Debt is something we should avoid at all costs. It makes our purchases more expensive (due to interest) and can create stress in our daily lives if it takes over. If you want to achieve and maintain a debt-free lifestyle, check out our tips.
Welcome to another addition of our CredAbility Podcast. Along with your host, Mechel Glass, here’s Steve Moore to open today’s discussion on debt, what it is and how to get rid of it. Steve: Well, today, we’re going to discuss one of those words, one of those four letter words we never like to talk about. But it’s a reality in the lives of most Americans. And that’s debt, D-E-B-T. And, Mechel, help us here. Before we talk about the various kinds of debt, define the term itself. What does debt mean to most people?
Mechel: Well, debt is basically when you receive something immediately but owe on it for a later date. You’re going to promise to pay for that item over a particular period of time. So that’s traditionally what debt is. And there are a lot of different forms of how we get ourselves into debt. Sometimes, we look at credit card debt where it can get overwhelming. Other forms could be car loans, college loans, or home loans. So I’d like to talk about each of those and bring some tips to our audience about how they can work themselves out of debt in all of those types of situations.
Steve: Okay, let’s start with the big one here, credit cards.
Mechel: Well, with credit cards, one thing that you want to do is make sure you make those minimum payments. We encourage people to always pay more than the minimum. And that way, you are able to get out of debt quickly. If you’re making the minimum payments, you will find yourself in debt for a longer period of time. So one of the things that you can do is you can work with the credit card companies and try to figure out if they will lower your APR or your interest rate so that you can pay your debts off quicker. If you’re working with your credit card company and they’re not willing to help you by lowering your APR, then you have the right to transfer that balance over to another credit card company. And maybe they will offer you some type of incentive to be a customer.
Steve: All right, automobiles can often be a big one.
Mechel: Yes, if you purchase an automobile, you want to make sure that you follow some general guidelines. We usually recommend that people don’t buy new cars. We recommend people buy used cars so that you don’t get into the problem of owing more on your car than it’s actually worth. That’s a horrible situation to be in, especially if you find yourself in an accident and you owe more on the car than the car is actually worth. So we typically tell people to buy a used car. And then once you pay off that used car, you should drive it for the duration, meaning drive it for an extended period of time until it is just not drivable anymore. And that way, you’re able to use the money that you would make on a car payment to pay down your credit card debt.
Steve: All right. We’ve talked about credit cards. We’ve talked about automobiles. Some people these days find themselves in a home that’s maybe too large for their families or at least the payment is too large for their families. So what do they do?
Mechel: Well, for people who are in a home and they’re struggling to make their mortgage payments, the first thing they need to do is call their lender and let their lender know what’s going on. If you have concerns and you’re not comfortable talking with your lender, then, of course, you can call a full-service credit counseling agency. And they can help you work with your lender to find out a workout option that will help you. But what we traditionally tell people, for those who are out shopping for a home, buy a home that is within your means. If you’re married, then you probably want to buy a home that only one salary can take care of that mortgage payment, not where two salaries have to take care of that mortgage payment. Typically, what happens when people buy a home where two people’s income has to make the mortgage payment, what happens when one person gets laid off? Well, you’re struggling to make the mortgage payment. So we try to give people some advice on how to avoid those types of situations in the long run.
Steve: Okay, whether we’re talking about homes or automobiles or credit cards, it’s all debt. So are there some basic principles that apply to all of these kinds of things? I’m thinking about delayed gratification.
Mechel: Delayed gratification is something where we all have to look within ourselves and say, “No.” The small little word, two letters, “no.” You have to tell yourself “no” sometimes that you can’t get certain things, and that way, you’re able to give yourself options down the road. You’re able to have your emergency fund. You’re able to get in a home that is affordable that, even if someone gets laid off, you’re able to make that mortgage payment. You’re able to buy a car, and then you pay that car off within a two-year period. And then you’re driving a car that’s paid for. That feels very empowering not to have that debt. So we want people to get into the mode of doing something different, not always upgrading their home, meaning you’re in the home for five years, so now, you got to sell it so you can buy a bigger home. Who says you have to buy a bigger home? If the home fits your situation, your budget, your family, stay in the home. Pay it off early, and that way, you have options in the future.
Steve: To some people, the goal is, how much can I afford? How many balls can I keep in the air and still sleep at night? But I would submit that a better goal might be getting out of debt completely.
Mechel: Absolutely. Getting out of debt should be a goal for all of us. And it’s something that maybe you weren’t taught in school or traditionally by your family. But it’s something that we all can learn right now. And on our website at credabilityu.org, we have so many classes out there that are free for the public to just take those courses. And it teaches you step by step how you can actually put a plan together for yourself to get out of debt.
Steve: Mechel, thanks.
Mechel: Thank you.