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Don’t Sweat the Small Stuff with Debt ™

Would it be possible for me to contrive a dumber or more irresponsible title? Saying don’t sweat the small stuff with debt is akin to saying, be irresponsible with money.

I am starting to see this philosophical drivel now being applied to money or debt, and frankly, I am appalled by those who might espouse not being diligent about money and debt, and the day-to-day issues of money in particular.

There is 1 truth about not sweating the small stuff about debt, if you do not sweat it, you won’t have to worry any more about small debt stuff, because it will have become a F*cking BIG Debt. I guess that implies you are supposed to sweat the big stuff about debt?

Yes, you can drive yourself batty micromanaging some things, but debt is not one of them. If you don’t have a plan to deal with your
debt, no matter how small the debt, or how unimportant you view debt, you may as well start setting money on fire or start buying crap
on the shopping channel.

The nice thing about little debt, let’s say $500 left on a credit card, which compounds 18% interest on it, that after 3 years of not sweating it and just making a minimum payment of $20, you will have only paid $132 in interest charges, so why sweat it? Seriously, I am positive I have heard folks make that exact argument, and you wonder why I am so cynical?

The Banks, Credit Card Companies, Pay Day Loan Companies, Risky Mortgage folks all really think that not sweating  the small stuff with debt™ is a great thing, because they make money with no sweat on their part.

Should You Not Sweat the Small Stuff?

Sweat every part of Debt™ ! 

That is the way to get out of debt and make your life happier (I’d like to thank Mark at My Own Advisor for complaining that I hadn’t ranted about debt for a while).

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When Should you Try to Pay Down Debt?

That is a question that seems to come up a lot so I figure I’d help folks out with some scenarios and when it might be a good time to start thinking about when to pay down debt, or trying to eliminate debt completely. When should we think about paying down debt? Here are some simple examples of when you should think about paying down debt:

You are using Pay Day Loans

OK, so you have got yourself into a hard place for some reason (although the ads that are out now with the person justifying their use of these services are a bit disconcerting), so now would be an excellent time to put together a plan to get rid of your debts, or maybe you should talk to a Credit Councillor of some kind (there are many not for profit folks out there). This is absolutely time when you should think about your debts, whether you can pay them off, and if you can, start paying them off.

You are carrying Commercial Debt on your Credit Cards

Your credit card is a bad place to be carrying debtf, given the rates many charge (especially if they are commercial cards like the HSBC Card, or the Sears card or the like) are really crazy. Figure out why you have all this debt on your credit card, and put together a plan to pay off this debt as soon as possible, this is an excellent time to pay off debt.

Your HELOC is Bulging

That Home Equity Line of Credit was so you could finish your kitchen off, but then it was a good place to put all your credit card debt, because the rate is that much lower, and well you wanted a nice vacation this year, but didn’t quite have enough for it, and now the HELOC is a headache, this is a good indication that you should start paying down your debts. The HELOC can be called whenever the bank wants, so paying it off quicker than the bank is asking you would be a good idea. Another superb time to start paying down your debts.

You only put 5% Down on Your Mortgage

If you still have a very large principle on your Mortgage outstanding, investigate whether starting to pay Bi-Weekly or what rules your mortgage has that allows for over payment. Putting money on your principle early on in your Mortgage is a great investment in your future, as it can either shorten your mortgage period or lower your payments later on in the mortgage. Another great time to start paying down debts.

You have Student Loans

Not sure what the rules are about student loan pay back, I believe the payments have some tax implication (I am about to find out, so please feel free to enlighten me on this one), but maybe figure out if you can pay down debt faster, it’s never good to have something like this hanging around given the job market these days and such. I would say this would be an ideal time to pay down your debt.

You owe your Uncle Fred Money

Your Uncle Fred loaned you some money when you were just getting started to pay for new tires on your car, but he never really asked for the money back. Uncle Fred is a nice guy, but do you feel right owing him money? Just for family harmony and your own self-esteem this would be a good place to pay your Uncle Back.

You Don’t Pay Down Debt

Remember what Debt Free really means? Have you seen an ongoing thematic premise in my situations here. If you are in debt, now would be a very good time to think about paying that debt off. Now is a good time to start putting together a plan together so you can end up debt free.

If you are Debt Free, then you can start planning how to save, but since you are Debt Free, I am sure you can plan that without too much prodding by me.

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Let’s DEFINE Debt-Free

Given the relative success of my Let’s Define Retirement article, I figured I’d take another swing at a term that I hear a lot these days. That term is debt-free.

When I write, what is Debt-Free, I mean: no debts, owing no one any money (or owing anyone no money, if you prefer).

This is ground zero:

Definition: if you owe any money you have debts,. If you owe no one any money, you are debt-free. Simple isn’t it?

Big Cajun Man
Yes, I could have made a crass comment about how one "poke" from debt could deflate this balloon
Yes, I could have made a crass comment about how one “poke” from debt could deflate this balloon

I do not believe in the Good Debt, Bad Debt theory.  I have said All Debt is Bad more than once. The concept of Good Debt was created by Banks and those who wish to lend you money. No reason to feel bad, but it’s like Ice Cream companies saying that there is Good Obese and Bad Obese.

I thought I didn’t understand what Debt actually meant, but I looked at Dictionary.com and found Debt defined as:

something that is owed or that one is bound to pay to or perform for another: a debt of $50.

Dictionary.com

There are other definitions. I invite you to look it up in your dictionaries, but in my mind that is Debt.

From this Debt-Free means owing nothing or not bound to pay to another, thus, a total debt of $0.

People say that debt-free is when your net worth is above zero, this is a misnomer .  If my house is worth $500,000 and my investments  worth another $50,0000, but I still owe $200,000 on my house, that does not mean I am debt-free. It means that if you give me enough time, I could get rid of my debts, that is not debt free. I still owe $250,000, so I am not debt-free.

Do I Mean All Debts?

I am also speaking of all debts, so if your parents were kind enough to loan you $50,000 to help with your home’s down payment. If you have paid all your other debts off, but you have neglected to pay back that loan, you are in debt. If you owe your family money and you have no other debts, what kind of schmuck are you to not pay them back? (look up schmuck in the Joys of Yiddish)

Here is my reader question, am I wrong about what is Debt-Free?

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Good Debt? Not Bloody Likely

Written a while ago, but there still is no such thing as Good Debt. Anybody who tells you that, wants to loan you money.

After watching our friend Preet Banerjee have to listen to the “Experts” on a CBC National round table talk about Good Debt, I feel I must rant once again (Preet was his normal, Windsor Knotted sensible self, the rest of the panel drove me spare).

Let me be very clear saying that there is Good Debt is like saying there are Good Car Accidents, read my lips:

All Debt is Bad
Good Debt is a Fallacy

I don’t give a crap what these so-called experts have to say, as soon as you start thinking that Debt can be Good, you assume it is OK to build it up, and it won’t hurt you.

Sugar coat this as much as you want:

  • Necessary Debt or Necessary Evil
  • Debt is good for the Economy
  • Leveraged Buying
  • Consumer Debt
  • Mad Money

It’s all bad! One day I will write an NSFW post with my actual wording on this stuff (maybe Preet will let me back on his Podcast and I can do the real rant for this). Good debt? No and anyone who says otherwise is trying to sell you something.

Shame on all of those alleged experts on that panel, except for Preet of course.

DEBT SUCKS

Debt Sucks the life out of you, and you are stealing money from your future self.  Learn to hate debt, want to get rid of it, and then you have the right idea, but if you rationalize that there is Good Debt, you can start sliding down a very slippery slope.

If you get a Mortgage, don’t get comfortable with it, treat it like you would a Cockroach or an Uninvited Guest (fill in your most unfavorite person here). You want to get rid of it, as soon as possible.

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Money Can Fix (most) Everything

“…ay, there is the rub!”

Apologies to Shakespeare for paraphrasing Hamlet, but this is the core of the issues most folks have with their finances: It is mostly possible to spend your way out of a problem, unfortunately it usually means you are spending your way into another problem too.

I am as guilty as the next person in this area, where instead of taking the bitter financial pill and dealing with a bad situation, I have spent my way back to where I wanted to be (however, then leaving me with  a large bill, that I must then pay off later).

My Father had an expression that he liked to use when he felt someone was being cheap, and that was “That is what money is for”, which is true, but I am pretty sure he was speaking in the context of spending money, not using debt. My parents were of a different generation, where thrift was a necessity (I think once you have lived through enforced rationing, you learn many thrifty ways to live your life), but I think my Dad’s advice now is more like trying to put out a house fire with gasoline.

Babe is a Small Pig, but not a Hamlet

There are situations where spending your way out of a bad situation might be a good idea, but I am pretty confident that there are not that many situations in anyone’s life, that they should keep doing that.

The example I have is to save myself driving a long distance I am flying in and out for a day, which in comparison isn’t a huge overspend on my part, but I am sure I will feel guilty that I didn’t “man up” and drive both ways, however, I can hear my Dad saying, “That is what money is for”, in this situation as well.

However, I do know a friend who’s 11-year-old car needs a new battery, but that is an interesting question, is this a precursor to worse things happening and maybe a new car is needed, or is it time to replace the battery and keep going? There is the rub!

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