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How You Got Into Debt

"No Money Down" "Easy Monthly Payments" "You've Been Pre-Approved"
"Just $9.00 a Month" "No Payments for Two Years"

how you get into debt

How many times a day do you see a credit card logo on a cash register? Why do they still call them cash registers when they really want you to charge anyway? How much is spent in advertising to get you to spend what you don't have just because you have room left on your credit card? Maybe you thought that sale was just too good to pass up. Maybe you thought that you could handle the payments and maybe you could until...late fees, over-the-limit fees, the increase of your interest rate, you got sick for a week or maybe there was even a real emergency.

Getting into debt is easy, just buy a few things that you can't afford to pay cash for and don't think about how many payments you're going to have to make before it's paid off completely. Getting into debt is fun; just go out to dinner and a show or away for a few days to make yourself feel better about the fact that you don't have the money to go out to dinner and a show or to get away for a few days. Getting into to debt can impress people. Don't drive around in something that you can afford to pay for, figure out how much you can squeeze out of your monthly budget, and if you don't have a budget even better just guess, then tell a car salesperson that you'd like to make 48 payments and see what you'll be driving around town in. The best part is you'll guarantee you'll be driving it to work for the next 1,460 days just to make the payments. Now that's impressive!

Take the "How Did I get Into Debt Quiz". Pull out one of your credit cards and determine how much you owe on it. Now, quickly, what did you buy for all that money? I'll bet you don't know because you bought stuff. Stuff you may not even have anymore let alone still use or be able to identify. Now ask why do you use it at all? Be honest. How does "I want stuff I can't afford to pay cash for" sound?

The Unexpected Event
Many people get into debt because of unexpected events, events beyond their control. The most common of these are medical bills and job loss. And the most common causes are lack of affordable medical insurance and globalization. Not only are these problems beyond your control they also appear to be beyond the control of our political system so don’t expect the problems to be fixed any time soon.

Globalization, the process of businesses taking their money to far off countries to earn better returns, is not new. In the 1790s Benjamin Franklin Backe published a newspaper called the Aurora. In it he wrote that he believed that the merchants of the day were “men who know no country but that where they can make money,” who “carry their capitals ships and our sailors to the country which will encourage them.”

The sad part, debt-wise, of having an unexpected event is that even though you didn’t cause the problem it is up to you to fix it. So whether you’re in debt because of an event or the "easy monthly payments" trap relax because I've got some good news. Getting out of debt is going to be even more fun than getting into debt was. I done both and becoming debt-free feels great. So if you're ready let's get started...but first let's discuss, Good Debt/Bad Debt and business debt.

 

Good Debt/Bad Debt

good debt versuse bad debt

Much like cholesterol, where there is good and bad cholesterol, debt comes in two versions. It can be okay to take on debt in a reasoned way for a good purpose. In fact many people become wealthy by borrowing money to invest in business opportunities. They call it using other peoples’ money. But my focus here is on how individuals spend their money on themselves. It’s how you spend your money.

There can be some very good reasons to take on debt. Financing education, for example, can be an admirable thing. If you go to school to increase your income potential, taking out a student loan would be a good thing. If you take out a $2,000 loan and you learn a skill that let’s you earn an extra $5,000 a year, you’d be crazy not to take the loan. If you take out a student loan because you don’t know what you want to do with your life and you don’t want to get a job, well, that’s not a good idea.

For most people taking out a mortgage is the only way they'll be able to purchase a home. This could be considered good debt. Because of the way mortgage payments are structured with the first few years being heavily weighted towards paying interest and mere pittance going towards principle, it’s a good idea to pay off even this good debt as soon as possible. Many wise financial minds teach that before investing in something that will give you thirty years of monthly payments it’s better to invest in income producing assets first, something like rental property.

Well, what about if there’s an emergency? Maybe the plumbing broke, or you have a medical emergency. Well let’s not be stupid about this, if its real emergency and the only way to pay for it is by taking on debt, then take it on. If you break your leg it's a good idea to take on the debt of a doctor's bill rather then waiting until you have the money to get the bone set.

Personal vs. Business

personal debt and business debt
Debt There can be some big differences between personal and business debt. But it mostly depends upon how the business structure is setup. If the business is setup as a sole-proprietorship then there really is no difference between the business owner and the business, it is all considered one entity.

If on the other hand the business is set up as a corporation then there is a vast difference between the business and the business owner, in this case the share-holders. This is true even if only one person owns all the shares. Legally the corporation is considered a separate entity and if the business has debt problems it doesn’t translate to shareholder debt problems. That’s why entrepreneurs like having their businesses in a separate legal entity.

It’s also why if you are considering going into business as a way to make more money to get out of debt it’s a good idea to have the proper business structure.

Is There Another Way?
Even with good debt you want to think twice before taking it on. Taking a student loan to improve your employment situation is a great idea, good debt. But wait, before you take on debt ask “Is there a better way?” There are many sources of grants, and yes a grant is money that you don’t have to pay back. So before you take the easy way and “Just sign here,” do some checking to make sure there’s not a better way. You need to be fully informed as to the terms and conditions of any loan before you take it. You should always shop around to see if there is a better deal, better terms or a way to avoid taking the loan out at all.

One way to avoid having to take on even good debt is to plan in advance and save money on a regular basis. If you’ve been driving for a while you have probably had a flat tire. Because everyone gets a flat tire once in a while it couldn’t really be considered an unexpected expense. Do you have money set aside for your next flat tire? Well, you should. If fact you should have money set aside that would cover a variety of “unexpected” expenses. If you do you can deal with life’s little surprises without upsetting your monthly budget. You will have to pay yourself back but you won’t be charging yourself interest or calling yourself at dinner demanding payment.

So, yes, there is good debt under certain conditions, just be sure that you’ve investigated other ways of taking care of it before you sign your way into debt. And if you do take it on don’t allow yourself to feel burdened by it. You did what you had to and you’ll pay it off.

Now Let's Get Rid of Your Debt!
Now that you've got a better idea of what debt is, how it been marketed and advertised in the form of easy payments and how you've bought your way into a lifetime of payments, it's time to get out of debt! Get ready because you're going to learn how to do the I Hate Debt Two-Step.

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Debt Calculator

See how long it will take for your debt to get paid off with one of these four options. We have listed a standard debt amount as a default on the debt calculator. You will need to enter your current personal or business debt amount below to see what your debt payoff amounts will reflect.

What's Best For You: Minimum Payments?

Debt Consolidation?

Credit Counseling? Debt Settlement?
Total Unsecured Debt $30,000.00 $30,000.00 $30,000.00 $30,000.00
Months To
Get Out Of Debt
430 60 60 36
Interest Rate 18.9 % 12 % 10-12% Ave None
Total Interest Paid $49,978.53 $10,040.01 $21,300.00 None
Monthly
Payment
$900.00 $667.33 $855.00 $458.33
Total Cost
To Be Debt Free
$79,978.53 $40,040.01 $51,300.00 $16,500.00
Monthly Payments   Months To Get Out Of Debt   Total Cost To Be Debt Free
$900.00
$450.00
$0.00
 
430
215
0
 
$79,978.53
$39,989.27
$0.00
Minimum Payments Debt Consolidation Credit Counseling Debt Settlement
Enter Your Debt Information Here:
Your Total
Unsecured Debt:
Your Average
Interest Rate:
Months To
Be Debt Free:

 

PLEASE NOTE: This calculator gives you an estimate of how much it will cost you to get out of debt, how long it will take and how much your monthly payment may be with the different options to pay off your debt. Keep in mind "Minimum Payments" assumes you NEVER make any further purchases on your credit cards and the credit card companies NEVER raise the interest rate on your cards in the future from the rate calculated above. The "Debt Consolidation Loan" example is usually only possible when taking out an "equity line of credit" or "second mortgage", which involves securing your unsecured debt with your home. This is a very risky option for most people because the home could be foreclosed if you cannot make the payments.