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America’s Cheapest Family (Part 5): On Debt

America's Cheapest FamilyThis is an ongoing series of book reviews – in parts, on money-related books.

The first is this series is called America’s Cheapest Family – Gets You Right on Money by Steve and Annette Economides. According to them, this is the guide to living better, spending less, and chasing in on your dreams!

Here’s what they have accomplished so far:

    – Paid off a house in 9 years on limited income (average income approx $35k/yr)
    – Paid cash for all their cars
    – Remodeled kitchen without a home equity loan
    – Enjoyed fabulous debt-free vacations
    – Fed a growing family (of 2+5) on a grocery budget of $350/mth
    – Put savings in the bank!

On Debt

If all the outstanding credit card debt were to be divided among the households in America, the average household would carry $7,200 in debt, while on average, each adult carries 4.78 credit cards per adult! This has resulted in 718,107 bankruptcies in 1990, and 2 million bankruptcies by 2005!

Steve and Annette proposes 9 steps to get you out of debt for good!

    1. Acknowledge. With any recovery plan, the first step is to acknowledge you have a problem.

    2. List. Put down all your debt on paper, including debt loaned from friends and family, and organize this list from smallest amount owed to largest.

    3. Cut Spending to bare Minimum. It’s hard to give up something you’re so used to, but not impossible. While coaching a couple through this phase, Paul realized he was spending $30/mth on daily newspapers, and decided to give that habit up. A few days later, he realized that everyday, somebody brings the newspaper into office and leaves it in the break room!

    4. Put the cards away. You don’t need a credit card(s). Get rid of them! If you really need to keep one, keep it in a hard to reach place (some people stuff their card in the freezer!)

    5. Get more money. Have stuff lying the house that you bought but never used? Return them if you still have the receipts. Selling gently used items through garage sales or online can generate cash too.

    [Editor’s note: Most US stores have a money back guarantee of some sort. Not so in Singapore. Places like Carrefour and Ikea do practice this though.]

    6. Earn more. The fastest way to get more money is to increase your pay. If you can garner a raise, great. If not, consider changing jobs.

    7. The Battle Plan. You need to pay every creditor on your list something (at least minimum payment). The largest portion is allocated to the smallest debt. This way, the smallest debt gets eliminated first, and money used to pay that 1st debt can then be channeled heavily into the next smallest debt.

    Steve and Annette planned it in such a way, that when a debt is eliminated, some of the money then gets channeled into a new item on the list called ‘savings’. This allows the couple to end up debt free, with some savings.

    Piggy Bank

    [Editor’s note: This is widely known as the debt snowball method of debt repayment. It gives you a psychological boost each time you clear a debt.]

    8. Communicate with Creditors. sometimes, you might be able to get them to reduce their interest rates, or the amount owed, if they realize that you are serious about working with them to pay them back.

    9. The payoff. If some unexpected cash come your way, put some of it into savings for emergencies, instead of pumping it all into debt repayment. Some people get a high out of repaying their debts, they pump any money that comes their way into debt repayment, leaving them exposed should any unforeseen emergencies occur.

Apart from getting out of debt, make sure you don’t get into a any new debts! You can do so by slowing down, and increasing your debt resistance.

1. If I wait and search, I can always find it for less.

    Steve and Annette were almost convinced to buy a $500 high chair for their yet to be born son, just because the sales person convinced them it was best for their child. Not willing to take out a loan to pay for the chair, they walked away.

    After that, they realized that other parents would have fallen for this same pitch and bought the chair, so they checked out the classifieds for a used one, and got it for $30!

2. When Borrowing is their first suggestion, ‘no’ is my first reaction.

    Basically, their son made the decision to walk away from a $11,000 degree, as the degree would not help him in his current situation. The financial co-ordinator tried to convince him otherwise, and was quick to talk about loans.

3. I’m not signing right now; I need to see more options before I decide.

    Sandra was a single mom returning to school after a recent illness and divorce. She could have qualified for lots of scholarships for a person in her situation, but failed to apply for them, as her financial advisor was quick to help her sign up for thousands of dollars in student loans, because she was on autopilot mode.

4. I’m not buying today, I’m just doing research.

    Don’t be led into impulsive decision making.

5. Don’t rush me, before I sign, I’m reading every word.

    Take time to read every word in your contract, crossing out items you didn’t agree to. When it’s your money on the line, you have the right to take your time and read every word.

6. A lack of interest can be costly.

    Make sure you know what you’re signing up for, or you’ll be the one trying to escape from it after.

    [Editor’s note: This one has an example which is very similar to most owners in the sub-prime mess.]

“Slow down, don’t move too fast,
I’m gonna make my money last.”

——-

Others in this series:
America’s Cheapest Family (Part 1): On Grocery Shopping & Budgeting
America’s Cheapest Family (Part 2): On Cars
America’s Cheapest Family (Part 3): On Housing
America’s Cheapest Family (Part 4): On Utilities
America’s Cheapest Family (Part 5): On Debt
America’s Cheapest Family (Part 6): On Staying Healthy, Entertainment & Recreation
America’s Cheapest Family (Part 7): On Vacation and The Final Payoff

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America's Cheapest FamilyAmerica’s Cheapest Family by Steve and Annette Economides was checked out of the National Library for the purpose of this book review. It can be found at English 332.02400973 at your Library.

Check online to see if it’s available, and check it out for free!

(Free up some money in your entertainment/education envelopes!)

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