#18) Obliterating Debt

Hello and welcome to "Always Be Better" with Mel Windham.

Today we're going to look into two different kinds of debt and discuss ways of getting on top. Are you ready?

First is financial debt. If we have a lot, then interest is going to work against us. Imagine a $100 loan at an annual rate of 15%. If we pay nothing, then after 10 years, interest upon interest upon interest will grow our debt into almost $450. Check out this graph:

Yeah ... we end up paying for the same thing more than four times over, and that's not a good deal. 

Also, imagine -- if we could turn this around such that our debt becomes savings, then the bank, or investments, would pay us instead of us paying them.

Now, we want to pay off our debts as fast as we can so we can enjoy more freedom and choices with our money.

So, how do we do this? Step 1 -- make sure that our monthly expenses are less than our income. This may be difficult, but it's imperative to our success. It's all about survival, but once we catch up it's going to get better. Having been there myself, I can tell you that there's nothing like that feeling when you're making progress -- it feels like you actually have control, and there's light at the end of the tunnel.

This first step requires watching where our money comes from and where it goes. When we record our ins and outs of our money, then we can see where improvements need to be made. 

Then we can decide: should we lower expenses, or increase income? Or both?

Now, with expenses we have three different kinds. Some are FIXED -- rent, minimum payments on our debts, taxes, insurance, etc. If we don't pay these amounts, we get into trouble.

Other expenses are VARIABLE -- we need them, but we have more control over how much is spent, like electricity, groceries, gas. If we make certain decisions such as turning up the thermostat on the air conditioner, or eating more leftovers, or driving less -- we can save some money.

The rest of the expenses are DISCRETIONARY -- which is a nice way of saying we can live without them if we must, but they're nice to have -- eating out, TV services, movies, games, and so on. We may need to decide what we can live without.

Or maybe we can increase our income -- get a better job, or maybe a second part-time job, or we could ask for help.

For example, we could ask our creditors for help on our loans -- maybe work out a forbearance plan where we get a few months off of making payments to temporarily decrease monthly expenses.

Whatever it takes, once we get expenses less than income, then we can move to Step 2 where we Obliterate the Debt. This is an idea I learned from Marvin J. Ashton in his training called One for the Money. 

At first we're making only the minimum payments, but then one of those loans is going to pay off, and that's when the fun begins.

Let's start with five loans with monthly minimum payments of $110, $70, $50, $75, and $235 -- which adds up to $540 a month. If the $110 loan pays off first, then we can apply that full amount to ... say ... the $70 loan, bringing that one up to $180. And then once that loan's paid off, we can apply it all to the next loan like this, and so on, and so on ...

$110	$70	$50	$75	$235
>>>	$180	$50	$75	$235
	>>>	$230	$75	$235
		>>>	$305	$235
			>>>	$540

Then we become free of debt much faster, and we end up paying much less in the long run. And then we get to worry about how to spend that $540 raise we get at the end.

This brings us to the other kind of debt -- time debt. This is when you have a whole plate of things to do and it seems like you can never catch up. This is something I suffer from, myself. Take a look behind me, you can see a lot of stuff that needs my attention. I'm sure many of you can relate.

And guess what! The concepts of time debt are very similar to financial debt. There is a sort of interest -- if you're too overwhelmed, things seem to go slowly, and it becomes nearly difficult to get things done. So many times, I've just given up and played video games for hours just to unwind.

In principle, overcoming time debt is basically the same as overcoming financial debt. Step 1 -- make sure we're not taking on more than we can handle. Learn to prioritize and to sometimes say no. Sometimes we can delegate or even get people to help us.

Step 2 -- once you knock something out, then use that extra time to spend on all those other projects -- get them done faster.

A few years ago, I instituted a plan to get back on track. I'm still working on it, but I'm making some headway. Some things are getting faster as I gain momentum.

So, this next week I'd like you to think about your own debt -- both financial and time. Ask yourself -- what would you like to overcome? And then see if you can start a plan and take those first steps. Be prepared for a long journey, but have hope that you're going to feel a lot better along the way as pressure starts decreasing.

Thank you for watching, and remember, we can "Always Be Better."