 What can you do if you get serious and want to turn your financial life around?
 I think what you said there is very key, using the word "serious."
Les Brown, that great motivator, says people change their lives when they finally have that moment when they say, "I've had it!" And when you have that moment, you can lose weight, you can take a college class and you can get out of debt. Anything can happen once you say, "I've had it." So, I think the big issue is to have an emotional experience with the thing to get out of debt. When you do, most anybody can do it. You'll find a plan, you'll find a system.
And what we teach people to do is to pay off their debts from smallest to largest, in that order, so that they can then get some quick "atta-boys" or "atta-girls" by knocking off the little ones. It's kind of like going on a diet and then losing weight the very first week. It gets you excited about the plan, because you see some results right away.
Is it wise for people to take advantage of possible "shortcuts"? Can, for example, things like refinancing, transferring debt to lower interest-rate credit cards, or debt-consolidation loans be utilized to help speed things up in the debt-repayment process?
There really is no trick to it, just as there's really no shortcut to weight loss. You have to exercise more and eat less. Sure, you can take a pill, you can even order that "Butt-Master" from the infomercial or whatever; but, you'll still have to exercise more and eat less if you really want to lose weight.
And it's the same thing with debt. You have to live on less than you make and use what's left to pay off debt. There's no magic software, there is no debt company that's gonna do it for you. When you figure out that personal finance is 80 percent behavior, you'll modify your behavior and get out of debt.
“When you figure out that personal finance is 80 percent behavior, you'll modify your behavior and get out of debt.”
Now are there some things that you can do to help speed things up a bit? Sure. Certainly something like having a lower interest rate isn't a bad thing. But the problem is that people will go and get a lower interest rate and that's all they do. They think that's gonna fix it and they'll continue to freakin' overspend.
Can you save money into retirement accounts and college savings plans while simultaneously dealing with debt? Or must you take the "divide-and-conquer" approach -- meaning that you kill off debt first and foremost, then you focus on funding retirement, and then, finally, you worry about your kid and college?
The divide-and-conquer approach works best because, again, we're dealing with behavior modification, and in order to stay on any type of game plan you've got to see traction, you've got to see some results.
There is a tremendous power to intense focus. If you will focus with great intensity on almost anything in your life, you will see some things move around in that area. The problem is that when we try to pay a little extra on the credit card and then we try to put 2 percent into our 401(k) and we try to put an extra $50 on the mortgage and so on, we dilute everything so much that we see little in the way of results, and we lose hope. There's just no emotional energy in that process
But when you completely pay off that one credit card real quick, and then have a garage sale to pay off the other one, and then you cut both cards up and close out those accounts, you're like, "Hey, look at that! I really did something!" You get traction then. And if you'll remain very intense and focused, you will not have to stay out of your retirement plan for very long before you're clear of your debt and build your emergency fund.
| -- Posted: March 17, 2008 |
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