We are living in an age of credit, where money is often created out of thin air!
Credit is okay in many cases, so long as our debt is well below our earnings.
But sadly, that is not the case with most of the people out there.
Welcome to iamwealthguru, In this article, I will provide you with the information and insight necessary, to keep you ahead in the credit game.
My aim is simple, I want you guys to reap as much benefit from the system as possible, without being too much exposed to the system.
Is credit evil?
Let’s face it, the economic machine built by our forefathers is not the perfect example of financial engineering.
There are many flaws in the financial system, and of course in the participants of the system as well.
Read this post carefully, read twice or thrice if necessary, but prime your mind with the message of this article.
You have got to get rid of that debt and that too fast!
In any economy we have three fundamental ways of making payments.
- Barter- exchanging one good for another.
- Cash-using paper money to buy stuff.
- Credit-Making a promise to pay at a later date that is mutually agreed.
Many people don’t barter now a days, as it is not a very convenient option.
What is the problem with cash then?
Well, many people will not be having enough cash with them at all times to meet all of their requirements. This is where credit comes in.
Credit is a very important concept in any economy. Credit allows people to constructively consume and hence, participate in various economic activities thereby driving growth.
The key word here is constructive.
The moment we begin consuming things that just don’t add enough value to us, or that does not increase our productivity, we begin abusing our credit.
So credit is not evil. But if abused, it surely can be a weapon of mass destruction.
US credit card crisis.
The population in the United States is more indebted today, than ever.
Revolving credit is near one trillion dollars as per the federal reserve.
Irrespective of the angle from which you see the data, you will realise that it’s quite ugly.
An average millennial carries over $6,000 every single month!
The situation is particularly concerning as a significant amount of this debt belongs to the student community.
Credit card and student loan debt is crushing the back of an average american student.
This is not just bad for the student, but also for the nation as productivity of students will fall under the pressure of such enormous debt!
The debt levels have exceeded the previous records set during the 2008 financial crisis.
Public memory is terribly short!
But you cannot ignore this. You have to change yourself and pull yourself out of this mess, to lead a more secured and peaceful life.
to get more insights on US debt owed by students click here.
I am not some who predicts dooms day. I just want you guys to be aware of the situation and take necessary steps before it’s too late.
The crisis is bad from every angle. Still if you like data crunching, you can click here.
Should I be worried?
Well the answer is no. ‘Why?’, you may ask.
Because worrying perhaps is not the solution at all.
Remember what I said in the beginning. I want you to stay ahead in the game.
So drop your tensions and answer these questions (honestly).
- Is your credit utilization high (above 50%)?
- Do you often procrastinate about paying credit card bill.
- Did you checked your precious card statement?
- Do you have a strategy behind any purchase that you make on credit?
Now, friends just repeat your answers to yourself.
I need not give any score sheet to calculate your marks!This exercise is not about awarding you any score.
Clearly, if you use your card heavily, carry forward payments often, don’t bother to check statements and don’t plan your purchases, then you are in a big trouble.
Don’t do this to yourself.
Now, I am going to present to you with five tips to get out of the debt ASAP.
1.Start maintaining budget.
This is not the first time you heard this. Let’s admit this that we don’t really give priority to budgeting.
Forget priority, we don’t even consider it necessary. But that is a wrong approach.
If you carefully pay attention, you will realize that any institution or business cannot afford to forgo budgeting exercise.
Budgeting is crucial for a firms survival
would you ever consider moving to a country where budgets are not prepared? Of course not. Such a place will be hell.
All the companies big or small budget each and every expense for the coming year.
It is not just about planning or meeting target, it is about your survival.
Start budgeting from today.
You must be wondering ‘where to begin from?’, you can start on any spreadsheet or notebook.
There are many apps available for making budgets as well, but i would advise you to stick with a notebook or a spread sheet.
You must develop this habit of preparing budget and revisiting it month after month.
You can come back a couple of month later and like this article once you start seeing the magic 🙂
One problem I see people making is that they try to make things complex.
You don’t need too many formulas, or complex macros on a spreadsheet.
You need not decorate your budget with too many heads.
I agree we live in an age of data, but too much data is garbage.
Make your budget simple and easy. Keep it at a place and maintain it like Bible.
That’s it. you will see magic happening within months. You will slowly see yourself getting out of debt.
Don’t fall for charts or graphs. There are good, but you will do fine without them.
So start budgeting from today.
Let’s go to Tip#2.
2.Restructure your credit.
This one is really important to get out of debt fast.
Credit card debt usually attracts a high rate of interest. If you have any asset like a house or a car, consider getting your debt transferred to that house or car from your card.
This will enable you to pay off your credit card immediately from the premium received as a result of restructuring.
Usually a debt transferred on to an asset like a house or a car carries lower rate of interest as it is backed by something tangible, something valuable.
No Problem, let me give you an example.
Let’s say John owes a credit card company $10,000. The rate of interest charged say, 15%.
if John decides to pay $500 every month towards your debt, it will take you approximately 24 months to pay.
And math says that you John will have to pay around $1600 in interest.
That’s huge amount of interest!
On the other hand if John chooses to convert his credit card debt into a more secure form of debt then the interest payable can be as low as 2%.
If John own a car, he can easily transfer is debt onto his car, payoff his credit card debt and slowly payoff his ‘new car loan’
Assuming 2% interest rate, John will payoff the debt in 21 months with a total interest of just $170.
Amazing isn’t it.
If you want to figure out the math for your situation, click this link and punch the numbers.
3. Create more value.
The fundamental reason why your debt situation refuses to improve is because you are not creating enough value.
If you use your credit limit to make strategic purchases that boost your productivity and helps you attain a specific goal, then the debt created is an asset.
But ask yourself, do you ever think like that before using your credit card to create debt.
Well if not, start thinking now.
The moment you change your perception of your credit, your debt automatically comes under control.
If you want to know more about credit card management and credit score, check out my article here.
4.Invest in yourself.
Tips I have mentioned so far will help you immensely, but only to an extent.
If you are heavily in debt, you must become extremely skillful and valuable to command more money in the market place that will help you get out of debt and lead a much better life.
You must invest in yourself. But be careful not to over invest.
Many people take this advice too zealously only to find themselves in more debt than before.
You got to be persistent in your choice.
One cannot decide to be a programmer on day one and a singer on day 2.
You cannot buy a mac book on day one and a guitar on day two. Treat yourself harshly if required, push yourself to the limits to find out what you are really good at and improve yourself in it by strategically investing on you education.
Happy learning friends. There is no joy higher than this!
If you need help in career planning , you can refer to my previous article here.
5. Create systems for passive income.
The concept of passive income is all over the place.You will find zillions of articles on this topic, also videos and podcasts.
Go ahead, read them, listen to the podcasts, watch those videos.
Friends try to create a system, slowly but steadily that will ensure that you earn a decent passive income.
If you think trading your time for money is enough, better think again.
There is no harm in working, I work full time and like what I do.
But trading your time for money may not make you rich.
You must find out innovative ways to deploy your capital so that your money works for you and provide the financial support whenever you need.
You can start a blog, invest in real estate, put money stocks and what not.
The list is growing bigger than ever. So don’t stop yourself and try to build a passive income.
I am sure these tips will help you get out of your debt and live a life of abundance.
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If you think it can be improved, please provide your valuable comments below.