Debt Reduction Advice | Debt Reduction Advice

When Author Robert Fulghum wrote “All I Really Need to Know I Learned in Kindergarten“, he could scarcely have imagined how popular it would become. His best- selling book outlines a general philosophy that can be applied to many potentially complicated subjects – including finances!

Hi, Steven Vanderhoof here; America’s Personal Finance Coach. I’m excited to share another one of my newsletters with you in an attempt to help lift our country out of the debt trap by bringing about a new awareness relating to money.

So, what did we learn in Kindergarten that applies to money and personal finances?

Well, think about it, we were taught to tell the truth, we were taught to be courteous to our neighbors, we were taught to say please and thank you – all the basic fundamentals of good conduct and behavior.

Since we’re on the topic of clichés, let’s talk about another one: A Penny saved is a penny earned. I know – don’t bore me with clichés, right? Expressions become clichés because often, they are true statements. I think that’s why we don’t like to be reminded of them. They’re too simple for our complex minds. It’s kind of like an intellectual insult to be told something so simple, as though we really need to be reminded. But the harsh reality is that there are A LOT of us out there missing this basic idea as it pertains to personal finances. This is underscored by the fact that we, as a nation, have an outstanding unsecured debt balance of $900 billion – that’s Billion with a “B”!

Unsecured debt is borrowed money that is not secured by a title of any kind, be it a home, a car, or a piece of machinery. Worse still, unsecured debt is the most expensive money that we can borrow from a bank. Since unsecured debt has no collateral, the bank assumes greater risk in making these types of loans. Therefore, it charges higher interest rates to the borrower: the higher the risk, the higher the interest charged. Interest rates on homes and cars are much lower than rates on credit cards or personal lines of credit because the bank can take or repossess that property from you and sell it to recover a portion of the money originally loaned. I have a rule of thumb when it comes to credit and loan balances; anything that has an interest rate over 10% MUST GO!!!

Think of interest payments as a big hole in the bottom of your financial bucket. All of your discretionary capital will eventually fall through that hole. Discretionary capital is the money we have left over after we pay our bills. In my opinion, credit card payments don’t count as legitimate bills. They are legitimate mistakes and that’s why you must concede to yourself to pay them off no matter what. Once you pay off your debt balances the hole in your financial bucket will be repaired. At this point you can begin to accumulate extra money that you can use at your discretion. I would suggest putting that extra money to work in an interest bearing account. It will begin earning its own income. After all, you work hard for your money – why not put some of those earnings to work for you?! That, however, is a whole other discussion. Until next month, keep your chin up and your chest out. Know that the best is still in front of you, and remember – those first lessons we learned as kids often remain the most important ones of our lives.