After finishing “The Frugalista Files,” I picked up Dave Ramsey’s “Financial Peace Revisited.” I’m plowing through. Today, I reached Chapter 8 “Dumping Debt.”
Ramsey is reiterating some great points. I dog-eared a bunch of pages.
- On Page 69, he talked about changing your belief system, your visual paradigm, your filter. He used this example.
I AM NOWHERE
I AM NOW HERE
Just a few days ago, I saw that phrase on someone’s license plate and started playing with the ‘w’ and the ‘h’ and the space. I chose to go with the more positive route – I am now here.
2. So these numbers are scary. “On average, cardholders carry a $8,367 balance on their cards from month to month (160 percent increase since the past decade), paying on average 18.3 percent in interest. That amounts to $929.70 a year in interest payments, according to RAM Research Corp.”
3. On page 85, he stated that debt consolidation is not always the right choice. He sounds like Michelle Singletary, who says debt consolidation is basically taking on another debt to pay off the previous debt. Doesn’t make sense, right? Consolidation could lower your monthly payments now, but you might end up paying more later. Using the snowball method, folks could pay off their debt faster and at a lower rate than with consolidation, Ramsey said. I’m glad I didn’t take the “easy road” with consolidation some weeks back. My problem now is sticking to the snowball method or Debt Dash Plan (DDP). If it ain’t one thing, it’s another.
4. Ramsey says: “If you’re going to avoid borrowing money, you should definitely avoid co-signing on someone else ‘s loan. When you co-sign, you borrow the money.” If the other person doesn’t pay, then the lender will come after you.
5. If you must borrow money, Ramsey says, then follow two basic guidelines. First, (1) borrow on short terms and only borrow on items that go up in value. “That means never on anything except possible a home, which you should pay off as soon as possible.” Next, (2) if you can, buy less, so that you can pay off faster, and then make sure you get a very low interest rate.
If you were to finance a $80,000 on a home at 10 percent, you could pay a 30-year mortgage (360 payments at $702/mo. = $252,720 total) or a 15-year mortgage (180 payments at $860/mo. = $154,800 total). By paying $158 per month for 15 months, you save $97,920 overall.
“In order to get out of debt, quit borrowing more money.”
6. “Our problem is not getting out of debt; it is keeping out of debt.” Ain’t that the truth, Ruth. One credit card I’m trying to pay off is one that I had already paid off. Crazy, right?!
And just like I told Teacher and my classmates in the personal finance workshop, Ramsey said “Get mad!!!”
“You can’t scheme, scam, or borrow money your way out of debt. You just have to get mad.”
7. Debt = slavery.
It’s no coincidence that Ramsey book-ended this chapter with Proverbs 22:7 – “The rick rule over the poor and the borrower is servant to the leader.”
A few years ago, I used to have that phrase on my mirror. I thought I was going to work through my issues then, but I reverted to my old ways, ironically, when I started making more money. I started borrowing again, therefore, willingly enslaving myself to the credit card companies. There’s that full circle I was talking about.
It’s funny how “slavery” has been a hot topic the past few years in entertainment. I saw several movies regarding the topic – Lincoln, Django: Unchained and Oscar-winning 12 Years A Slave. Kanye West rapped about the “New Slave” and J. Cole rapped about getting another expensive chain, saying “I chose this slavery.”
My goodness. I chose this slavery. SMH. Not anymore.