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Debt Is Dumb

Written by | January 19th, 2009

I have listened intently for several months to Dave Ramsey and I believe his methods are based in sound fiscal ideas and analysis of human behavior. I wanted to expound upon his “Debt is Dumb” phrase and express some ideas that many folks may not understand.

In these uncertain economic times, we often ask ourselves just what we would do if we were one of the thousands who have lost their job due to the economic downturn. Well, the fact is that many of us would do nothing and some would find something else to do in the meantime.

It isn’t really rocket science and there is no magic solution. The facts are pretty simple. If you owe a creditor and you cannot pay them, you will lose your posessions if they are security for the debt. The simplest solution is often the most profound once we take time to examine it closely. What you should be asking yourself isn’t “Who is going to help me?” but rather, “How am I going to deal with this problem?” the answer you come up with may mean the difference in losing everything or just some things.

If you cannot meet your obligations, you need to consider several alternatives. The first of which is to remove yourself from the ability to utilize credit. Credit is your enemy and is the reason you are in the situation you are in right now. To quote Dave Ramsey, “debt is dumb”. If you don’t have the cash, then you don’t buy … period! Next you look at your assets and decide which of them you can sell quickly and on your terms … it must be on your terms because if it is on the banks terms, you lose every time. At least if you sell it yourself you may gain something from the sale, you certainly will not from a bank sale. The third step is to get another job to pay debts that you are short of paying. Even if the job is minimum wage, the money earned to pay your mortgage is a whole lot less than the equity you may lose if you don’t pay your mortgage. Remember the banks are not your friend.

Now that you have a minimum wage job and still can’t survive, you must look at the various “things” you posess and begin to cut away. Immediate things that come to mind are, going out to restaurants, cable television, internet access, cellular or household telephone and gasp … vacations. Cut cut cut .. when you don’t think there is anything else to cut, check again. I promise you that it is there. You just haven’t reached that level of dispair … yet. If things don’t change immediately for you, you can bet you will reach despair. The decisions become much easier at that stage. It seems that so long as we are beholden to our “things” we have a difficult time making rational decisions that could well mean the difference between being poor and being homeless and poor.

Don’t wait too long to change your habits. The sooner you start, the better off you will be.

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3 thoughts on “Debt Is Dumb

  1. markross

    I have listened to Dave Ramsey a few times as well; he is pretty smart, and straightforward.

    I never really heard much from him that made me say, WOW! That is a new idea; though he does make a lot of sense.

    I have enjoyed reading, and listening to out of the box analysis these days; I recently read a book called Crash Proof by Peter Schiff;
    http://www.amazon.com/gp/reader/0470043601/ref=si
    while a bit scary, he offered some very "out of the box" thinking for surviving, through this "unique" economic downturn, even collapse; yes I said it…collapse.

    I agree with you on just about all points except The Internet; if I got rid of the Internet, I would forfit a lot of my ability to do business and find work.

    In my life, I have, and continue to cut down cable to basic service, cut down cell phone plans, consolidate school loans, groceries I don't have to have, bargain shopping etc.

    As a bit of a risk taker, I have even put out the money to start a small business, paid to have a small web page done etc. I hit a brick wall because I don't have the finances to do any proper marketing right now. However, I hope that I am setting myself up for better economic times.

    I agree fully about credit; I refuse to pay one dime of interest to anyone, unless it were long term, like a car or house, in a good economy. Also, if it is not "fixed" interest, then see you. Other then that, I am a cash-only person.

    We totally see eye to eye about being pro-active. It is always better to do things on your terms, then on a bank's, lender, even employer's terms.

    I don't think that we necessarily have to sit in a dark house or apartment, with a candle to make ends meet, but we certainly have to take pro-active measures in hard times. As you know, I have been faced with the decision as to whether to keep a house or to get out while I still had some control over the situation; well, after a week of thinking about it, and discussing it with my significant other, at the time, the final conclusion was that it was just a bunch of building materials, and surviving to see another day, was far more important. So, we moved 2000 miles, back to Philadelphia, into a small one bedroom apartment, then one year later, we had a townhouse. So, there again, sacrifice does not mean a lifetime without, it does mean, getting to place that is within your means, at a given time, in life.

    I was never very good on the second job thing, so you are certainly a better man then I, on that; However, if I were to work two jobs, every day, then I would likely suffer emotionally; I definitely need some downtime. I'd rather make sacrifices as opposed to being a slave to my possessions. So, to that extent, I suppose we just have to keep it real.

    Knowing our limitations is also a very valuable tool.

    Mark

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  2. KEB Post author

    You make some very valid points regarding being a slave to your posessions. I didn't mean to come across as promoting that. In fact, the idea is to keep from being a slave to your posessions.

    The idea with regards to getting a second job isn't really to keep posessions, it is to pay for your commitments. If you have posessions that you are committed to paying for, it should be your decision to either work more to pay for them or relinquish them by selling or other means.

    While I think you are right with the idea that you wouldn't cut your internet, especially if it is used to generate income, I think you need to decide this based upon your needs. You may not be in the position currently to cut out internet, but that doesn't mean that at some point in the future you won't be.

    The concept is to reduce and eliminate debt as quickly as possible so that you don't have to be a slave to a job for anything. If and when you can do that, you will find true financial peace.

    Reply
  3. markross

    You make some very valid points as well : )

    I realize that being a slave was not your inference, I was just adding to what you were saying about making sacrifices.

    I do not own a house, therefore I do not have a mortgage commitment, or real estate taxes; if I have a problem, I call maintenance. On the flip side, I do not have any equity; in a home at least.

    The only real debts that I have commitments to, are a car payment, and two school loans; I am also thinking about taking on another one, but that thought is a little disconcerting, right now.

    Other then that, all of my bills are current; and I buy nothing on credit; in fact, I do not own one credit card anymore.

    So, while I do not have a lot of equity, or investments, I don't really have a tremendous amount of debt either. So, that does buy me some time for future investing; since I have lost all faith in paper, the stock market, 401Ks..etc., I will need to re-examine that some more.

    You also make a really good point about eliminating debt. In the past, I have paid slightly more on my school loans, but not really enough to dent them too much. If I could get rid of the school loans, then it would make life a lot easier later. Perhaps, once I get working again, I will make that my goal; instead of investing into a 401K, I may just eliminate all debt first; then look into "new" ways of investing. (ie..precious metals, foreign currencies)

    As to the Internet, when we came back from out West, we had the computer in the back seat of the car, while every thing else was in a national move. The reason we did that is because knew that we needed that computer to find work, and that we did. For two weeks, we slept on a WalMart air mattress, and the computer sat on the floor.

    OK, here is how we got around The Internet problem; as long as you have a computer, and a 56K modem as a backup, you can get an AOL disk and use their trial time, or least expensive plan, via dial up. So, you just elimated a high speed bill (ie Comcast) while still having the ability to seek jobs.

    Where there is a will, there is a way…

    In my twenties, I had my first apartment; I worked in a Home Depot, making $8.25 an hour. I walked to work everyday, and to the grocery store.

    If I wanted to go anywhere, I had to take public transportation.

    This was "all" my choice as I wanted to live on my own, as opposed to staying home and driving; still, I made it on $8 an hour. It would likely be uncomfortable, but if I needed to do it again, I suspect that I would find a way.

    Mark

    Reply

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