.

Another great idea is to buy an “almost new” car.  As you probably know, cars take a dramatic depreciation the second they are titled for the first time.  Sometimes people buy a new car, then they get divorced, realize they can’t afford it, or something else happens that forces them to sell.  If you buy a demo car, or one that the owner sold early, like with 3,000 of 5,000 miles, you can slash a huge percentage off the price.  And you are still getting a basically new car.

Some people are afraid of this, fearing the car was a “lemon” that someone got rid of.  I don’t think that is really a problem today, as most cars, even pre-owned, are coming with long warranties.  (And there are services like CarFax that allow you to see any service or accident history of used cars.)

Also, you will get more for your old car if you list it and sell privately instead of trading it in at the dealer.  Even if you sell your old car and have to rent one for a week before you find your new one, the extra money you pocket usually more than compensates.

Bonus tips…

This week, set a realistic, non-emotional and very strict budget for what you are going to spend this coming holiday season.   Buy early and plan ahead.  Don’t let last-minute emotion take you over what is prudent.

One last thought.  I saw a commercial on TV the other day for a furniture store.  They are selling new living and dining room suites with no payments until 2014.   That’s a good test of your prosperity consciousness.  If you hear something like that and think it's a great idea, your consciousness needs work!  If you hear something like that and think it would be downright foolish to take them up on their offer – you’re on the right track.

Please share any other tips you have for getting debt free.  And next post we’ll look at homes and mortgages.

-RG

 

27 comments on “Becoming Debt Free”

  1. This post again is great in for most people but not so much for top investors. Richard Branson has Billions of Debt and so does Robert Kiyosaki and Donald Trump. They love it because the cash they have is always working and the debt that is making them money is being paid for by someone else. And inflation is eating it rapidly (especially when Obama is in charge) Debt borrowed at 3% inflation at 8%. Do the math 🙂

    Debt is great when someone else is paying for it and the return we get is greater than the debt. Best way to grow assets quickly.

    But Debt that we are paying with our physical effort is horrible and energy draining.

    Cash reserves are being eaten rapidly with inflation but always good to have 12 months worth of expenses in liquidity to keep out mindset and business stable.

    If we over pay our Mortgage by 3% per year we can shave up to 7 years off a 25 year mortgage.

      1. P.S. I am speaking here about installment consumer debt, not investing, such as real estate (which we will discuss the next post).

        I would agree that Sir Richard and Kiyosaki use leverage in savvy ways to create prosperity. In my opinion, that other fellow serves as a better example of what not to do!

        -RG

        1. Yes Definitely with you that this advice is the best for consumer debt. All the way with you 🙂

          Paying 17% - 2000% Apr for debt that we have to pay off ourselves with our own sweat is madness. In those terms then this post is long overdue and very welcomed 🙂

          I would be curious to hear about your opinions of Trump, I thought he would have been a good prosperity example, but I don't really know much about him beyond his books and audios.
          Although I know that is probably a subject for another blog 🙂

          Also do you have any more material on Copywriting? I got your book, it was great. Some audios would be nice though!

  2. I just sent out a check this afternoon for 8k to pay off the rest of my car payment 😉

    CC's got paid off completely last month... and student loans are next. Still have about 25-30k left on them... but they should be gone by early next year.

    Jeremy Reeves

  3. I agree with both David and Randy. David you are talking good debt and Randy I believe was referring to bad debt. I also agree with Randy that the latter fellow may not be as bright as Kiyosaki and Branson

  4. Randy, there's so much common sense here that I assure you almost nobody will pay attention to following it. In the first few years after I got married, I fall for the whole 'buy it now, pay it much later' deals and also grabbing a car (or two!) that put us way in debt. It takes a lot of maturity and learning from experience to realise that you don't have to have it all NOW. You can wait till you're in a better financial position. You can wait till the purchase makes more sense. Sometimes I have this thought run through my head when I want to make extravagant purchases;"is it for ME or for OTHERS to see." What we do for appearances only is what can put us in the hole of debt.

  5. Great advice! I've only ever financed 1 car in my entire life. I'll never forget the smell of that new car though - it was oh so nice, but staring at that payment every month wasn't fun, so I paid it off in 3 years instead of 5. I think buying a car that is a few years old is best, with the depreciation like you said. If you decide to buy from a private party, make sure to have a mechanic look it over for $30 before you commit to buying as you don't want to end up with a bunch of repairs.

  6. I am glad I can buy a new car cash. Leasing is a waste of money. Financing from the bank is always the best bet. If you maintain your car properly, it will last at least 10 years. I am mechanically inclined and my cars last indefinitely. I have a 1996 ford explorer with over 200,000 miles that I kept because it still runs like new - uses no oil and gets the same gas mileage. I never have mechanical breakdowns because I look after things. I stretch my dollar very far and that is prosperity.

      1. Thank you for your great advice on being financially responsible. An important element of prosperity and peace of mind.

  7. Here's a different view: I am thankful for my credit cards and the debt I have regardless of the interest rate. I lost my job unexpectedly in 2008. Credit cards along with savings and other investments allowed my family to get through a tough period without being late or misssing a payment on anything. My credit cards were not used to fund lavish trips but for living expenses, food, etc. I am in the process of paying them off now as I am in a much better spot and the in-bound cash flow is turned on. Thank you, banks, for having faith in me, for helping me through a tough stretch financially. Remember, credit and debt, like everything else in life, is neither good nor bad; it's how we feel about it that counts. For me, I am grateful for my debt for reasons stated.

  8. Hi, Rany

    I past the test if a price of something is 12 x100 or 24 x50 it's the same 1200 and I alwayslook like this

    Is amazing how stupid people are when faling on the 36 x trap !

    Hezi

  9. I'm retired and I supplement my income by selling cars. What Randy says is right on. Most folks don't ever pay their cars off. They have to cash out or roll the negative equity into the new loan.

    Banks are more reluctant to allow rolling negative equity. I'm all for buying for cash instead of financing something that depreciates. Depreciation is a real cost of ownership.

    If you're struggling, don't even consider a new car. Buy a good used or CPO for cash.

    Check out my blog entry on the subject at http://wp.me/p1LHwI-1A

  10. Been there done that when it comes to debt. I am now completely debt free! I will never ever go back into debt unless it's some thing like a ten or fifteen year note for a house. And that would have to be in an up market.

  11. Randy,
    when the card is in your hand, you think you have freedom and power! then the bills start to come and you have stress and worry, fights over money. I no longer use credit to buy things, if I don't have the cash.. I have to wait. I have not had a car payment in 15 years and the one I'm driving had 44,000 miles on it and was perfectly "new". You couldn't tell it had been used at all as a lease.
    I am already shopping catalogs/stores/sales for holiday gifts and some friends and I will be having a yard sale to raise money for this purpose. I also make and sell purses and scarves as a hobby, the money I receive usually pays for my Holiday spending.
    thank you for thinking of it all and caring about the whole person.

  12. A monthly/anual budget and a daily expense report can also be a good idea. There are many little things like snacks, coffee or the movies, that can hurt your finances.
    Other interesting topics could be investing, the stock market, mutual funds, and health/life insurance. Just some ideas for future posts! Looking forward to next post...

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  • 27 comments on “Becoming Debt Free”

    1. This post again is great in for most people but not so much for top investors. Richard Branson has Billions of Debt and so does Robert Kiyosaki and Donald Trump. They love it because the cash they have is always working and the debt that is making them money is being paid for by someone else. And inflation is eating it rapidly (especially when Obama is in charge) Debt borrowed at 3% inflation at 8%. Do the math 🙂

      Debt is great when someone else is paying for it and the return we get is greater than the debt. Best way to grow assets quickly.

      But Debt that we are paying with our physical effort is horrible and energy draining.

      Cash reserves are being eaten rapidly with inflation but always good to have 12 months worth of expenses in liquidity to keep out mindset and business stable.

      If we over pay our Mortgage by 3% per year we can shave up to 7 years off a 25 year mortgage.

        1. P.S. I am speaking here about installment consumer debt, not investing, such as real estate (which we will discuss the next post).

          I would agree that Sir Richard and Kiyosaki use leverage in savvy ways to create prosperity. In my opinion, that other fellow serves as a better example of what not to do!

          -RG

          1. Yes Definitely with you that this advice is the best for consumer debt. All the way with you 🙂

            Paying 17% - 2000% Apr for debt that we have to pay off ourselves with our own sweat is madness. In those terms then this post is long overdue and very welcomed 🙂

            I would be curious to hear about your opinions of Trump, I thought he would have been a good prosperity example, but I don't really know much about him beyond his books and audios.
            Although I know that is probably a subject for another blog 🙂

            Also do you have any more material on Copywriting? I got your book, it was great. Some audios would be nice though!

    2. I just sent out a check this afternoon for 8k to pay off the rest of my car payment 😉

      CC's got paid off completely last month... and student loans are next. Still have about 25-30k left on them... but they should be gone by early next year.

      Jeremy Reeves

    3. I agree with both David and Randy. David you are talking good debt and Randy I believe was referring to bad debt. I also agree with Randy that the latter fellow may not be as bright as Kiyosaki and Branson

    4. Randy, there's so much common sense here that I assure you almost nobody will pay attention to following it. In the first few years after I got married, I fall for the whole 'buy it now, pay it much later' deals and also grabbing a car (or two!) that put us way in debt. It takes a lot of maturity and learning from experience to realise that you don't have to have it all NOW. You can wait till you're in a better financial position. You can wait till the purchase makes more sense. Sometimes I have this thought run through my head when I want to make extravagant purchases;"is it for ME or for OTHERS to see." What we do for appearances only is what can put us in the hole of debt.

    5. Great advice! I've only ever financed 1 car in my entire life. I'll never forget the smell of that new car though - it was oh so nice, but staring at that payment every month wasn't fun, so I paid it off in 3 years instead of 5. I think buying a car that is a few years old is best, with the depreciation like you said. If you decide to buy from a private party, make sure to have a mechanic look it over for $30 before you commit to buying as you don't want to end up with a bunch of repairs.

    6. I am glad I can buy a new car cash. Leasing is a waste of money. Financing from the bank is always the best bet. If you maintain your car properly, it will last at least 10 years. I am mechanically inclined and my cars last indefinitely. I have a 1996 ford explorer with over 200,000 miles that I kept because it still runs like new - uses no oil and gets the same gas mileage. I never have mechanical breakdowns because I look after things. I stretch my dollar very far and that is prosperity.

        1. Thank you for your great advice on being financially responsible. An important element of prosperity and peace of mind.

    7. Here's a different view: I am thankful for my credit cards and the debt I have regardless of the interest rate. I lost my job unexpectedly in 2008. Credit cards along with savings and other investments allowed my family to get through a tough period without being late or misssing a payment on anything. My credit cards were not used to fund lavish trips but for living expenses, food, etc. I am in the process of paying them off now as I am in a much better spot and the in-bound cash flow is turned on. Thank you, banks, for having faith in me, for helping me through a tough stretch financially. Remember, credit and debt, like everything else in life, is neither good nor bad; it's how we feel about it that counts. For me, I am grateful for my debt for reasons stated.

    8. Hi, Rany

      I past the test if a price of something is 12 x100 or 24 x50 it's the same 1200 and I alwayslook like this

      Is amazing how stupid people are when faling on the 36 x trap !

      Hezi

    9. I'm retired and I supplement my income by selling cars. What Randy says is right on. Most folks don't ever pay their cars off. They have to cash out or roll the negative equity into the new loan.

      Banks are more reluctant to allow rolling negative equity. I'm all for buying for cash instead of financing something that depreciates. Depreciation is a real cost of ownership.

      If you're struggling, don't even consider a new car. Buy a good used or CPO for cash.

      Check out my blog entry on the subject at http://wp.me/p1LHwI-1A

    10. Been there done that when it comes to debt. I am now completely debt free! I will never ever go back into debt unless it's some thing like a ten or fifteen year note for a house. And that would have to be in an up market.

    11. Randy,
      when the card is in your hand, you think you have freedom and power! then the bills start to come and you have stress and worry, fights over money. I no longer use credit to buy things, if I don't have the cash.. I have to wait. I have not had a car payment in 15 years and the one I'm driving had 44,000 miles on it and was perfectly "new". You couldn't tell it had been used at all as a lease.
      I am already shopping catalogs/stores/sales for holiday gifts and some friends and I will be having a yard sale to raise money for this purpose. I also make and sell purses and scarves as a hobby, the money I receive usually pays for my Holiday spending.
      thank you for thinking of it all and caring about the whole person.

    12. A monthly/anual budget and a daily expense report can also be a good idea. There are many little things like snacks, coffee or the movies, that can hurt your finances.
      Other interesting topics could be investing, the stock market, mutual funds, and health/life insurance. Just some ideas for future posts! Looking forward to next post...

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