How to get out of debt

How to get out of debt

Debt is slavery

The debt you have around your neck is no different from iron chains. The debt makes you a slave. Most people scoff at that statement, but let’s take a look and see if it’s true for you or not.

Do you have a job you must go to even when you don’t feel like it?
Do you need your job to provide for your housing, food, transportation, food, medical?
Do you pay interest every month to any banks, credit card companies or finance companies?
Do you have a car you’re paying off?
Do you have a house you’re paying off?
Do you wish you could go on an exotic holiday to another country but can’t afford it?
Do you still have a balance on your credit cards owing each month?

I’m sure you get the drift. Debt is the modern slavery and it works so exceedingly well because the slaves think they are free. In reality, the slaves are working hard and paying their masters like clockwork each and every month.

The slaves need their meagre paying jobs to pay their debt masters (the banks) and to live in a house they don’t like, drive a car they don’t like, etc etc.

The only way to true freedom is to realize debt is slavery and to bust out of it.

There are two ways to get debt free; one is the patient, disciplined way and the other is a fast and reckless way. I’ll cover both and leave it to you to decide which method suits you best.

The Patient, Disciplined Method

This method does take patience and focus and a big helping of discipline, many people lack all those things these days due to shortening attention spans and the desire for instant gratification. If you have actually read all this and not just skimmed then this method is probably best for you.

This method will achieve the desired status of debt free in the best way possible because it will not only get you debt free, it will lay a solid foundation for you to become wealthy.

Lets get to it

Cut your credit cards in half.

Yes, all of them, destroy them and never use them ever again. Credit cards is what got you into this mess in the first place, they are not your friend. They are not a “status symbol” they are just a crutch which comes with an unbelievably high interest rate.

They are an iron yolk around your neck, keeping you forever in slavery to your banker.

To get out of debt you simply cannot keep getting loans right?

So no more financing furniture, holidays, clothes, food entertainment. You must live within your means.

This is the first step and must be taken or you will slip back into using them again in a short time, because it’s so easy to do. If you simply don’t have any credit cards anymore, the temptation to use them is negated.

So let’s stop racking up debt so you have a starting point to become debt free.

Create a $1,000 Emergency Fund

Work toward having $1,000 in an emergency fund, this will cover most unforeseen events without the need to use credit cards or get a loan. Saving is going to become one of the foundations for you, so, might as well get started on it now.

Make a Realistic Budget Which You Can Stick With.

Yes, I know this is something we always hear and guess what, it’s for a reason.

It works

Make the budget weekly as its often easier to get started when thinking weekly, but, of course, monthly is fine too.

Start with your income, everything you take home, write it down in the income. Add in anything else you happen to earn, like selling things on Ebay or working extra jobs, or commissions. Keep it real.

Then write down all your expenses, be thorough and once again, keep it real.

In 1992, a large Building Contractor owed my company over $500,000. They went broke and dragged my company down as well. This left us with huge debts which we were unable to service.

I will explain some more about what we did in a moment, but we knew we had to do whatever it took.

We sold our house, our cars and bought a cheap old car. We closed our office, fired all our staff, returned all leased vehicles to the finance company, sold all personal assets and even had a garage sale to sell everything we could.

The day we moved out of our home of 14 years we basically had a suitcase each and that old car. We had to go live with the in-laws for a year.

After doing all that we still owed a truckload of money.

We appointed a liquidator to wind up the company and to arrange a meeting with our creditors.

Shortly after this, I was summoned to the Taxation Office and to bring all my accounting records. That’s really scary, I was super stressed going into the tax investigators office. He began by bullying me about all the payroll tax we owed the Government. I’m quacking in my boots and told him we had appointed a liquidator.

He asked if I could prove that. I showed him the liquidators business card, whom he proceeded to call. After being convinced that what I said was true, his entire attitude changed completely.

All he said was “Ok, well that’s the end of that, you can go”

I asked him “How come?”

He explained that the Taxation Office is just an unsecured creditor and knew from experience there would be no payout to them so they were finished with the matter.

That was all news to me, but very welcome news.

We eventually had a meeting with the interested creditors, which was 7 or 8 guys. They were quite mean and hostile toward us which made it all very uncomfortable.

After an hour or so we hammered out a deal which was later ratified by the Court. Now I was legally obligated to pay these guys back about 10 cents on the dollar.

It took 4 years but I finally paid them every cent.

As I was saying, we knew we had to do whatever it took. My wife even went and worked for a large company washing their company cars every day. I sold parking control equipment and joined Amway. I went to work at my job every day and every night I was out doing my Amway business.

Nobody asked or cared if we liked doing that, we just did whatever it took to put meals on the table!

The point is you must do whatever it takes to earn more income. Once I drove a taxi at nights, nobody cared if I liked it or not, it was what was needed.

Be prepared to do whatever it takes for yourself.

When you list out all your absolutely necessary expenses, then go back with a sharp pencil and look for where you can make cuts.

Stop doing things which are wasteful, for example, eat at home, that’s right, buy your own ingredients and cook your own meals. The meals will be more nutritious and cost a fraction of what you spend eating out.

Get rid of luxuries you can live without; Netflix, movies, partying, boozing, driving your car when you can walk or ride a bicycle, smoking, gambling, buying lottery tickets.

Cancel your gym membership, you can exercise at home for free.

Take public transport to work, if possible sell one of your cars and payout the debt on it. Boom, there goes a big chain around your neck.

Do not be buying clothes, who cares if you don’t have the latest fashion or the coolest suit in the world.

People are always buying things they can’t afford to impress people they don’t even like.

Don’t do that!

Don’t budget for clothes unless it’s something kids need for school.

Big Rule: If it’s not on the budget, do not buy it!

Everyday look at your budget, work out how much you have left over at the end of the month. Use that money to pay down some debt.

One last thing; be committed, the more committed to the budget the easier it will be to get rid of some luxuries and the faster you will become debt free. You may not even have to forego everything; I made a list of Free and Cheap Stuff You Can Use Today.

Organizing Your Debt

As I mentioned previously there are two paths you can go on this one. In either case you need to know exactly where you stand. By that I mean you need to know exactly how much money you owe. You might think you have an idea, but it’s probably way less than the actual amount.

Let’s keep it easy, if you are buying a house, you probably don’t want to get rid of your mortgage as you need someplace to live. If you do want to get rid of your mortgage or downgrade then sure, speak with your bank and get the payout figure, then sell your house making sure you get more than the payout figure.

If you’re renting, you may want to consider, downgrading as well to something less expensive.

For this section though let’s just focus on the usual debts like credit cards, car loans and any other loans you may have for pools, furniture, etc.

You may like to organize them in the least expensive per month to the highest so you get a running start at this. Maybe you want to sort them by paying out the highest interest ones first. This is a smart way to go because as each high interest loan is paid out it will be like a snowball giving you more and more to pay the others off with each month.

Regardless of which way you choose, stick to it, your life and freedom depend on it.

Put Extra Cash Toward Paying Down Debt

Sometimes extra cash you had not figured on comes into your life, tax returns, selling a car, selling an asset, selling stuff on Ebay, a bonus from work.

Best to put these toward your debt and reduce it faster. Remember every card or loan that you pay out gives you more cash next month to pay down debt even faster.

The momentum will build and your debts will begin to disappear.

A Drastic Scorched Earth Method

This is for those people who are in a really dire position where there is probably no foreseeable way out.

I found myself in this position in 2005. After a disastrous and bitter breakup with a business partner. A website I had was bringing me an income of $80,000 per month.

I purchased a beautiful 2 bedroom apartment in a gated estate on a golf course. The view was of a fairway overlooking a lake.

We travelled the world business class, drove a lovely BMW and ate at the very best restaurants and threw lavish dinner parties.

After the bust up with my partner, my income went from $80,000 to ZERO in one day.

Clearly a traumatic event of cataclysmic proportions.

Everything was wrong with the timing, not that I would wish this to happen but it was a bad time. The real estate market was in a dive. I had huge credit card bills. Everything I purchased was on cards because I wanted the points.

The creditors began calling after my bank account went dry.

I went into a depression and had to be medicated. So now I was trying to cope with all this in a medicated cloud. My though processes were not very sharp at all.

The creditors were calling me nonstop, the bank wanted to foreclose. I was able to get the bank to let me try and sell the property. I wanted to do this because I felt maybe I could get a better price.

It took a year to sell it, which was not helpful as the market became even worse. I sold it for the exact same amount I had purchased it for a few years earlier. That was not good enough for the bank, they wanted all the interest as well.

My income had still not recovered to any sort of sustainable level, so I was trying to work on making an income. Having constant reminders and stress about debt was not at all helpful.

I researched bankruptcy and found that it would relieve the constant harassment I was living with. The biggest downside I found with the bankruptcy laws in Australia is bankruptcy remains on your financial records forever.

That’s not the case in other countries such as the USA.

So, what I decided to do was to simply stop answering my phone and to cease trying to work with these debt collectors.

Sounds dishonorable, right?

Please remember these things before judging. Banks and credit card companies sell your debt. Lets look at the bank first. They got the original loan amount (principle) back all they were missing out on was future interest. They write that off against profits. Then they sell the debt to a debt collection agency, who are like sharks attacking a carcass. There is no need to feel sorry for them.

Credit card companies charge such high interest rates, and are allowed by Governments to do so, to cover bad debts. In reality, they know exactly how many bad debts they will have each year and are totally covered for this eventuality.

I just stopped communicating with them all. Eventually they stopped bothering to call me and after 5 years the debts were removed from my financial reports.

I’m not proud of that period of my life but suffered immensely form stress and depression. It was the only way out that I could see, so I took it and am glad I did.

My business began to grow again after I shook off the shackles.

Never again have I applied for a loan or a credit card of any type. The only money I ever spend is mine. If I cannot afford to pay cash for something, I learn to live without it until I can afford it.

I left Australia in 2009, I’ve travelled to over 40 countries, dozens of cities, been around the world 3 times and have had extraordinary adventures, meet amazing people and enjoy the friendship of many fellow location independent entrepreneurs.

Summary

I’m not advocating the actions I took, it’s not fun and is not for the timid but it does work. If you are in a serious situation, like I was, then do some research and weight up the consequences before deciding.

Oh, don’t go to these firms who claim to be able to magically get rid of all your debts by calling your creditors. That’s crap. Those firms will suck all the last of your money out of you and get less than satisfactory results.

Either work with the steps I outlined and work your way to being debt free or bite the bullet and pay your creditors nothing.

These Days

I live in Phnom Penh, Cambodia and was recently married here in a traditional style. My wife works for herself selling baby clothes, fashion items and cosmetics on Facebook. My work involves writing for this site, developing training courses and always looking after my leads website at Apache MLM Leads.

We are also currently developing a high end professional Web Development business Since developing sites since 1995 I figured I could probably be quite useful to anyone wanting something more than “run of the mill”. If that’s you, please do let us know at Xsited.

Live is very interesting here, I’ve never lived long term under a dictator before, so I find the politics both amusing and frustrating. Elections are coming so it is a time of heightened danger.

There a quite a few expats here in Cambodia and so we have a good mix of westerners and locals as friends. My wife’s family also lives in Phnom Penh.

Travel is still something we both enjoy very much. We’ve been to many cities and most countries in South East Asia. Travel in the last year included the United Kingdom, France, Spain, Thailand, Viet Nam, Indonesia, Malaysia, The Philippines, Singapore and Australia.

My longer term plan is to live by the ocean and become a full time writer.

Disclaimer

I am not a financial advisor or a lawyer. I am certainly not your financial advisor and anything I say is not to be construed as professional or legal advice in any way. This information is what my own experience has taught me and should not be regarded as professional or legal advice in any way.