Right now, you’re stuck in a financial paradigm.
Paradigms are cognitive frameworks. They’re the belief systems in which you function.
Paradigms can be grand, sweeping systems, like the internet paradigm most of us live in. Within that structure, we work inside of what we can do on the internet: shopping, reading the news, watching movies, researching papers, etc.
Or like our current financial system, wherein we are all functioning inside a credit economy paradigm…
Whether or not we believe that’s the right way to do it.
In fact, if you’ve ever tried to explain your relationship with money to anyone, you’ve probably said something like “I have a system” or “This is how I do things” or “This is what works for me.”
See?
That’s a paradigm.
The thing is, though, most of us didn’t consciously design our personal finance paradigms. We sort of…
Watched how our parents handled money. Did what we had to based on what was available (or what we thought was available). Made internal judgments about what we deserved or what people would want to give us. Continued doing something that wasn’t getting us where we wanted to go just because it hadn’t bankrupted us…
Yet.
The Debt Crisis — No, Not the National One
Consumer debt in the United States is ENORMOUS. Not just your student loans — it’s your credit card debt, your mortgage, your car note, your personal loans.
Right now? It’s at a striking $14.9 trillion.
Some debt is better than other debt.
Good debt: debt for buying assets, like real estate or portfolio investments or gold, with a good chance for return on investment or potential for gain
Bad debt: debt for consumption of clothes, new cars, tech gadgets, wants, etc. No or low return on your investment.
Most people are drowning in bad debt. It’s debt without foresight, that serves no purpose except quenching an unexamined thirst.
Good debt is the kind of debt we should be leveraging — paying off student loans with a low-interest personal loan, using a business loan to grow your bakery, or investing in a home instead of paying rent to a landlord.
There are several reasons debt is so high…
- Wages have stagnated while the cost of living has risen disproportionately, more than 15% since 2003. We take on debt to cover the overage.
- Our media is constantly reaffirming the notion that we aren’t enough, don’t have enough, and that the solution is buying just one more thing.
- We don’t actually understand what money is, how it works, and why it functions the way it does. Since we aren’t taught or encouraged to learn, we end up funding banks and lending institutions with the exorbitant interest rates we’re required to pay.
Let’s look at three practical angles to approach our debt so that we aren’t ruled by it.
Use a Personal Loan
If your debts are really high, and so are the APRs (annual percentage rates), but your credit score is in decent shape, it may make sense for you to go to your local credit union and attempt to secure a personal loan to cover your debts.
Take a look at the interest rates on your current loans, and then average them out.
Is the interest rate being offered on your personal loan lower?
Great!
This means that you’ll have one monthly payment and a term of about three-five years on average.
You’ll pay less over time because of the lower interest rate and you’ll have less to keep track of.
Use Found Money and Try Hiding Money
For most of us, lump sums of cash aren’t common… but they do happen.
Birthday money? Apply it to your smallest loan. Holiday bonus or performance review bonus from work? Apply it to your smallest loan. Tax refund? Assets shifted to a different fund manager and they cut you a check? Inheritance? Apply it to your smallest loan.
It can be tempting to treat ourselves when unexpected cash falls into our laps…
But the truth is, being smart with your money is treating yourself. It’s treating the clever, sentient you to a future, unencumbered life.
Or…
Cut Liabilities Where Possible
Were you paying for a cleaning service? A meal-kit delivery service? A monthly cosmetics grab-bag? A neighbor kid mowing your lawn?
Were you going to happy hour every Friday? Using every streaming subscription out there? Paying for a personal trainer or a fancy gym?
Find ways to either cut out or mitigate liabilities. You’re looking to generate an extra $50-$200 per month.
If your fridge is stocked and you don’t have any immediate needs, see how many days you can go without spending a dime.
Another great chance to trim liabilities.
Remember, debt is not a dirty word. But you’ll stay stuck in your current financial paradigm unless you trim your bad debt and leverage your good debt to get it working for you.