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Debts come in all shapes and sizes. The important part of solving a debt problem is to stop creating more debt, then get serious about reducing your expenses and increasing your income. Chimorel will support you with both reducing expenses and increasing income. You must decide to stop creating more debt. If you can’t pay cash for your car, take the bus, then work with us to find a car you can pay cash for or have your business buy the car and deduct the interest expense. Cut up the credit cards. Eat at home instead of charging your meals at a restaurant. Work with Chimorel and earn the food you need.
You are about to enter a debt reduction program that is tough, real and doable. You must find the discipline to make it happen
Why Is Debt Bad?
Let me speak from personal experience. Our family earns well over $100,000 per year. Years ago, however, I had to decide whether to eat for the week or replace my shoes with holes to my bare feet. (I bought the shoes.) Along the way I have had to dig my way out of thousands of dollars in debt. Each dollar in interest or late payments I have to spend is a dollar I can’t use for something more important. I know how it feels when my dreams crumble because of “too much debt.”
Now you need to take a realistic look at your debt. What does interest at 31% mean in terms of your ability to provide for your family? Do you pay a higher price when you use credit instead of negotiating for cash? How do you feel when the creditors start calling? What happens to your self-worth when you can’t pay your bills? What happens to your retirement plans, your ability to tithe, the vacation or home you dream about when interest steals your money? What are you going to do about it?
What Can I Do?
One more time! You are entering a debt reduction program that is tough, real and doable – but you must have / develop the discipline to stop creating more debt, to reduce expenses, to increase your income and to pay off your debt. Here is a summary of the program:
1. Develop the discipline.
2. Stop creating debt.
3. Reduce expenses.
4. Increase Income
5. Pay off your debt.
There is a lot more to the program, but these are the essential elements. You may want to consider a Biblical Perspective. You may also want to reflect on Dave Ramsey’s perspective.
Develop Discipline
Discipline is something that happens inside of you. We can give you reasons to become self-disciplined, but we can’t decide for you to change the habits and patterns that you have acquired over your lifetime. To make these changes you will have to follow a new set of patterns or habits for at least twenty days. Then keep certain habits going for life.
The first new pattern is to pay cash or write a cash-able check for everything you buy. Rather than cutting up your credit cards, freeze them. That’s right! Put them in a bag of water and then in the freezer. You could replace cut up cards with a phone call. If you un-thaw your cards before you use them, you’ll reduce impulsive purchases and think about your “needs” while waiting for them to thaw. Once you consistently pay “cash” you will start to become debt free.
There will be many other patterns or habits we will suggest. We will not number each one. When we use the words pattern or habit, pay attention.
Reasons to Develop Discipline
Paying interest buys time, not something you need. The average American household owes more than $8000 in credit card debt with interest ranging from 18-30+%. Let’s say you are better than average. You only owe $5000 at 16%/yr. Pay it off in a year at $450/mo and interest will cost about $400. Take ten years at only $84/mo and interest will cost you $5080 or more than you borrowed originally. Without debt you could buy twice as much. Invest $5000 at the historical 11% average stock market return and have $23,000 to spend in ten years or much more at retirement. Learn the habit of paying off your debts quickly and have more purchasing power. Learn the habit of saving and investing and have more at retirement.
Using credit is like using alcohol. Done in moderation it is less painful. Abuse it and it can destroy your life. Approximately 10% of Americans are alcoholic. Close to 50% of Americans suffer from excess use of credit and almost everyone has gone on a shopping binge with credit cards at least once.
The primary reason to develop the discipline to avoid future debt and pay off your existing bills is that debt robs you of future purchasing and retirement power, as well as, establishing a bad example for your children and their children.
The habit can start when you are a college student who gets a 6.9% card and spends only $104/mo on credit for four years. Within six months the rate jumps to 18%. At graduation you get a job and begin to pay off more than $5000. If you never charges another dime and makes the minimum payment it could take 43 years and (could it be?) almost $18,000 at 18%. The reality is your habit is now well established and your family will spend thousands on credit each year, loosing perhaps $150,000 in day to day purchasing power and more than $1 million in potential retirement funds. $1 million at 7% would give you $70,000 for the rest of your life at retirement and give your children and grandchildren a good start (and a great pattern) when you are gone.
Stop Creating Debt
The average American lives month to month with no cash reserves and less than $100/mo above their bills. To stop creating debt you must decide to stop using credit cards and other forms of high interest debt. Freeze your cards, take them out of your wallet and hide them, cut them up or simply decide that “If I can’t pay cash, I won’t buy it.”
Difficult as it may seem, you need to create an emergency fund. Click for some ideas on how to Create an Emergency Fund. Next make a list of all your debts. Learn about a Debt List Form. Now develop a solid budget. Learn about a Budget Form.
Without an emergency fund a car repair or broken refrigerator or some other emergency can force you back into the use of debt. It is critical that you include every debt you owe on the debt list form. A solid budget means you have money left at the end of the month to pay off your debts.
Reduce Expenses
Do you get a substantial tax refund at the end of the year? Change your W4 so that you receive a $200 refund instead of a $3800 refund and add $300/mo to your ability to pay off your debt.
Buy the least expensive, quality insurance possible. Increase your deductibles, but make sure your cash reserve will cover the higher deductible. Shop your insurance to get the best rate for the coverage you need. Buy term and use the difference to pay down your debt. Use the cash value of an existing policy to build your cash reserve or pay off debt. Don’t terminate a policy until the new policy is in your hands. Be sure a medical condition does not keep you from getting the coverage you need.
Medical expenses are a significant contributor to personal bankruptcies. In part this is why you need health care insurance and a modest emergency fund. A large hospital bill is another story. See Hospital Planning for this contingency.
Trade your low yielding bonds and savings accounts for your high interest debt. Eliminating a 21% interest rate is a better investment than a poorly performing stock. Temporarily stop adding to your 401k, unless your employer’s match is over 50% or your tax bracket is high enough to warrant continuation.
You can live without cable, nail care, expensive restaurants, memberships and magazines. Home school instead of a private school or go to a state college instead of a private college. Restructure your business to take the maximum deductions possible.
Every $50/mo you save can mean $80,000 in 25 years at 11%. Just think what it could mean in reducing your 21-30+% debt load. This suggests paying attention to many small details can pay real dividends.
Minimize speeding and follow parking rules. Tickets are expensive. Tickets and accidents increase insurance premiums. Speeding uses more gas. Shop for car insurance and take advantage of discounts for low mileage, safety features and alarms. Pay attention to gas prices and keep your RPMs below 3000. Find a good, honest mechanic who does not inflate rates or recommend unnecessary work. Rotate tires, keep them properly inflated. Walk, carpool or take the bus. Follow your maintenance plan. Change oil regularly. Verify that your insurance covers rental cars and check no on insurance when renting a car. Buy new/used cars at a discount. Ask us how.
Take water and/or coffee to work or get your employer to provide. Take a trip to the water fountain instead of buying a snack. Brown bag or take leftovers instead of buying lunch. Invite friends to a potluck at your house instead of eating out. Use restaurant coupons. Turn the thermostat up in summer and down in winter when you’re away. Insulate the water heater. Turn it down when you’re away.
At the supermarket use coupons and buy on sale. Cook more than you need and freeze half. Unthaw and reheat instead of eating out. Eat homemade soup. Cook from scratch periodically. Cover your pots to save energy. Re-engineer leftovers. Freeze aging bananas, then make banana bread when you have time. Rework recipes rather than running out to get ingredients. Use 1/2 pound of beef instead of 1lb. Grow your own food. Eat more vegetables, less meat. Make your own cleaning agents. Bleach in a squirt bottle, instead of Tilex. Vinegar and water, instead of Windex. Use all the toothpaste in the toothpaste tube. Wash and reuse Ziplock bags. Do your own home maintenance.
Don’t smoke, drink or use drugs. Exercise more, shop less. Watch exercise programs on TV instead of buying an exercise video. Tune in to what you spend on various activities and eliminate expensive habits. For example, buy less expensive golf clubs and play cheaper courses. Take up hiking or gardening. Turn a hobby, like woodworking or writing, into an income source. Use the library instead of the bookstore. Go to cheap theaters. Reduce, reuse, recycle. Use a wish list, instead of a shopping list. See if the urge passes. Barter instead of buy. Ask for discounts and sales. Negotiate lower interest rates on your credit cards or change cards.
That maybe enough for now. If you want other ways to reduce expenses, learn about Reduce More Expenses. When you become a Chimorel client, we will work with you to develop the discipline.
Increase Income
In the long run, increasing your income will be at least as effective and probably more effective than reducing your expenses. Let’s start with a few obvious possibilities. If you don’t have a job, get one. Any job is better than no job. As quickly as possible move in the direction of a job that makes you happy, fulfills your life purpose and pays more than you need to pay off your bills.
If you have a job, get a raise or get a better job. Get a second job. Start a business that actually makes money. Stay with your day job until the business is making more than you make on your day job and the opportunity to continue to grow is real. If you want to explore additional ways to Increase Your Income, click this link.
Finding ways to increase your income is one of the significant ways Chimorel enables people to enhance their life. We are only going to make a few suggestions at the moment. You can explore many other areas of the website and will eventually want to become a member or join a program.
Explore our Cooperative Effort program. Investigate the many “work at home” possibilities, but be careful. Many work at home alternatives tend to spend more money than they earn. If you have the right personality, there are hundreds of multi-level opportunities. Once again, be careful. Many multi-level alternatives reward a few, while the multitude do all the work. Learn to buy real estate. Again, be careful. It is harder and riskier than the promoters tell you. Start your own business. Again it is harder and riskier than it might seem.
If you genuinely want to increase your income, we give you many opportunities. If you don’t mind volunteering some time to learn and have some marketing talent, you can become a Chimorel Resource Developer. Chimorel Resource Developers can earn $15,000+/yr part-time and $50,000+/yr full-time. Once again, be careful. You could spend a lot of time and not earn much, if you don’t have the right combination of concern for others, organizational skills and marketing talent.
Develop an abundance mindset. This is not as easy as it sounds. Start by reading the book The Key by Joe Vitale.
Pay Off Your Debt
Paying off your debt starts with your commitment. Until you decide to stop creating more debt and do what you must to generate the funds, it won’t happen. We can give and have already given you many suggestions. You have to reach down deep inside of you and make it happen.
Paying off your debt ends when your debts are paid off. Be sure that this is real for you. Once you get rid of your debt, don’t let your impulses change your newly developed discipline. Pay cash for everything you buy, unless …
We’ll give you the chance to think about using debt wisely in a minute, but before we do, make absolutely sure you have the self-discipline to stay out of debt now and in the future.
Wise Use of Debt
STOP !!! sTOP !!~ StOp @#!!
STOP !!! We have just spent a great deal of time getting you out of debt. Now is not the time to let impulse change your newly discovered discipline. If there is even the remotest possibility that you will re-create a debt monster in your life, do not explore the Wise Use of Debt. Instead go on to What Do I Do?
At the risk of irritating you, we must insist that you recognize the possibility of using debt unwisely and the problem that can enslave you. Alright, consider yourself warned.
Debt, if used wisely, can become a significant part of developing a business or part of your investment portfolio. In business a 1:1 or perhaps a 2:1 debt to equity ratio can leverage your ability to grow your business.
When investing in real estate, your 10% down (or even nothing down) can enable you to develop a substantial portfolio when your tenants pay off your debt. If you know what you are doing, you can enhance your stock portfolio by buying on margin. Getting your suppliers to allow you to buy on credit can give you more merchandise to sell and allow you to make more sales. If you have the discipline to use these strategies wisely, you will make more money.
Buying a house with a low fixed rate means that you can live in a house and build up equity in the house instead of paying rent. And your interest is tax deductible, meaning the rate of interest you actually pay is less than it would be without the tax advantage. As inflation creeps in, you actually pay off your house with cheaper dollars, assuming your income grows faster than inflation. If you buy using a credit card and pay off your bill before the due date, you can actually enhance your investment portfolio.
2:1 Debt to Equity: If your suppliers allow you to buy your inventory on credit and you turnover you inventory once each year, a 1:1 debt to equity ration means you can sell twice as much. If you have a 21% net margin, turn your inventory once, and a 7% interest rate a 1:1 ratio adds 14% net profit to your bottom line. A 2:1 ratio doubles the volume on which you earn an extra 14%.
Bad Business Leverage: Warren consulted with a businessman who was making sales on accounts receivable which took about 45 days to collect. His gross profit margin was about 40%. He sold his accounts to a factor at a 35% discount. His business expenses were approximately 20%. He was loosing close to 15% on every sale. We found him a bank that would buy his receivables at a 3% discount. He refused to change. We terminated our consulting. He’s no longer in business.
The bottom line: Wise use of debt can significantly improve your profitability. Bad use of debt will put you out of business.
Nothing Down Real Estate – Up Side: You buy a $100,000 property for $80,000 and convince the seller to take back a mortgage for the full selling price. Then you sell the property for $90,000, pay off the mortgage and make a little less than $10,000, depending on the interest you paid the seller.
Low Down Payment – Down Side: You buy a $1,000,000 property with a $5000 down payment and leverage the rest through bank loans and seller financing. The property has one tenant who has been there for five years and the lease is up in six months. The tenant moves out at the end of the lease. The bottom drops out of the real estate market and the most you can get for your property is $950,000 and you have a $45,000 plus interest minus six month’s payments problem.
Buying on Margin – profit: Buy $50,000 stock which doubles in value in six months and earn $50,000. Now buy the same stock on 50% margin with interest at 7%. You invest $50,000. The stock doubles in six months. You earn $75,000 but pay $875 in interest.
Buying on Margin – loss: Buy $50,000 stock which drops to $25,000 in six months and lose $25,000. Now buy the same stock on 50?% margin with interest at 7%. You invest $25,000. The stock drops to $25,000. You are wiped out and still pay $875 in interest, so you lost more than you invested.
Your home appreciates 20%: You buy your home for $100,000. Inflation is 4% and in five years you are able to sell your home for $120,000. You earn 10% raises each year, so your $25,000 salary is over $35,000 in five years. You put $10,000 down and finance $90,000 at 5.5% for 25 years. Your $553 monthly payment is 26.5% of your income when you start, but only 19% of your income five years later. You have a $20,000 profit. Your mortgage balance is about $83,000, so you have $37,000 from the sale plus $3000 in savings or $40,000 for a down payment. This time you buy a four family home for $500,000. After a 10% vacancy factor you anticipate your tenants will be paying you $2295 per month. Your new mortgage payment on $460,000 is $2612/mo. Your monthly difference is $317 or approximately 11% of your income. In the future you may be able to have no monthly payment and be able to reduce your income substantially with depreciation and other expenses thus paying lower taxes.
Your home drops 10% in value: You buy your home for $100,000. The market in your area drops 10% and your home can only be sold for $90,000. After five years you still have an $83,000 mortgage. Your $10,000 down payment is now worth $7000. Nuff said.
You can pay off your balance each month: Let’s say you pay all your bills and make all your purchases with a credit card for an average monthly charge of $4000/mo. Because you delay the payment of $4000/mo consistently every month by paying the card off before incurring interest charges, you actually create $4000 to invest. If invested at 10% you have an extra $400. If you get back 1% on your purchases or use Upromise or airline miles, you may have some extra benefits for your kids college or trips or cash back. In 25 years this would grow to more than $40,000.
You can’t pay off your balance each month: $4000 at a modest 9% will start the debt spiral we have already discussed. In time the spiral will move to 12%, 18%, perhaps even 31%. Now you are in trouble and your $40,000 potential excess may turn into years of “slavery” to the debt monster.
What Do I Do?
Let’s summarize the program one more time: 1. Develop discipline. 2. Stop creating debt. 3. Reduce expenses. 4. Increase income. 5. Pay off your debt. If you want to go back to the start of solving your debt problem to review go to the top.
If you want support solving your debt problem, call us at 614-885-0000 to start your debt reduction program today.
The Bible speaks very powerfully to the enslaving power of debt and quietly suggests that the only thing you should owe is love to others. Let’s follow a series of Bible verses designed to bring home this possibility.
Regardless of your religious persuasion, the Bible speaks to debt in a powerful way. Listen carefully as it speaks to you:
First the dark side
“I have been deprived of peace; I have forgotten what prosperity is.” Lamentations 3:17
“Better is a dry crust of bread with peace and quiet than a house full of feasting with strife.” Proverbs 17:1
“No one can serve two masters. Either he will hate the one and love the other, or he will be devoted to the one and despise the other.” Mathew 6:24
“People who want to get rich fall into many temptations and a trap and into many foolish and harmful desires that plunge them into ruin and destruction. For the love of money is a root of all kinds of evil. Some people eager for money have wandered from the faith and pierced themselves with many griefs. Timothy 6:9-10
“There is a way that seems right to a man but in the end is destruction.” Proverbs 14:12
“Be self-controlled and alert. Your enemy the devil prowls around like a roaring lion looking for someone to devour.” 1 Peter 5:8
Now listen carefully to the effect of debt
“The alien who lives among you will rise above you higher and higher, but you will sink lower and lower. He will lend to you, but you will not lend to him.” Deuteronomy 28:43
“The rich rule over the poor, and the borrower is servant to the lender.” Proverbs 22:7
“Stand firm then, and do not let yourselves be burdened again by a yoke of slavery.” Galatians 5:1
And what should you do?
“Owe no man anything, but to love one another …” Romans 13:8
Now a burst of hope!
“The blessing of the Lord maketh rich and he adds no sorrow to it.” Proverbs 10:22
“Do not conform any longer to the pattern of this world, but be transformed by the renewing of your mind.” Romans 12:2
“And my God will meet all your needs according to His glorious riches in Christ Jesus.” Philippians 4:19
“Give and it shall be given to you, good measure, pressed down, running over …” Luke 6:38
You do not need to have Christ in your life to understand that the love of money and the yoke of debt can enslave you.
When your only obligation is to love others, you take a step toward true wealth and real freedom. Along the way you might discover a Source of Strength which teaches you the discipline to become truly debt free.
Hospital Planning | Emergency Fund | Debt List Form | Budget Form
Reduce More Expenses
Before we make more suggestions, be sure you considered all the suggestions we have already made on the Debt Reduction and Stop Creating Debt sections above.
When we Googled Reduce Expenses, we uncovered these links. Depending on when you are reading this you may find these links or other ones.
Simple Dollar – 40 ways to reduce expenses
Wiki How Reduce Expenses – 11 Parts with subparts
Tackling Our Debt
You can use Google or another search engine anytime you are looking for more ways to do something.
Increase Your Income
Start your free Success Journey. Lesson 7 offers more than 100 ways to generate revenue. Of course, you can also Google ways to increase your income.
The secret to increasing your income is to find what you are really passionate about and what you could be the best in the world at doing. Once you are on this path magic will happen.
