There’s no getting away from it — drowning in debt sucks. From university graduates to fledgling airline pilots it’s hard to get a head start these days without feeling the need to take on debt, add in the pressures of consumerism and well, it just gets damn depressing. In order to move forward, reach our potential and focus on the good things in life — we need to get out from underneath that weight of bad debt.
The good, the bad, the ugly
Now, when it comes to debt I like to sit back and watch the twittersphere erupt as the opinions of wildly successful people colide.
Dave Ramsey will tell you:
“The borrower is slave to the lender”
Grant Cardone will tell you:
“Debt is your best friend”
So who is right? Answer — they both are. The reason they are sometimes misunderstood is because generally, they are talking about two different types of debt.
Good debt is debt that pays for itself and then some by way of a return on the capital invested. This is the debt that Grant Cardone is talking about.
The debt Dave Ramsey is famous for discussing is bad debt, or consumer debt — the debt we acrue for buying “too much house” as he’d say, a car we don’t need or a Gucci habit we can’t afford.
I’d like to also point out that if you hear Grant Cardone talking about bad debt, he will tell you EXACTLY the same thing as Dave Ramsey. Bad debt is basically stupid, and the single biggest barrier to financial success.
Ugly debt (since its in the subhead) is what I’d describe as bad debt magnified. The type of consumer debt that we lose track of, that gets out of hand and before we know it occupies our every waking thought.
Anyway, you know this, and I’m not here to lecture you. What is important is understanding the single point I’d like to make:
You should focus all your efforts on eradicating bad debt before you focus on anything else, and I mean anything.
Don’t focus on investing, don’t focus on your long term financial goals and stay away from ads telling you they can solve all your financial problems with this one time special offer for a high ticket closing course (yeah, I’ve been tempted too).
How you do this is ultimately up to you, personally we used Dave Ramsey’s debt snowball. It worked for us. There are many debt reduction ideas out there, and it’s not for me to tell you which one is right for you. Explore and see what resonates.
Our year of getting out of debt was not easy. We sold stuff, we changed our lifestyle, had to put stuff we wanted on hold (I had to step away from trading), and that particular period of life consumed our life and felt like it would never end.
One year (or there about) later though, and we were pretty much out of it — and whats more it felt like it went in the blink of an eye.
We managed to shift 25k of debt and now only have our mortgage, one beaten up old Ford, a new approach to money and a big change in behaviour.
The biggest pay off of all though, is that we feel mentally free to pursue the things we want to pursue. For my wife thats her children’s clothing business, for me it’s my writing career and my passion for finance, and for the family that’s…well, just being mentally present.
Get to the point
Ok here it is — when you are in debt everything you do is focused on that debt. You focus on getting rid of it, you focus on what you owe, who you owe it to and how much you have to play with each month to actually live your life.
Bad Debt is history — its an obligation to fufill a decision you made in the past. Whilst it is in your life, you are anchored to the past, which causes angst when thinking about the future. You cannot move forward effectively whilst you have this angst — I’ve been there, and it’s incredibly hard to visualise future success when you are dogged by the need to get past the debt.
When you get out of debt, when your obligations are manageable and when you’ve worked to get back above water, you are truly free to work towards the future and design it however you see fit, without distraction.
Since clearing all our consumer debt my wife and I are able to think about what we want going forward without worrying about the decisions we made in the past.
I spend my nights writing and managing my (albeit small) investments rather than looking at debt payback schedules, and my wife is focused on her business and most importantly — our money is going towards our future, not our past.
People say being out of debt buys you freedom. Yes it does, without a doubt, but the most impactful thing I’ve seen — is that it buys you clarity and it buys you back your headspace.
So, if you want my opinion — and its just an opinion, dedicate some time to this, get that bad debt smashed out as quick as possible, focus on nothing else. Before you know it, you’ll be free to think about and work towards the bigger things in life, and gain momentum towards the things you want to achieve.