Secrets about Debt

Debt and Health

2008-05-03T17:36:00.003-04:00

Can debt affect your health? It may already be doing just that, whether you care to admit it or not. For many people in debt, financial worries became a daily burden. Concern about money matters can interfere with your sleep (debt-insomnia, a new word I just made up), upset your stomach, give you headaches, and make you irritable.

Psychologists who study stress say that stress is highly individual. What stresses one person out may not bother another. The astronaut and now Senator John Glenn reportedly blasted off into space (first American to orbit the earth) and scientists monitoring his pulse rate during blast-off found his heart rate never topped 75 beats a minute (that's just a hair above normal). Most of us have a more rapid heart rate watching TV! The fact is Glenn's "stress thermometer" was just set very, very low.

Others of us can get upset if the evening paper isn't delivered or if our mail goes to the house next door.

Debt is a pretty worrisome thing, so it probably bothers the majority of debtors and it can be freaking out the more sensitive types.

Another reason for stress is lack of control. If we have control over something, it tends not to upset us as much as things we can't control. For instance, working long hours at your own business is rarely perceived as super-stressful by entrepreneurs. Put those same entrepreneurs in the corporate world and assign them to work for a dimwitted boss, and you have a bunch of basket cases.

If you feel like your debt is spiraling out of control, where you just can't stop the financial bleeding (like a catastrophe, for example), or where somebody else is digging you deeper and deeper into debt, it can make you sick.

Worry, insomnia, eating disorders, headaches, and stress-related ailments are common in people in debt.

Another reason to link debt and illness is that many people facing overwhelming debt cut back on health insurance, health care, or even healthful food. To save money, debtors may pass on health clubs, organic produce, doctor visits, and vitamins.

While debtors ought to economize, there is no need to jeopardize your physical health just because your financial well-being has deterioriated.

People who think debt is making them sick should take stock:

Exercise, even if you just jog around the neighborhood or walk up and down the stairs at work. You don't need a pricy gym membership to stay fit.
Eat as healthfully as you can. You may think fruits and veggies are too expensive, but they are still cheap compared to eating out all of the time.
Try to get enough rest. If you have insomnia, learn some relaxation techniques or other remedies to get sufficient sleep.
Connect with people. I can't prove it, but I think a major factor in depression comes from a sense of isolation. You don't need to spend a lot of money, either. Meet for potluck parties or go to the park or beach. If you don't have friends, join civic organizations, religious organizations, clubs, or other groups to meet people your own age and background.

In-Debt Mindset

2008-03-16T17:21:00.004-04:00

Americans are pretty easygoing about a lot of things, including debt. When confronted by rising prices, declining home sale prices, and higher-than-anticipated jobless rates, most Americans act as if this was barely as interesting as, say, the latest news blip about Britney or Angelina. True, economic news is boring (excuse me, I must have nodded off). But there is a reason we should notice at least some economic news, even if we don't wade knee-deep into the economic blogs and reports.

Economic news is like the weather. If you hear on the news that it's raining, you'd be crazy to go out without taking appropriate precautions. Precautions don't mean that you need to run around your house, holding your head in your hands, your mouth open like that Scandinavian nightmare painting, shrieking, "Run for your life! It's raining!" Instead, a sensible person would take an umbrella to work. He or she might also wear old shoes or grab a raincoat. If you're the kind of person who walks or bikes to work (yes, they exist), you might re-think your normal mode of transportation and hitch a ride.

The point is, we adjust. We know that there are times to bring an umbrella, take a sweater, or wear shorts and flip-flops.

When it comes to economics, however, our in-debt mindset encourages us to try very hard to live as if every day was the day we wished it would be instead of the day it is. Gas prices going up? Use the same amount of gas. Unemployment higher than anticipated? Continue to antagonize the boss and show up later and later for work. Grocery prices climbing? Keep buying the same stuff. Just lost your job? Do a little retail therapy, you'll feel better. It's only plastic.

For some reason, we normally flexible Americans find it very hard to let our spending ebb and flow with market conditions. There are times to spend, but there are also times to cut back. There are even times to skrimp, although that's not a very popular word in our society, even in these unsettled economic times.

Too many of us think that debt can get us over the rough patches. Sure, things are high now. Just put gas on the credit card and pay it down later on. Things are bound to get better in the future.

While there are situations that make debt a good option, even a downright necessity, driving to the mall for a spending spree followed by drinks, dinner, and a movie isn't one of them.

The Economy on the News

2008-03-07T19:47:00.002-05:00

My favorite part of the news is the weather report, because it relates to me. The weather guy or gal is not always accurate, but the predictions generally map onto actual events in a pretty gratifying proximity of time. Even when the weather guys flub it, it's still interesting because I wonder how they missed. Sometimes I even start to project how they miss so that I can adjust their reports. For instance, the weather guy on a local station here tends to get the weather events right, he just jumps the gun by about half a day.

That's why I dislike economic news, particularly these days. Not only is there a distressingly long lag time between the report ("Recession!") and actual events, but what the economists are talking about does not seem to actually map onto my own experiences.

For instance, everybody is in a lather about economic downturns. That is likely true. And if you are faced with unemployment, foreclosure, or other problems like that right now, I do not mean to trivialize your situation. It's bad!

But there are a lot of people who are doing just fine right now. If you're not selling your house, kept your job, and are just maybe spending more on gasoline and less on going to the movies, that is not exactly the sort of situation that calls for putting on a helmet and heading for the bunker.

My family always marched to a different economic drummer. For instance, my great-grandparents did not go broke in the Depression. They went broke years earlier. When everybody was booming, my relatives were going down the drain. To them, the Depression was the period when everybody else caught up to them. Actually, they were pulling themselves back together then.

And right now, many of us are not necessarily in financial dire straits. If you're OK, don't fall for the gloom-and-doom stuff. It does not mean it isn't real, it just means that you can't base your financial decisions on what's going on right at this moment.

I guarantee you, somebody will become a millionaire during this recession. And in the next boom cycle, some people will go broke.

The economic news is a different sort of news than the weather report. The weather report should influence our daily behaviors (take an umbrella to work? wear a coat?) but economic news may not have that much to do with our individual decisions at all.

How Rich People Use Debt (And Why They're Smarter About It Than the Rest of Us!)

2008-02-16T17:27:00.003-05:00

Talk to a person saddled by overwhelming debt, and debt is a true four-letter word. The zealots among them dream of a glorious debt-free day when there will be neither plastic nor student loans nor even mortgages to weigh them down.

Debt can ruin you, no doubt about it. But not everybody thinks that debt is a thing to be avoided.

Some writer once said, "The rich are different." I don't know if that's true, but the rich think differently about debt. I'm not talking the socialite, easy-money, or ditzy celebrity "rich." I'm talking about people who amassed their own fortunes, sometimes against formidable odds. Those guys think differently about a lot of things, including debt.

For smart money managers, debt can be a tool. It's a way to leverage your money by letting a little money buy you a lot of advantage. (Here's an example. You buy a house when you think you can get a great deal. Only you don't sink your life savings into the house, you put a little down, take out a mortgage, and pay on the debt until you can re-sell the house at a tidy profit. That's leveraging your money.)

Debt can also be a way to finance a business or investment without tying up your own money. Most smart business people recommend that you don't sink your life savings into your own business, but rather let some venture capitalists subsidize you. That's using debt in a smart way (well, it's smart if you have a plan).

And that's the main way that rich debt differs from the debt that drowns poor people. Rich people have a plan.

To use debt wisely, you should know why you're getting in debt, understand the risks involved, and have a clear and concise exit strategy. A rich person who goes into debt not only knows how he or she is getting out, he or she also can tell you when (approximately) it will happen.

Although rich people take risks, they are actually risk averse. They only appear to take risks because their different way of thinking means they behave different from most of the rest of us (the non-rich). Still, they never get into debt without a plan to get out and a backup plan behind that. They may even have a third "May Day!" plan which is a plan to deal with a worst-case scenario.

Poor people tend to get into debt casually, without thinking. They have (at most) only a vague plan of how they're going to get out of debt ("Someday I'll be making more money than I am now and I can pay it off then.") They have no backup plan and a worst-case scenario has never even entered their minds.

What's more, rich people have debt with a purpose. They may enter into debt--often and for large amounts--but it's always for a reason and that reason is to boost their net worth. Poor people also get into debt but it's often for no real purpose other than to feel better or keep up with the neighbors or not miss out on a vacation.

Depression Money

2008-01-02T18:03:00.000-05:00

People in the Depression knew how to pinch a penny. They weren't great savers, because they just didn't have enough left over to save. But they can teach us a lot about how to manage our money. I just wrote an article on that that you can access at http://www.articlesbase.com/finance-articles/what-the-great-depression-can-teach-you-about-managing-money-today-288443.html

It's one of those e-zine sites that let's you lift the article, so you can publish it as content yourself, if you need it.

The weird thing about the Depression is that a lot of people remember at least some of it fondly. It's not that people were glad they had to make do with hand-me-downs or forego entertainment or other treats. The fact is some of the stuff we buy today (movie tickets, restaurant meals, vacations, department store clothes) shuts us off from other things. We don't sit around and talk any more or cook or sew or try to figure out how to do things ourselves. Those things are inconvenient. They can take a lot of time, and they can sometimes be frustrating or boring or difficult.

But they can also be fun. Memories are made at the dinner table, not the drive-through, even if the dinner table meal is plain. Most kids love crafts and we recall the times we spent together, not the TV shows or movies we watched together in a catatonic stupor.

Maybe there's more than just money stuff to be learned from the Depression.

Tax Time

2007-03-01T17:27:00.000-05:00

According to some game show I accidentally saw yesterday (so you know it's accurate), more Americans get a refund at tax time than have to pay. While that may sound good (who doesn't like to get money in the mail), it indicates that most Americans don't really understand how money works.

Paying too much in taxes does not help you financially. It allows the government the chance to hold your money (for months even) at no interest. This is good for the government, not so good for you. While you may get a windfall back, this was money you could have had working for you all along.

The game show did not say but I suspect most Americans also blow their tax money. You'd be better off using it to pay off some debt. If you don't have any debt or have more tax refund than debt, how about savings?

Sounds unamerican, doesn't it?

2007-02-23T17:38:00.000-05:00

Debt consolidation is one of those subjects that gets people riled up. At its most basic, it's a financial tactic, a method of re-arranging obligations. In its pure form, debt consolidation is not a magic act: no debt disappears. Debt does not even decrease. What it does is roll up small debts into a larger package and re-finance the larger package.

Businesses do this all the time. They might call it restructuring their debt. In the right hands and for the right reasons, it's not only legal, ethical, and moral, it's probably sound business and just plain smart.

Ordinary people can consolidate their debts, too. The reason debt consolidation is such a misunderstood and unappreciated subject among debtors is that debt consolidation won't work for everybody. Many people who could use it simply won't qualify (you need pretty decent credit to make it work). Some people who might qualify might not really derive much benefit. It takes some organization, figuring out, and paperwork, and if you only save a couple of bucks, maybe it isn't worth it.

Debt consolidation isn't debt voodoo, you know, where you owe a company $1,500 and you walk away owing them $800. There are settlement options for stuff like that, but that's not true debt consolidation.

Another problem with debt consolidation is that even if a debtor qualifies and it's a prudent move, it sort of repackages the debt in a way that makes it easy to live with. Unless that debtor has done some soul searching, he or she will probably just go out and make more debt.

For some good general information on debt consolidation, check out www.debt-consolidation-diva.com or look for credit counselors in Google or your local phone book.

Debt Without Dishonor

2007-02-18T14:04:00.001-05:00

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I am just pondering the relationship between integrity, that is a personal standard of excellence and commitment to honesty, and prosperity. Just as there are certain mental attitudes that get you caught up in debt (and/or keep you there), there are also things that can keep you out of it.

Debt isn't really dishonorable in this country. At one time, debt was a crime. Some people could not avoid it, but it was not something that was regarded as a viable financial alternative.

Financial integrity means that you can afford what you buy. You buy what you can afford.

It's backward now. Most of us feel far more dishonor in having substandard merchandise or not having the latest toys than we would about being in debt. Maybe because debt is more hidden--it's easy to keep it under wraps.

I don't actually consider debt dishonorable, but I do think of it as dangerous. It scares me a little to use a credit card, even when there's nothing on it and I know have the cash to pay the bill when it comes in. It's not a paralyzing fear or even an illogical one. It's a respect for the fact that I'm entering into an agreement (however short term) with a credit card company that holds me to certain standards.

When you think of debt like that, it's hard to get in too deep.

Why Getting Out of Debt May Not Be a Good Idea

2007-02-15T12:44:00.000-05:00

Poof! Your debt is gone.

I think 90% of the folks buying lottery tickets today are thinking that very thought.

Instant gratification. Total rescue.

But if you were suddenly pulled out of debt by some extraordinary force, how do you know you won't just fall back in? The truth is you not only don't know it, not for sure.

If your debt was caused by a disaster, calamity (including medical problem), you may not get in trouble again. Likewise, if you are choking on student loans but are now working and living a different way, you might not succumb to debt again.

But if your debt was the result of a lot of bad and trivial decisions--too many meals out, too quick to grab for plastic, too many toys--you won't get out of debt even if your debt could be erased today.

If your lifestyle created this debt, then know this: your lifestyle creates debt. You are living in such a way that you make debt. If your debt disappeared, you'd just make more.

Unless you have single-event debt (that is, debt caused by a specific and extraordinary set of circumstances which are not currently repeating themselves), you shouldn't worry so much right this minute as to how to get out of debt as much as how did I get into debt in the first place?

The cool thing is there is a quick way out. Know why? The way you get out is the way you stay out and the way you get out is by not doing what you're doing. So figure out why you're making debt, stop it, and you'll not only get out of debt, you'll be able to stay out of debt.

Cool Calculator

2007-02-15T12:41:00.000-05:00

I just discovered a nifty resource for calculating debt. It's a great way to see what you owe and to size up if debt consolidation (or some other approach) is advantageous or even possible. Go to: http://moneycentral.msn.com/investor/calcs/n_debt/main.asp.

It's pretty simple to use.

Debt consolidation is a very good tool for managing debt, but it only works for some people in some cases. It's not a magic bullet or some method that will instantly dissolve any debt, any time, any where.

Use this calculator to help assess how much debt you have. If you need specifics on debt consolidation, there are tons of websites, including http://www.debt-consolidation-diva.com.

The Equation

2007-02-09T19:18:00.000-05:00

When you talk about money, you have to look at two things: money coming in and money going out. Income is the thing most indebted people worry about. Income includes your paycheck(s), alimony, and any other money that you get (interest, rent, royalties). For most of us, it's a paycheck.

Outgo is all the money we spend. That includes the rent or mortgage payment, all of our bills, and how much walking around money it takes to keep us walking around.

Most indebted people figure the fix is in boosting the income. But actually, increasing income is a fairly advanced financial technique and one that can take a whole lot of lead time.

Outgo, on the other hand, is pretty easy to manipulate and see almost immediate changes.

If you make $40,000 a year and spend $45,000 to live, there is no way that is going to come out in your favor. But a lot of people live in that zone and pine that they can't earn just $5,000 more. They figure that's the fix.

But let's say you could figure out a way to live on $40,000 a year. Suddenly, your income matches your outgo and the debt stops increasing.

That's not where you want to be. You want to be spending $35,000 a year to live and earning $40,000. Believe it or not, a person who is in that position is going to be way better off, financially, than the person who earns $40 and spends $40. In fact, that person is financially doing better than the person who earns $150,000 and spends $151,000.

Most of us think we can't reduce our outgo, but it's not that hard. In fact, sometimes it's pretty hard to tell who's economizing. There are tons of tricks and techniques. It involves giving up some stuff (but a lot of times it's stuff you don't miss) and changing your attitude. But it works, and it works faster than waiting for your boss to give you a rais

How Debt Consolidation Works

2007-02-07T10:10:00.000-05:00

Debt consolidation is one of those terms that gets thrown around so much people don't even know what it means. Debt consolidation is not debt relief, debt negotiation, or bankruptcy.

Actually, debt consolidation is a form of re-structuring financial obligations. Businesses actually do it all of the time. It's a way to take a bunch of small loans and roll them together into one big loan.

The most obvious advantage to all of this is simplicity, but that's not why most people do it. When done properly, debts can often be consolidated into a big loan that's more advantageous to the borrower (lower interest rate, better structure) than a bunch of smaller loans.

An ordinary debt-ridden person can get a loan like this to wrap up several high-interest credit card debts. Let's say somebody owed $10,000 on three cards at rates from 20% to 22% interest. To consolidate the debt, you'd take out a $10,000 loan to pay off the three cards. You're a winner if you can get that $10,000 loan at, say 17%.

But there are other good points to debt consolidation. With one payment instead of three, you're much less likely to get zapped with late charges.

Plus, done properly, debt consolidation actually can improve your credit. That's because you pay off your debts. Those three paid-off credit cards look good on your credit report and may even boost your credit score. (For a great way to understand how debt consolidation can improve your credit, go to www.debt-consolidation-diva.com and check out the "Article Bank" for the last story about credit scores.)

Taking out another loan doesn't necessarily hurt your credit score, and if you pay it off on time, it boosts your score as well.

Debt relief and debt negotiation are plans where you try to make a deal with your creditors to settle your debt for less than you actually owe or to change the terms of your original agreement. This can work, but it will almost always hurt your credit.

Bankruptcy is a scary topic. Guaranteed, it will hurt your credit. It lingers on your credit report for seven long years. And it's an intrusive kind of solution, since you turn over a lot of your financial authority to other people.

For the right people, debt consolidation can be a great solution.

Web Resource

2007-02-07T10:07:00.000-05:00

I just found this new website. Probably a lot of people have known about it for a while, but it's new to me. It's called www.prosper.com and it's sort of like E-bay but for lending money. It tries to hook up people who need small unsecured loans (< $25,000) with ordinary folks who might like to do the lending.

I haven't nosed around enough to know what I think about the whole idea yet. From what I could see, the people asking for loans were paying interest rates in the high teens and even 20% and beyond. A lot of the prospective borrowers had damaged credit.

It's hard to know much about the prospective lenders. A lot of them did not leave detailed profiles (or any profile), and it would be interesting to find out what would motivate them to enter a financial arena where bankers fear to tread. It's true, most banks aren't interested in smallish unsecured loans to people with some credit trouble.

Changing Your Ideas about Debt

2007-02-07T10:00:00.000-05:00

Most Americans are in debt. Being in debt is so normal that we don't even really think about "debt" until we are faced with collection, foreclosures, or even bankruptcy.

There are three things that happen to people in massive debt. Some never dig their way out and end up financial disasters. Their kids don't go to college, their dreams never materialize, and they wind up old, broke, and scared. They wonder how they could have worked hard their whole lives and not have the money to fill a drugstore prescription.

The other group does manage to get out of debt. They either get tough or get lucky (or maybe both) but they manage to claw their way back to some level of normalcy. Maybe they just stop spending money altogether or maybe they inherit something or a kindly relative bails them out. Everything seems great. But talk to them a year later. They're back in debt again, sometimes worse than before.

The third group is the rarest group. These are the people who get out of debt (usually not by winning the lottery) and never go back.

The difference between these three groups is not how hard they work or how ambitious they are or how much they want to get out of debt. It isn't about luck or tenacity. The secret is that the third group changed their mind about debt.

If you think about debt and money the way most people think about debt and money, you'll wind up the way most people are -- in debt without any money.

You have to change your ideas.