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By Sue Young
Reduce debt, how can you possibly do that? Well one of the keys to reducing debt is to pay it off. Sounds obvious doesn’t it, but in reality this cunning debt reduction technique is hardly used. Now you’re probably thinking – ‘what the heck are you talking about?’ Well let me explain by telling a story, but this time we’ll get an imaginary person to be the poor sap in the story instead of having me – again. So meet Mary, a nice, hard working, average lady with a husband and two children.
Reduce Debt – Reduce Debt – Am I making My Point
So here’s Mary, does she have any debts, yes she does. She has a $2000 credit card with a balance of $1000, she has some other debts but we won’t worry about them right now. Mary is very uncomfortable with the debt she has and would love to reduce that debt as quickly as possible. The payments eat her income and keep her awake with worry at the end of every month. How can she possibly think about reducing her debts with all of this worry going on?
Let’s switch gears here for a moment and take a closer look at one of these debts, Mary’s’ credit card. What is it exactly? Is it money? No it isn’t. Is it cash in Mary’s pocket? No it isn’t. Is it a free loan that Mary never has to pay back? No it isn’t? Are we agreed on all the no’s? If we are agreed, the question remains, what is it?
Redue Debt – Reduce Debt – I’m Trying Again
Well the answer is quite simple. A credit card is a loan that attracts interest (and boy does it do that) and it must be paid back. It lures Mary into spending money that she doesn’t have, the buy now and pay later plan. Mary could avoid the interest on her loan as long as she pays the total outstanding amount each month, but does she. No she doesn’t, it’s way too much for her to afford to pay in one lump – so why the heck did she spend it in the first place?? Because it’s so easy that’s why, and because there are so many shops, and so much pressure to have this, that and the other thing, but that’s another story, this is about Mary reducing her debts by using something right under her nose.
So how has she got into this mess. Is she some kind of obsessive shopper who can’t stop herself? Does she have an alcohol habit she is feeding. No, none of that, she’s just a regular wife and mother doing her best. Unfortunately she has picked up some bad habits along the way and the credit card is one of them.
The fact is, the banks want Mary to use the card, they want her to take it out to the maximum limit and then make the minimum payment, which will be 3-5% of the balance. And they want her to roll the rest over to the next month. That’s how they make their profits, and fair enough, they need to make a profit to stay in business. But Mary needs to be smart and keep herself in profit, not the bank.
But it’s not the interest that I want to focus on, although that can be a considerable saving when trying to reduce debt. There’s a bigger fish to hook here and it’s simply this. Reduce debt by not creating any more. That’s right, stop using that darned card. Those credit cards are not money. Every time Mary gets it out of her purse to use it, she is spending money she doesn’t have. She is living beyond her means, and she is potentially creating a debt that could take her years to pay off. Those purchases of $100 here and there which attract on average 20% interest and are rolled over month after month, and added to month after month, grow and grow. Debt reduction doesn’t even get a look in.
Let’s get back to Mary. She like many of us, has been lured into thinking that she needs a credit card to manage, but she doesn’t. These cards haven’t been around forever and people managed very well without them way back when. I think they used something called ‘cash’. They spent money they had, not money they were going to get. Of course there has always been time payment, but the proliferation of credit cards has exploded the misery of debt world wide. Mary is part of this misery and it’s up to her to stop using her credit card, her store card and any other type of card she might have. Are you listening Mary?
So back to my original point. One of the ways to reduce debt is to pay it off. You bet, by throwing the card away you will stop creating more debt and will actually be able to pay it off. Mary sincerely wants to reduce debt but has internalized the habit of seeing her credit card as a necessity, it is not a necessity. Reducing debt is a necessity.
So to summarize this long tale of Mary and her debt reduction plans, Mary needs to stop using her cards to live on, live within her means, and pay down the outstanding balance as fast as she can. How cunning is that? Give it some thought. Good Luck.
About the Author: Sue Young of income-while-you-sleep.com has coached many people in the skills of ‘How To Reduce Debt’, she knows that increasing income packs a powerful punch in this process. To learn how you can earn 5 separate income streams visit
Income While You Sleep
, and to find out more about debt free living visit
Kill Debt Now
.
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