chapter 7~"Dump debt"

"Failure means a stripping away of the inessential."  ~J.K. Rowling

My whole life, I was set up for success.  I was the "good kid" while my brother was the wild one, always doing what would make my parents happy.  An oldest child of a family who valued education, I went right to college after high school.  I rebelled a bit in my 20s by pursuing the arts, music & dance, without much financial success.  But I returned to the people pleasing of my childhood by marrying a wealthy man and having children by the end of the decade.  I built a successful small business in the healing arts & coaching in my 30s, and maintained a 5 bedroom house on 8 acres. 

It seemed we had it all.  

Then failure came along and changed my life.

The underpinnings of my marriage began to unravel....my business was mired in debt....our remote rural neighborhood couldn't support my business....and then I began the arduous, slow process of losing everything I had.  With the help of my prosperity coach Toni Stone, I got the courage to let go of what was not working.  I lost the marriage, and became a single mom.  I lost many friends & clients when I moved from a rural neighborhood to a progressive town.  Although I had always made good money, due to my debt load, and out of control spending, I could not afford to buy a home for myself and my children.  And then my income itself began to disappear, and I faced real poverty as a working single mom.

But becoming poor was one of the best things that could have happened to me.

I began to look in the mirror and see what was really going on.

I discovered my people pleasing was actually a fault.  When I took a Debtors Anonymous course, the common theme in myself that I discovered was "lying".  I was "lying" in order to be loved.  I took on debt, and spent more than I had, to please others, and appear wealthier than I actually was.  A lot of my lifestyle was based on trying to make up for a deep insecurity.  

I began to really grieve for the loss of the marriage, and to grieve for many pains that I had experienced in my life.  Instead of masking my feelings, I began to speak them, and let people know when they hurt me.  I woke up to how I was medicating my grief with purchases, and I stopped the out-of-control spending.

When I did the math, I saw I had wasted about $75,000 in "people-pleasing"!

What I found so personal and shameful is actually a cultural problem.  Most Americans try to “keep up with the Joneses”.  And since 75% of Americans have consumer debt, that means the Joneses are in debt!
 
And we are all comparing ourselves to each other! We look at each other's social media feeds to see how great other people are doing, and how poor we are doing.  And it's an empty shell game! 
 
Who was I really impressing with my large lifestyle?  I realized that for years buying the newer car, the bigger house, the prettier clothes, etc. never brought me happiness.  The folks I was trying to impress never stuck around.

And my true friends are with me no matter how much money I have.

That was a real shocker.

J.K. Rowling, who wrote the Harry Potter books, said of becoming a poor unemployed single mother:  "Failure gave me an inner security that I had never attained by passing examinations.  Failure taught me things about myself that I could have learned no other way...I also found out that I had friends whose value was truly above the price of rubies."
And so rock bottom became the solid foundation on which I rebuilt my life."

And so did I.  I began to rebuild my life.

I no longer cared what other people thought.  My own financial well-being was more important to me than what I looked like.  I cut my budget drastically, rented out a room, and hustled in my business. I stopped going out.  I stopped buying extravagant gifts for others.   I paid off $20,000 in debt in one year, and saved an extra $20,000 the next year.  I joined forces with my boyfriend who lived next door, and eventually became my husband.  Together we upped our net worth by $200,000 in 5 years.

So if you are facing debt, low income, unpaid bills, low-to-no savings, or financial failure of any kind, congratulations!  It may be painful, but failure is nothing to be afraid of.  Trying to pretend everything is fine, and continuing to drive yourself into debt, now that is a real danger.

​Failure can be a blessing.

It just might lead you to a new beginning.
 
A PLAN TO ELIMINATE DEBT

Dumping debt is an important step for building wealth.  Once you are out of debt, you have real money, and that money can grow into a sizeable nest egg.  My favorite get-out-of-debt system is the Dave Ramsey method:
 

1. $1000 “starter” emergency fund
2. Pay off all consumer debt
3. Fully-funded emergency fund
4. Invest for Retirement
5. Fund kids’ college
6. Pay off your home early
7. Build Wealth & Give!

 
Dave Ramsey is one of my mentors, and I hold his coaching certification.  He admits he did not invent the “baby steps” above, they are classic personal finance wisdom from the last 50 years.  However, he is famous for packaging and sharing them in such a way that has helped millions of people build wealth.
 
What I love about this method is its step-by-step nature. 
For years I tried to do everything all at once:  pay off debt, save for retirement, fund my small business, put money in savings, etc.   And I was getting NOWHERE. 
 
Saving $1000, paying off my debt and then saving the emergency fund was an easier path for me.  In addition, the debt snowball method was more effective for me than paying off higher interest rate credit cards.  It helped me feel excited and motivated!
 
Why eliminate debt?
 
*Debt reduces cash flow.
When you have debt payments, they eat up your take home pay, which affects your ability to save & build wealth, and also have a good lifestyle. If you have a small business, debt payments eat up your ability to pay your employees, cover operating expenses, and save for wealth-building.  During economic downturns(Coronovirus, anyone?) debt marches along, becoming a crushing burden. 
 
*Debt reduces wealth.
When you have debt, it subtracts that amount from your net worth. For example, you can have $50,000 in your Roth IRA, but if you have $50,000 in debt, you actually have a ZERO net worth. Wealth is important for your retirement, and it also protects you from risk.  Real assets bring stability during downturns. Debt doesn’t.
 
*Debt increases risk.
When you are in debt, you are at greater risk of losing your home, and other assets, in the case of an emergency, such as a health challenge where you can’t work, or an economic downturn in which you lose your clientele. We saw many people who had too much debt on their homes lose them in 2008.   10 million of them!  And we know large emergencies happen for most of us every 10 years. It’s not a question of if, it’s a question of when.
 
*Debt masks profit.
When you have a small business, debt makes it hard to tell what your actual profit margin is.  Say you put a piece of equipment on the credit card at $2000, and pay $100 a month on the bill.  You might bring in $100 more a month based on that equipment.  But when you deduct the debt payment from the income, your profit is actually zero.

The Debt Snowball METHOD:
 
Pay off all non-mortgage debt using the Debt Snowball method. The “highest interest rate first” method IS mathematically correct, but it often doesn’t work because people lose momentum. The debt snowball method gets you fired up!! And it works to get the job done! Plus, most people pay off their debt within 2 years of doing the snowball intensively, so the amount of interest paid is not crucial.
 
 
List your debts, excluding the house, in order. The smallest balance should be your number one priority. Pay the minimums on every debt but the smallest~pay as much extra on that as you can to pay it off quickly! Then attack the next one on the list. When you start knocking off the easier debts, you will see results, have more money to throw on the next largest debt, and you will stay motivated to dump your debt.