Before we can continue on this fantastic journey, we have to tackle one issue head on, like a bull and his matador. But this matador’s feet are firmly entrenched, in fact they are so firmly stuck he can barely move. Looking to his feet he sees that they look perfectly normal, just a new pair of Yeezy sneakers glistening back. You right if you guessed they were paid for in the form of Credit Card Debt.
The Bull Approaches
“So why cant I move?” he wonders. The bull turns face, and snorts. The Matadors hands start to shake frenetically, moving the cape and apple watch in a syncopated rhythm. Everyone in the crowded arena (which happens to starkly resemble a mall) start to realize something is wrong, drastically wrong!
They all look on and see the Bull start to gain speed… 18.9 km/h? “Ha, that cant be so bad, I can easily dodge that bull for months, with no ill effects.”
But the speed suddenly increases, as if the bull has a roaring wind at his back, and now its ripping towards the matador at 22.47 km/h. Every month it increases, and at this rate in a little more than 3 years it’s doubled in speed! Nothing short of a Triple B patent pending roundhouse kick to the face, can dislodge one in this predicament!
Did You Guess My Name?
Yes, I am talking about debt. Specifically high-interest-18.9%-suck-the-life-blood-out-of-you-debt. $10,000 of credit card debt quickly becomes $20,000 -in a little over 3 years. Credit card interest is compounded daily.
Therefore, every single day you are carrying a balance there is a evil little mouse nibbling away at your cheese. And we all like our cheese. As a Buy Boss’r we like to think of everything in ten year terms, as this is the length of our forced working career.
The drain on your ability to successfully accomplish this goal is astronomical; every $10,000 at 18.9% interest over ten years is $66,000+. That’s essentially an entire year of net income, gone, a year of life completely wasted. Are you really willing to work 12 months, 250 extra days, that could be spent with your kids, with your family, or in any other admirable pursuit, for a mere $10,000?!
The True Cost of Credit Card Debt
It becomes quite easy to see how a relatively small amount of this debt can lead one down the path to a 45(or more!) year working career. If you are in this position you need to accept the roundhouse kick to the face.
You need to accept that without drastic immediate change you will relegate your life to the control of these lenders and to the products that you consume. By now, when you see others dashing from store to store with their credit card in hand you should have a feeling of pity overcoming you.
We need to take charge now, immediately, before you tap that card. This is a black ice, did I forget to put my winters on, moment. So until this debt is wiped out, no eating out. No Lattes. No front row concert tickets, you are listening from across the parking lot. That pair of Lulu’s is going to be gracing someone else’s body.
The Good, The Bad, and The Really, Really Ugly
There are 3 Kinds of Debt: The Good, The Bad, and The Really, Really Ugly
Good Debt is used as Leverage. This is akin to strapping a battery and motor onto our bikes; it helps us get where we are going a lot faster, with less work on our end. The lever is the oldest way known of gaining power through the application of basic math principles. -Sounds like the perfect combination for a Buy Boss’r, doesn’t it?
We can apply the exact same techniques that businesses use to expand and grow –to our personal finances. Busy Bees can do likewise and grow their Bye Boss Egg, their sweet little Honey Pot. $200,000 borrowed at 3% and put into an investment returning 10% will double in ten years, being valued over $400,000.
We will explore this further in a future article, first we need to focus on the the other forms of Debt.
Bad debt is often sold to us as a great investment -by those who stand to make regular fees, interest, commissions, and up-sell insurances on it. This is debt that either makes us very little or no income. The most common form of this is personal housing mortgage debt.
There is great value in having a home that is within 15km of your job, groceries, library, etc. This alone can save you $10,000 a year. However, many get fooled into thinking their home real estate is some magical money printing box.
Most working 60+ year old people seem to have a story of how they made a small fortune on their house. They paid $200,000 and in ten years sold it for $300,000! Easiest money they ever made… What they don’t realize is that all they experienced was the mysterious effects of inflation, with a modest gain returning 1.3% of actual profit. (The calculation is 200,000(1+0.043/12) ¹²⁰=$307,215.29 for you budding financial advisors)
Housing has historically made this very low return, of just over a percent above inflation, meaning the $300,000 has only 1.3% more purchasing power than the $200,000 ten years before you sold the house. From the 1.3% profit subtract -first the 1% property taxes paid every year, secondly the 1% spent on maintenance, thirdly .5-1% on insurance costs, and finally closing costs…
It’s easy to see that this money could have been better used if was leveraged as Good Debt.
The Really, Really Ugly:
Predatory Credit card debt, Pay Day loans, and other forms of high interest debt fall into this category. This is commonly referred to as consumer debt, it’s spent on consumer goods that depreciate faster than you can buy them.
Consequently, this is the kind of debt that will keep you working well past the ten or so years that is needed to retire. However, there is good news for those saddled with this happiness robbing affliction: You will have a hard time finding another place to put your money that will give as good of a return as paying off this debt.
So as you start on this trip to make your life more efficient and start killing that credit card debt, first with a couple hundred dollars, then a thousand, then several thousand dollars a month*, pat yourself on the back for making the best possible use of your money at this point in time.
The past is the past, and what is done is done. But from now on, going forward things are looking up, and soon you’ll look back at this as the first real triumph in your path to becoming a King B**. -The point when your passive income from investments is equal to your monthly expenses and you can put that crown on as a true King B.
What would Eastwood do?
If you’ve found after analyzing your finances that you are a victim of this dastardly crime, there are a couple of solutions available. As a Buy Boss’r always does things according to the most efficient method, with happiness as our end goal, we point our debt blasting gun at the highest interest credit card debt first.
Until the highest interest debt is thoroughly decimated, pay the minimums on all other loans. Then focus on the debt with the next highest interest. This ensures our hard earned dollar is getting the greatest value, effectively removing the power from the legs of the debt bull, slowing it as quick as possible.
Perhaps… If there was a way to turn this bull around and put the power of compounding interest in our favor… We will look into this soon.
However there is also another solution which may help. You may be able to get a low interest loan as a life preserver, and transfer the credit card debt to it. This can lower the interest by up to 15%, saving us $1500 the first year on every $10,000.
That’s equivalent to a free paycheck, just for making a phone call to the bank, or a few clicks of a mouse. So whatever we do, do not let that money sit idly collecting more interest, either kill it or transfer it.
If you use a balance transfer be sure to read the fine print. Most of them now include a fee that works out to 3 or more percent, and the “interest free” period is often less than a year.***
For a few dollars more
This would be a good time to take a look at the depreciating items we own and see if we can part with any of them. Kijiji, or various Buy and Sell groups on Facebook, are a great way to turn these items we haven’t used in months into bonafide credit card debt killing machines.
Always try to include an interesting sales pitch in the description. A Foosball table becomes an “Internationally renowned sport, sure to impress your friends at the next party!” while a tablet transforms into “A supersonic access point to the worlds knowledge, and Youtube!” Tongue in cheek descriptions make your items stand out from the rest and may put a smile on someone else face, at the very least. This helps potential buyers see you are an interesting person, someone that they would feel comfortable meeting.
Include high quality pictures, and apply your creative thinking to these as well. What to do if you’re just not sure if you want to part with that backup singing fish on a plaque? Set the price high enough that you will be happy if it sells, yet don’t regret letting it go for nothing. Letting the market decide when you’re indecisive, is a stress free win-win solution.
Credit Card Debt Relief
There. Doesn’t that feel better. Now, without credit card debt we can move on to getting out of this rat race. That was the hard part, from now on we are looking to the next 5 to 15 years and beyond. Soon we will look at the advantages of using credit cards, now that YOU are in control. Put that matador’s cape around your neck and let it flow out the back. I hope you like flying fast!
“The man who never has money enough to pay his debts has too much of something else.”-James Lendall Basford (1845–1915)
* Future articles will detail how to get to these savings levels, while living a rather lavish lifestyle.
** Substitute Queen B as needed
*** The effective interest rate is found as follows: Divide the balance transfer fee by the number of “interest free” months, times that by 12 months to get the annual percentage rate (A 3% fee for 9 months would be calculated as follows 3/9×12=4%, so the actual interest rate would be 4%, not 3%). If this is lower than what you are currently paying it may be worth doing the transfer. Be sure to have the balance paid off before it reverts to the full interest rate charged by the credit card.
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