Thursday, February 16, 2023


Chapter 5 | What Do You Owe?

As of March 2012, the average indebted household owed $14,517 in credit card debt and more than 46 percent of all households carried some credit card debt.

In addition to credit card debt, there are many other kinds of debt. Among the most common:
  • Mortgage
  • Car loan
  • Home equity loan
  • Student loan

Credit card and store charge card companies are in the business of making money, and one way is by having you pay a high rate of interest on your debt for as long as possible.

Paying only the minimum is never going to help you get your financial situation under control.

In order to retire debt, you have to pay more than the minimum payment. By only making minimum payments, you’re financially treading water, while paying thousands of dollars in interest to the credit card-issuing companies. 

Assuming you were honest in your assessment of your income and obligations, you should have no trouble establishing a budget you can live with.

If you have trouble paying your bills each month, you may have one of two problems. Either your expenses are actually higher than you think or you may have cash-flow problems.

Many people are living just a little above their means. In order to do this, they use credit cards, store charge cards, home equity loans, short-term loans, and so on, to make ends meet. 

If you’re short $300 per month and use credit cards to pay for groceries or clothing, at the end of the year, you’ll be $3,600 in debt. Ten years later, even with a credit card that gives you a decent interest rate, you’ll be over $83,000 in debt!

(The major reason people get into debt is that they spend more than they earn.)

Identifying Potential Cash-Flow Problems

Often, if your income just barely exceeds your obligations, on paper you look like you’ll get by just fine, but in reality you may find yourself coming up short at certain times of the year.

In order to manage this situation successfully, you have to reduce your debt (or increase your income) to the point where you’re living far enough below your income that you don’t have trouble paying your large periodic expenses.

Chapter FourChapter Six

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