Dumping Debt - part 1

Welcome to the 3rd installment of the All Things Financial Group. Tonight we will be covering a lot of information, so let's get going.

Please watch the following skit from Saturday Night Live.


As humorous as that clip is, it is really true. Don’t buy stuff you cannot afford, because doing that has gotten us all into debt at some time or another. The only way to dig our way out of debt is to stop buying things we cannot afford.

This is an incredibly difficult lesson for me to teach because you have had your ideas about debt and credit reports for many years. What I may say tonight might challenge your beliefs. It might make you question what it is that you’ve been doing all these years? It can be incredibly difficult to swallow, and by slide number 4 you may want to write-me off completely and put “nutjob” right on my forehead. But I ask you to hear me out, keep an open mind and heart, and then if you want to call me a nutjob on the way home, then you are more than welcome to do that. But for the next hour and a half, just be open to what I’m saying, on the off-chance I might be right.

Fact vs. Fiction

There is a myth floating around out there that everyone has debt, and some debt is good. Well, let’s go ahead and de-bunk that myth.

Dave Ramsey says, "Debt is dumb. Most normal people are just plain broke because they are in debt up to their eyeballs with no hope of help. If you're in debt, then you're a slave, in the sense that you do not have the freedom to use your money to help change your family tree."

Wow, so if you have debt, then you are normal. And most normal people are broke. Following that logic (which is correct by-the-way) then I don’t want to be normal. I want to be weird. We have been referred to as a “peculiar people” so why on earth would we want to be normal when it comes to being broke and in debt up to our eyeballs? It just doesn’t make sense.

Let’s just go ahead and get this out here and now – Debt is not a way to become prosperous. It just isn’t.

But….since we’re here and we have debt, it isn’t going to vanish just because we really want it to – so we’re going to have to work through it.

I now want to de-bunk a series of myths that have been fed to you about debt, that we have bought as truth. If you tell a lie often enough, loud enough, and long enough then eventually it will become accepted as truth. Even though we know deep down that it isn’t true, we will eventually conform and go along with it. That’s just how things work, and these are some of the things that we’ve been told often enough, loud enough, and long enough that we, as a society have accepted them as truths.

Myth 1: Having debt helps you build that FICO score so you can get a mortgage.
Truth: Having credit cards with a 0 balance actually negatively impacts you when buying a home or refinancing a mortgage. This is true because if you have a bunch of credit cards with a $0 balance and then you get a new home, statistically speaking, you will go out and buy all new home furnishings for your new home, and then you will become a liability for not paying your mortgage. Having open lines of credit increases your risk, and especially nowadays, mortgage lenders do not want to see anyone who appears even remotely risky. So keeping those cards open because it builds credit can actually end up hurting you much more in the long run than taking a small ding on your credit report for closing them.

Myth 2: You need a credit card to rent a car.
Truth: Most car rental companies take debit cards, and the ones who don't are too expensive anyway.

Myth 3: You need a credit card to buy things online.
Truth: Visa or Master Card debit cards work just as well and carry the same fraud liability as credit cards. Now I know you’re saying “but I don’t want them tied to my bank account.” Well, since it has the same fraud liability, and the banks (at least the good ones) have some pretty great ways to keep you secure, then you’re pretty safe. Many banks will return the money to your account within 24 hours (and reverse any fees if they were accumulated). Of course, they do conduct an investigation, but if you’re a victim of fraud, you’d have to clear it up anyway. And if your bank doesn't offer this protection, it's time to switch banks.

Myth 4: It's okay to use the credit card as long as I pay it off every month.
Truth: 78% of you won't. And no one pays it off 100% of the time - no matter how disciplined they are. Life happens and gets in the way, and then you just spent money you didn't have to spend.

But…but….but….

I get rewards points, air miles, or cash back bonuses! Seriously have you ever tried to use them? I had a platinum card with a $6500 balance on it. Do you know what I was able to get when I cashed out my points after finding Dave and cutting the card up? A pizza stone and a golf umbrella! $6500 of debt and I got a stupid pizza stone and a golf umbrella! I could have saved myself the $6450 and just bought those stupid things myself.

but....but....but....

Having cash burns a hole in my pocket, so I spend less with a card.

Actually, you spend 12-18% more just because you use plastic, and if you're using plastic at the grocery store, then you can end up spending 40-60% more. If you don’t believe me on this – take $100 to the grocery store and leave the cards at home. I guarantee you will only walk out of there with $100 worth of stuff. If you go in with the intention of spending $100 on plastic, I can almost guarantee that you will walk out of there having spent WELL over that $100. It will happen every time. Don’t believe me? Well, even a seasoned veteran and tightwad like myself went into Walmart on Saturday to do the grocery shopping. I hadn’t gotten cash for our envelopes since it was payday, and sure enough, I spent $104.63 when I only intended to pay $100. Sure $4.63 doesn’t sound like much, but it is 4.5% and I became a statistic.

So what do we learn from all of this?

Credit cards are snakes. If you play with snakes, you will eventually get bitten. Remember Steve Irwin, the Crocodile Hunter? I thought he was a great man, but he played with the most dangerous creatures on the planet, and one ended up killing him. Even fearless Steve couldn’t out maneuver this universal law, so what makes you think that you can do it and not get bitten?

Ways they bite you:
1. Increasing interest rates
2. Lowering limits. Sometimes you don't know it and use the card and go over the limit. Then you get hit with #3.
3. Fees, fees, and more fees.
4. Universal default. If you default on any card, ALL of your credit cards will increase their interest rates.

So, let's talk some more about debt.

Debt is the most aggressively marketed product in our culture today, and to even imagine living without it requires a paradime shift. That means that you have to change the way you look at things completely if you want to live a debt free life. We are inundated with commercials on TV, ads on the internet, credit offers in our mailboxes, and even children’s toys are now equipped with credit cards! Debt is a product and is now part of our culture. When you are an awakened and aware consumer, then you become dangerous. My goal is to give you a paradime shift – a new belief system.

Debt has not always been around. It wasn’t until the 1960’s that it began to be marketed. Just take a moment and think back if you will. We all do family history, so let’s put our knowledge to work. Do you think your great grandparents had debt? Probably not, and here’s why:

Our great grandparents viewed debt as a sin. It wasn't just bad - it was a sin.
Our grandparents borrowed only on a home.
Our parents borrowed only on a few things.
We borrow on EVERYTHING!

Seriously, dental offices have credit cards! You can buy a new puppy on credit at the pet store. It is ridiculous that we can put anything and everything on credit. The only thing we can’t put on credit is tithing, and I’m sad to say that some churches (obviously not of our faith) even allow you to use a credit card to pay your tithes and offerings. Seriously! They do! You can put everything on credit! Wake up people – something is wrong here!

And what makes me laugh is that it hasn’t always been like this – debt is a new phenomenon.

Let’s discuss the history of debt for a moment.

Sears: The 1910 Sears catalog said, "Buying on credit is folly"
James Cash Penny (J.C. Penny): did not allow credit to be used at his stores while he was alive.
Ford Motor: They did not offer credit for 10 years.
Diner's Club: First credit card appeared in 1950.
Bank of America: First bank to offer plastic in 1958. It was called the Bank Americard.
Bank Americard eventually becamse Visa.
Discover: Splintered from Visa in 1986.

Isn’t that interesting? Sears, who reported having about 1 million credit card applications a month at one time said, in their own catalog that buying on credit is folly. Sears makes more money on their credit program, than they do selling merchandise. Don’t get me wrong – I like Sears. We buy some of their tools from yard sales, but doesn’t that just blow your mind about quickly greed fueled this downward spiral of debt?! It's all new, but we are so engrained with it in our culture that we can't imagine life without it. Our government has spent billions of dollars so that people can continue to borrow money.

This is why we need a paradime shift – to stop that downward spiral of debt and to dig our way out. Proverbs 22:7 says, "The rich ruleth over the poor and the borrower is servant to the lender."

When we are in debt, we are servants to our lenders. They set the terms, and we pull out all the stops to meet those terms every month. That isn’t living our lives. If we want to win with money, we have to do what rich people do - and rich people don't borrow money.

Joseph B. Wirthlin said, "Remember this: debt is a form of bondage. It is a financial termite. When we make purchases on credit, they give us only an illusion of prosperity. We think we own things, but the reality is, our things own us.

It’s in the scriptures, prophets and apostles of the Lord have said it and are still saying it. When you are in debt, you are in bondage. You are not free. You are a servant to the lender.

The only way to break those chains that bind you is to pay off your debts and refuse to ever go into debt again. That is how you will win with money.

So what is the secret to winning with money?

Intensity.

Intensity has everything to do with how successful you will be with paying off your debts. Believe me, it is with intensity (through much help from the Lord) that we’ve been able to accomplish what we have in our lives with paying off our debt. $45,000 in 3 ½ years on a $31,000/year income while having 3 children in the process only by intensity.

Read Proverbs 6:1-7

I am going to liken the scriptures unto the Discovery Channel for a moment. We’ve all seen the nature shows where the lovely little gazelles are grazing in the fields, but you know where there are gazelles, there is also a big cat of some sort lurking in the tall grass. Now today, it’s going to be a cheetah – the fastest animal the gazelles could ever encounter. So, the cheetah is lurking and creeping up ever so quietly, and the gazelles are hanging out and eating grass. Well, gazelles have a cheetah detector behind their ears, and one of gazelles stops and looks up because the cheetah detector just went off and he tells his buddies, “Cheetah, guys….there’s a cheetah.” But they don’t run away – not yet. They wait until they see where the cheetah is coming from. Well, the cheetah realizes that he tripped the cheetah alarm so he comes out. You may not know it, but the cheetah can go from 0-45 mph in 4 leaps. So, the gazelles see the cheetah and yell “CHEETAH!!!!!!!!!!!!!!!!!!!!!! and begin running for their lives. They are weaving in and out because they know they can’t outrun the cheetah, and they are weaving in and out with some major intensity. Their very existence depends on them outrunning the cheetah, and only 1 in 18 times with a gazelle get caught by a cheetah.

I tell you this because we need to be those gazelles, and our debtors are the cheetahs in our lives. I think sometimes we forget that. I think sometimes we are having a rough time and we pray “Oh Jesus, I don’t know what to do. Please help me through this Jesus. I promise I won’t be stupid again, Jesus.” And then we go out to check the mail and we get a brand new Visa card and we say, “Thank you Jesus!” Jesus did NOT put that credit card in your mailbox! The correct response would be to take that Visa card and yell CHEETAH!!!!!!!!!!!!!!!!!! and snip that card to a million pieces.

Now these are 6 Steps of Gazelle Intensity. I promise that if you do these, you will become gazelle intense, and you will work your way through your debts faster than you ever thought possible.

1. Avoid the cheetahs, and get rid of the ones that you have. Cut up those credit cards. And as an example to everyone, I cut up the following cards.

Bank of America – you started this mess, so you go first. (snip)

I promise Target, takes cash. (snip)

Life doesn’t take Visa, Visa takes life. (snip)

Oooohhh, Platinum…..(snip) just looks like plastic to me.

Discover a new life – without credit cards (snip)

You cannot serve the Master and Master Card. (snip)

Anyone have any credit cards they want to cut up? Anyone want to perform plastic surgery as their first step towards becoming gazelle intense??

2. Save money (the $1000 emergency fund).
3. Prayer - it really works. You have to include the Lord in this process. Only he can help bring about that mighty change of heart.
4. Sell something. Sell so much your kids think they are next. I know mine sure do.
5. Get a part time job. It's not forever - just to get the cheetahs out of your life.
6. Understand and use the debt snowball.