Debt Destruction: Credit and Alcohol

     Let me begin by stating a truth: my wife and I carry no credit cards.  We do not use credit cards, period.  Personally, we despise credit cards.  And I’ll tell you why.

     Credit cards have only been around since the 50’s, and have really only become a “way of life” since the late 70’s.  In the early 70’s, 15% of Americans had credit cards.  Today, there are over one and a half BILLION credit card accounts open in the USA.  This is a relatively new phenomenon as far as our culture goes.  So keep that in mind, you people who say “you can’t exist without a credit card”.  People did it for CENTURIES.

     We’ll talk about math another time.  I don’t even want to get into the numbers, because in reality it’s a behavior issue and a heart issue at hand that makes credit cards so dangerous.  Let me explain.

     I like to compare credit cards to alcohol.  Once I’ve finished the metaphor you’ll understand it better.  You see, as a Christian, I don’t believe the Bible says at any point that alcohol in and of itself is a sin.  I know some Christians out there think that all alcohol at any point in time is a sin, and that’s okay if you feel that way, but honestly I don’t see that in the Bible.  The Bible DOES however say that drinking is not wise and that being drunk is a sin. 

     Now, no one ever wakes up one day and says “You know what I’d love to do?  Completely ruin my life by becoming an alcoholic.”  It just doesn’t happen that way.  People just take a drink every now and then and they’re fine, right?  You see, if you drink too much, you get a physical reaction in your body telling you that you drank too much, and that’s called a hangover.  If you continue this behavior too long, too often, too irresponsibly, then you become addicted to the activity and have become an alcoholic.  Alcoholism can and will destroy your life, but it wasn’t an overnight event.  It took a long time of bad decisions.

     Drinking also has immediate consequences.  It lowers your logic capacity, inhibits your motor skills, and therefore can cause some pretty awful car accidents even after just one drink.  There are so many risks.

     So is drinking morally wrong?  No.  Drinking in and of itself is not a sin.  Is drinking a risk?  Yes.  And for me, the risks associated with drinking are more than enough to keep me away from it.  I want to avoid alcoholism, for sure, but I also want to avoid hangovers and car accidents, so I avoid drinking.

     You see, as a Christian, I don’t believe the Bible says at any point that debt in and of itself is a sin.  I know some Christians out there that think all debt at any point in time is a sin, and that’s okay if you feel that way, but honestly I don’t see that in the Bible.  The Bible DOES say however that being in debt is not wise and that financially destroying your life is a sin.

     Now, no one ever wakes up one day and says “You know what I’d love to do?  Completely ruin my life by going bankrupt with my debt.”  It just doesn’t happen that way.  People use credit every now and then and they’re fine, right?  You see, if you use too much credit, you get a financial reaction in your life telling you that you overdid it.  You are a slave to your payments.  If you continue this behavior too long, too often, too irresponsibly, then you become addicted to the activity and have become what I call a debt-aholic.  This can and will destroy your life, but it wasn’t an overnight event.  It took a long time of bad decisions.

     Debt also has immediate consequences.  It lowers your income, inhibits your ability to save and give, and therefore can cause some pretty big losses and fees even after just one use.  There are so many risks.

     So is debt morally wrong?  No.  Debt in and of itself is not a sin.  Is debt a risk?  Yes.  And for me, the risks associated with using debt are more than enough to keep me away from it.  I want to avoid debt-induced bankruptcy, for sure, but I also want to avoid income loss and interest/fees, so I avoid debt.

     Credit card debt is a lot like drinking.  A lot of people say that they use both and it doesn’t affect them, but in reality both will cost you money.  The benefits to using those things in my opinion does not outweigh the risks associated.  The funny thing is, it’s impossible to become an alcoholic when you don’t drink.  It’s impossible to get a DUI when you haven’t been drinking.  Likewise, it’s impossible to go bankrupt from credit cards when you don’t use them.  It’s impossible to pay interest and fees to a credit card company when you don’t use their card.

     Moral of the story:  Just like drinking, debt is unnecessary.  You don’t have to drink alcohol to enjoy life, and you certainly don’t have to use debt to enjoy your life either.  They’re not needed and only offer risks of life-altering negatives.

     Now I fully expect emails that start with the phrase “But Heath…” giving me reasons why credit cards can be used beneficially and/or why drinking is okay.  Remember before you send those, though, that I didn’t say they’re morally wrong, I said they are unwise and risky, therefore I avoid them.  You aren’t a horrible person if you use them, you’re just unwise.  And really, I didn’t say that, God did.

 

-Heath

 

Debt Destruction, a Primer

Last week I told you the story of how I came to hate debt.  I have to be honest, though.  Even though I hate debt…I was in it.  I financed my Jeep (it’s now paid off), I financed my wife’s engagement ring (thankfully it was paid off before the wedding – just barely), and I financed a computer.  The funny thing about that computer, though, was after we paid it off we ended up selling it because we needed money more than a computer…probably would have been smarter just to not buy it in the first place.  Now we have a simple laptop (that I’m typing on currently) that we bought in cash and got a great deal on.  Thankfully we were able to pay off all our debts except our mortgage in the last year.  Check out some previous posts of mine for the full story.

Look, the point is this: debt is everywhere in our culture.  Even those who earnestly try to avoid it can end up in it.  I mean…I’ve actually got a tremendous amount of debt weighing me down right now.  It’s called a mortgage.  It’s a big, nasty, hairy monster that sits in the darkness threatening me every time I want to make a bold career choice.  It’s got six big ol’ digits in it, too.  But “you’ll always have a mortgage,” right?  Wrong.  My wife and I are currently on a plan to knock out that big hairy monster.  A lot of people see a lot of debts as little monsters running around eating their money.

My goal is to take the fangs out of those monsters so they are much easier to fight.  Your weapon of choice?  Information.  Over the next several weeks I’m going to be posting a series on debt that I call “Debt Destruction.”  The goal isn’t to just reduce debt (which is what all the banks advertise – funny story the banks own ¾ of American consumer debt) but to completely eliminate debt from your life.

“But Heath, why should we get rid of our debt?  Won’t that kill our credit scores?”  Yes, little Timmy, it will kill your credit score.  Which is a-okay in my book, because I don’t plan on borrowing money ever again.  If you never borrow money, your credit score doesn’t matter.

“But Heath….”  There’s going to be a lot of “but Heaths” that come up, and my goal is to address as many as I can.  I know this is truly counter-cultural, and I like it that way.  Listen, I believe what the Bible says, and Proverbs 22:7 puts it this way:  “The rich rules over the poor and the borrower is slave to the lender.”  Let’s break that down.

The rich rules over the poor.  Well that’s kind of a given, right?  I mean the leaders in every country are rich, right?  Stop!  Look at the full context.  The rich rule over the poor and the borrower is slave to the lender.  The rich rule over their slaves.  The borrower is slave to the rich.  These two statements go together.  So who are the rich?

True fact: JP Morgan, Chase, Bank of America, Citigroup, and other credit-lending banks are all MULTI-BILLION DOLLAR companies..  Listen, I’m not talking that it’s a multi-billion dollar market.  Those companies’ net worth are each over a hundred billion dollars.  They’re the RICH.

When you sign up for a loan from those banks, you are the borrower.  You owe them money.  They are the rich who now rule your life because you owe them money.  You are now their slave, because every bit of work you do gets sapped to pay them back for the money they loan you.  And they’ll treat you like a slave too.  Just be late or miss a payment.  They punish you with fees.  If you lose your job, they don’t care.  They’ll still sue you for the money you owe them until you have to file bankruptcy.  You become the slave of the rich, and allow them to rule over you when you borrow their money.

A lot of people see that as an extreme way of thinking.  But my Bible says to “owe no man anything except to love one another. (Romans 13:8)”  It also says in Proverbs 6 that if you find yourself in debt you are to “give no sleep to your eyelids and deliver yourself like a gazelle from the hand of the hunter.”  If you’re in debt you have to WORK to get out of it.  The Bible doesn’t just tell us to work, it tells us to not rest until it’s paid off, because the lender is the hunter coming after us.  The only way to escape the slavery of debt is to RUN LIKE YOUR LIFE DEPENDS ON IT!

And that’s what my wife and I are doing.  We are running full on towards the goal of being 100% debt free.  We knocked out the cars, the computers, and the doctor bills.  Now we’re going to use our new money muscle to take on the big hairy monster that is our mortgage.  And you know what?  I think you can do it too.  Are you tired of paying payments to the banks?  Are you sick of their net worth being absurdly huge and yours being negative?  THEN DO SOMETHING ABOUT IT.  Deliver yourself like a gazelle from the hand of the hunter.  RUN like your entire life’s earning depend on it, because your ENTIRE LIFE’S EARNINGS depend on it!  Stop being a slave, stop letting the rich rule over you and gain freedom like you’ve never known before.

Join me on this journey as we break down and destroy the myths around debt and I’ll arm you with knowledge and truth to combat those monsters.  You can do this.  We can do this.

 

-Heath

Why I Hate Debt

I used to work in foreclosures.  That sounds like a depressing job, right?  Yeah, it had its times.  But I also learned a lot and even gained some.  I’ll explain.

You see, my mother’s company worked as a contractor for the Dept. of HUD (Housing and Urban Development).  To simplify it, someone would default on their mortgage and get foreclosed.  That house was then taken into HUD custody and processed.  After a few months, the house would be contracted out to a local (or semi-local) contractor to do clean up, repairs, and safety inspections.  That’s where my mom would come in.  She would help get a house ready to go back onto the market.

There are three kinds of people who get foreclosed on.  The first kind are the people who own up to their fate.  They realize they have been foreclosed on and get nearly everything out of the house.  These were the kind of houses that we loved, because there would only be a handful of things inside and it would just take some vacuuming and dusting to be done.  Simple and easy.

The second kind of person was the one who would get mad.  When they learned they were being foreclosed, all of a sudden they forgot to clean out the litter box for Fluffy or let Fido out when he has to pee.  All of a sudden they would start practicing baseball inside.  These kind of people would leave holes in walls, would leave rotten food in the fridge or even on the counters, and would even bust out a few windows here and there.  They normally left behind a lot of junk and trash.  These were no bueno houses and needed a fair amount of work.  All because they didn’t own up to their problem.

The third kind of house…and I still have nightmares about this…belonged to a hoarder.  I don’t know if there is any research on this topic, but I think there may be a significant correlation between foreclosure and hoarding.  We had these houses all the time.  You’ve seen the shows on TV before, right?  Floor to ceiling, wall to wall, every closet stuffed full and stuff all over the floors…  Nasty stuff.  Lots of dead animals in these houses.  Lots of roaches and spiders.  And they always stunk, because big piles of boxes, book, clothes, and newspapers would hold an odor pretty well.

I can’t tell you the number of houses we cleaned out, or the number of things we threw away.  You see, once the property came to use, everything in the house was considered “trash.”  So, if we found something good, say a functioning game console or a stack of good books, we took it home.  One man’s trash is another man’s treasure, after all.

So a lot of people like to ask me what kind of things we would find in those houses.  After years of doing these places, I saw some consistent patterns.  For example, you would almost always find old Christmas decorations.  I guess when you lose your house you no longer feel very festive for Christmas.  This would almost always be left deep in a closet, up in the attic, down in the crawlspace, or even still up from the previous holiday.

Another thing you would always find is pictures.  Pictures.  And pictures.  Family pictures, wedding pictures, etc. etc.  This had the potential to be very depressing.  You could see the smiling faces in the pictures and see people being happy.  But when you looked around the house…that happiness was long gone.

The last thing, and this was always in about 95% of the homes, would be a simple stack of papers.  Usually found on a counter or kitchen table….the papers would be everything from credit card bills, to late notices for utilities, overdraft notices, and almost always sitting up on top was the notice of foreclosure.  The way they were stacked always seemed intentional, as if before they left the house for the last time, the person would look through that stack.  You could almost feel the tears and heartache associated with those papers.

I always poked fun at my mother, saying that her business relied on the failures of others.  If no one got foreclosed, she would be out of a job.  As cynical was I was by saying that, it was true.  My mother’s job was to clean up the mess of someone else who wasn’t able to get their life under control.  Through all the extraneous circumstances, they couldn’t get it together.

It was in those houses that I learned to hate debt.  Every single foreclosure had one thing in common: it was a loan that defaulted.  And in that stack of papers was almost always stacks of credit card bills that were overdue, student loans that were in danger of default or already had, and utilities notices of shutoff.  These people had bitten off much more than they could chew, fell on hard times and were unable to get up.  This stirred in my heart a hatred for debt…because I saw the end result of lack of control.  I saw what happened when debt destroyed a life.  To be moved out of your home forcefully is something that person will never forget.  I wasn’t just cleaning up someone’s house, I was clearing out someone’s home.  That’s where they lived.  That’s where they had their hearts.  And it was all taken from them.

Debt has a funny way of sneaking up on people.  It’s “all of a sudden” they have too much and can’t handle it anymore.  But in reality, it’s just like being an alcoholic….you don’t wake up one day and decide to become an alcoholic.  It happens over time and takes a long time to build up to.  Debt is the same.  You have some here, then some there.  Eventually you open your eyes and have no idea how it got this far.  That’s why I hate it.  I hate debt.  And my goal is to get out from under our mortgage and become 100% debt free.  Our mortgage is all that’s left, but it’s a big monster to tackle.  But we can do it.  We can be free.  And so can you, if you’ll only try.

 

-Heath

Being Weird is Awesome: Paying it Off

Having a house is pretty awesome.  You can do what you want to it, i.e. decorate it, change things, mount your TV to the wall, pave your driveway, and overall have your home reflect you.  It’s a very personal thing to have a house.  It gives you a sense of home and security.  It becomes a place of memories and happiness.  All of this of course is assuming your home isn’t falling apart and/or hoarded.  But even then…it’s your busted pile of stink.  And that’s cool.  Better than not having a pile of stink I suppose.

My wife got a house before we got married.  We were engaged at the time, so I had some input on the house, but my wife’s decision was the final one.  She looked at about 47,000 houses before she decided on the one I’m currently sitting in writing this almost 4 years later.  It’s not a bad house, though this house and I honestly have a bit of a love-hate relationship.

You see I love this house because it’s our home.  It’s where we’ve been raising our daughter.  It’s where we’ve made some great memories.  It’s where we’ve have plenty of friends come by and hang out.  It’s where we make all our important decisions.  And it’s certainly the place I can’t wait to get back to after a long day of work.

However, this house also makes me upset at times.  In my opinion, it’s small, cramped, and trying to kill me.  Whether or not the house truly has the intention of ending my life is unimportant, but what is important is that I really don’t want to have a big family in this house.  When too many people come over it feels like we’re loading up the clown car.

My wife would be upset at me if I didn’t finish that thought with a positive note, so here it is:  I’m slowly getting over it.  I’ve decided to make an effort to stop complaining about the size of our house, because ultimately it’s our house.  I need to own up to owning it.

But that’s the actual problem at hand.  You see…we don’t actually own this house.  It doesn’t truly belong to us.  It belongs to the bank.  Why do I say that?  Because the bank loaned us six digits and fully expects us to pay it all back plus interest.  So we like to say it’s our house, but in reality it’s not.  If we stopped paying on the mortgage, they would take the house away from us.  Which would be awful.

My wife and I decided something this past week that truly rocked our worlds when we put it all out and looked at it.  We decided that while this house is small, it’s our home.  It’s cramped, but we enjoy it.  So we came up with a plan to get the bank off of our backs.  We’re going to pay this house off.

You see, the way I think about it is that if this house didn’t have a mortgage against it, it might open up a little space around here.  If we could get rid of our monthly payments against this house, it might feel a little less cramped.  When this house – our home – no longer has a giant weight of debt around us holding us down…the walls will certainly stop feeling like they’re closing in.  Thus our journey has begun.

We’ve only owned this house for a little less than 4 years.  We now have a goal and game plan to pay it off in the next 7 years.  That means we’ll have paid off a 30 year mortgage in 11 years.  How is that possible?  Well we’re going to throw everything we have at it.  Extra money from side businesses, extra money we can squeeze out of our budget.  Whenever we have overtime and/or extra days at our current jobs.  All of that will be used like ammunition to attack the target: our mortgage.  You see even if it’s only a little bit, everything beyond our standard mortgage payment will knock a little more off the principle every month, meaning there is less to charge us interest on.  Less interest means more principle paid per monthly payment, which of course means less interest, etc. etc. ad nauseum.

This simple principle will help us accelerate the pay-off process.  And it actually is that simple.  As long as you’re paying more than your standard mortgage payment, you’ll pay off your house sooner.  You can turn a 30 year mortgage into a 25, 20, 15 or even 10 year mortgage by adding extra money to each payment.  How much you can knock it off depends on how much extra you put in.

We have a goal to pay this sucker off.  If we can do it in seven years, I’ll be 35.  I’ll be a 35 year old with a paid off house.  And that will be weird.  But you see, normal is broke and boring.  Being weird is awesome.

-Heath

Smart Savings: How to Beat Paycheck to Paycheck Living

     When is the best time to look for a job?  When you already have one.  That way, you have a job covering your expenses while you go out and look for another one.  You have security built into your life when you have a job, because you know that the paycheck will come and you don’t have to worry about it.  Because you have what you need, finding other things you need is much easier.

     Money works the same way.  When you already have it, it’s much easier to get more because getting more stops being your primary objective since you already have some.  This is the basic concept of savings.  Does that make sense?  To most people it doesn’t.  I’ll prove it.

     According to most (even conservative) online surveys and bank surveys and news surveys etc. up to 60% of Americans couldn’t handle a $1000 emergency in cash.  So people aren’t saving money.  To be honest, $1000 is a common emergency.  You crash your car and need a new one QUICK.  Or your water heater blows up and causes structural damage to your house.  Or whatever.  But most people would rather put that on a credit card, because we have those for emergencies, right?

     That’s dumb.  Why not save the money for emergencies and pay for the emergency instead of paying the emergency over the next 20 months with 18% interest?  And yet it is incredibly common.  The average household in America has over $15,000 in credit card debt.

     A standard emergency fund can help with that.  A lot.  But a different kind of emergency fund makes not only handling emergencies easier but also handling day to day affairs much easier too.  What is it?  A buffer fund.

Buffer Funds

     This isn’t an original concept.  I’m not the only person to do this and I’m certainly not the only person to teach it.  Several financial advisors have taught this in the past and it’s been around for a very, very long time.  A buffer fund is simply this:  Having enough money on hand to cover all or most of your expenses for the month before the month begins.  If your monthly expenses are around $4000 and you have $2000 before the month begins, your month is much, much easier to handle.  Here’s why:

     If you live paycheck to paycheck, then you are spending this month’s money during this month.  If you live on credit, you’re spending next month’s money this month.  If you have a buffer fund, you’re spending last month’s money this month.  It completely removes paycheck to paycheck living if you live one or two or four paychecks ahead.

     The standard p-2-p lifestyle (that’s paycheck to paycheck for those not paying attention) means that you have to wait for your money to come in before you can spend it.  Make sense?  You don’t have it, so the cycle goes “Money in, money out.”

     But with a buffer fund in place, and having a bunch of money in your account before the month begins, that pattern changes.  Now it’s “Money out, money in.”  That simple change in your spending habits will CHANGE YOUR LIFE.

     The reason it’s so powerful is that you don’t worry about bouncing checks when the money is there.  You’re not waiting for a check to come into the bank and clear before you can go buy groceries.  You just go buy groceries and the money replenishes itself when your check comes in.  Or if you do an entire month’s expenses in your account before the month begins, you have even more wiggle room.

     This helps you take advantage of so many things and truly eliminates paycheck to paycheck living.  If you’re sick and tired of being only one paycheck away from disaster, I highly recommend you work to build up a buffer fund.  It’ll set you free.

     How do you save up that money?  There are several ways to do so.  Lower your spending.  Cut out a particular expense (such as coffee every morning).  Get on a stinkin’ budget.  There are tons of ways.  In fact, so many that it’s going to have to wait for next week’s Smart Savings because I have to turn the laptop off and go to work now.  Tune in each Friday and you’ll learn some great techniques to up your savings, down your debts, and live with financial freedom.  All by just using a little Common Cents.

 

-Heath

 

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