Debt is an epidemic in America. Almost everyone has a car loan, or student loans, or credit card debt. And many have all three.
Shopping sprees, medical bills, and emergencies can deal a fate blow to your finances. Once your debt is overwhelming, it can cripple your life.
It becomes impossible to save money to achieve your goals. You can’t save for a down payment on a house or your kids’ college. On top of that, it adds stress and anxiety, which makes the problem worse.
What you need is a game plan for getting out of debt. That’s where this post comes in handy. With a strategy in place, you’ll know what you have to do. Here’s a three-step process for paying off your debts.
Step 1: Reign in the budget
Your first order of business is to make a budget. You do this by calculating your spending and income. Then make adjustments so you spend less than you make.
Decide how you want to track your spending and income. A popular website for tracking your money is Mint. Or you can create an excel sheet on Google Sheets. If you’re more old school you can use a pen and paper.
Once you choose your method of tracking your budget, now it’s time to collect data. This can be intimidating, but it’s a necessary step. List everything you’re spending money on and where you’re money’s coming from. Get a solid idea of how much you spend and make every week or every month.
Now that you see the numbers, let’s start cutting things we don’t need. If you’re eating out too much, focus on grocery shopping and making meals at home. If you have too many bills, cut services like Netflix or club memberships.
The goal is to spend less money than you make. Remember, the less money you spend, the more money you can apply to debt.
Step 2: Apply all extra money to debt
Once your budget is in place, you’ll have spare money to apply to your loans. This step requires a lot of self-discipline. Once you free up your finances, you may be tempted to buy something. But remain focused on your ultimate goal – paying off debt.
Begin by making a list of all your loans. Make sure you include the amount of each loan and its interest rate. You can’t use the right solution without properly understanding the problem. This overview will give you good intel on how to proceed next.
Step 3: Pay off one debt at a time
The strategy here is pretty simple. Make the lowest payment on all your loans, except one. Select one loan and pay as much as you can. Which loan should you tackle first? There are two strategies:
The Snowball Method
This method was popularized by financial guru Dave Ramsey. It’s also the one I recommend. You pay off the loan with the smallest amount first. Then you work on the next smallest amount. This strategy rewards you early on. You feel good after paying off a loan. Use that emotional energy to keep paying off more debt.
The Avalanche Method
In this method, the first loan you pay off is the one with the highest interest rate. Mathematically speaking, this is the fastest way to pay off your debt. It might take time before you see or feel a difference. But once you pay off that first loan, the next one is crazy easy to pay off.
Watch your debt disappear
Paying off debt can be scary and discouraging. It becomes feasible once you have a plan in place. When you have a road map, all you have to do is take it one step at a time.
The first few months might be hard. You’ll cut your spending and apply money to loans. And it won’t feel like your debt is disappearing. But trust me – it’s working.
Eventually, that first loan will fall off your shoulders, and it’ll feel amazing. Then you’ll have more money to apply to the next loan.
Keep going and watch your debt disappear.
Dalio: Capitalism Needs Fixing, US Dollar Upended In Next 5 Years
In a recent interview with MarketWatch, Ray Dalio, the billionaire founder of Bridgewater Associates, covered a wide range of topics. These include his thoughts on capitalism, China, the US dollar as the world reserve currency, and much more.
Dalio says the US is facing three distinct problems and is losing ground to China in many ways.
“There are three problems that are coming together,” said Dalio. “So it’s important to understand them individually and how they collectively make a bigger problem,” said Dalio.
“There is a money and credit cycle problem, a wealth and values gap problem, and an emerging great power challenging the existing dominant power problem. What’s going on is an economic downturn together with a large wealth gap and the rising power of China challenging the existing power of the United States.”
“It’s a fact that there has been a weakening of the competitive advantages of the United States over the last couple of decades. For example, the United States lost a lot of the education advantage relative to other countries, our share of world GDP is reduced, the wealth gap has increased which has contributed to our political and social polarization.”
Challenges the U.S. Face
To illustrate the challenges that the US faces as it attempts to stay ahead of China and remain a world power, Dalio says we need to look at Britain and how they eventually lost their position as the world’s reserve currency.
“If you look at British history, the development of rival countries led them to lose their competitive advantages. Their finances were bad because they had accumulated a lot of debt. So, after World War II those trends went against them. Then they had the Suez Canal incident and they were no longer a world power and the British pound is no longer a reserve currency. These diseases almost always play out the same way.”
“The United States’ relative position in the world, which was dominant in almost all these categories at the beginning of this world order in 1945, has declined and is exhibiting real signs that should raise worries. There’s a lot of baggage. The U.S. has a lot of debt, which is adding to the hurdles that typically drag an economy down, so in order to succeed, you have to do a pretty big debt restructuring. History shows what kind of a challenge that is.”
“The United States is a 75-year-old empire and it is exhibiting signs of decline. If you want to extend your life, there are clear things you can do, but it means doing things that you don’t want to do.”
Capitalism Needs Improvements
Dalio is a capitalist (he didn’t become a billionaire through handouts). However, he does acknowledge that the system needs to be improved so that everyone has a chance at financial freedom.
“What has been shown is that capitalism is a fabulous way of creating incentives and innovation and of allocating resources to create productivity. All successful countries have uses for it. For example, communist China has chosen capitalism, which has been essential to its growth.
“But capitalism also produces large wealth gaps that produce opportunity gaps, which threaten the system in the ways we are seeing now.
“We have to be in this together. The system needs to be reengineered to do this. But if we don’t do this engineering well, we’re going to spend in an unlimited way and deal with that by creating debt that won’t ever be paid back, and we will risk losing the reserve currency status of the dollar. If we get into that position — and we’re very close — things will get much worse because we are living on borrowed money that’s financing our consumption.”
On Dollar as the World Reserve Currency
Dalio says we could see the US lose reserve currency status as soon as the next five years.
“Within the next five years you could see a situation in which foreigners who have been lending money to the United States won’t want to, and the dollar would not be as readily accepted for making purchases in the world as it is now.”
“The United States doesn’t have a good income statement and balance sheet in dealing with the rest of the world. It is running a deficit to the rest of the world that is financed by borrowing money so that we are producing liabilities.”
There is uncertainty in the markets ahead of the November election. With this, Dalio says there are two steps investors can take to protect their wealth.
“First, worry as much about the value of your money as you worry about the value of your investments. The printing of money and the debt should make you aware of that. That’s why financial asset prices have gone up — stocks, gold — because of the debt and money creation. You don’t want to own the thing you think is safest — cash.”
“Second, know how to diversify well. That includes diversification of countries, currencies and assets, because wealth is not so much destroyed as it shifts. When something goes down, something else is going up so you have to look at all things on a relative basis. Diversify well and worry about the value of cash.”
Varney: Dems Bending Over Backwards To Help The Wealthy, Not Working Class
If you think the Democrats care about the working man, think again, says Fox Business host Stuart Varney.
He says the Democratic elite are bending over backwards to try and help their wealthy donors at the expense of the working class.
Just look at the breakdown in the negotiations for a new stimulus bill. The Democrats aren’t clamoring for another round of $1200 stimulus checks, they’ve let that fall to the side. Who benefits from another $1200 check? The working class, of course. The wealthy sure don’t need it.
The sticking point, says Varney, is a tax deduction. Specifically the SALT deduction that allows state tax payments to be deducted from federal taxes. President Trump put in a $10,000 cap on the deduction as part of his Tax Cut and Jobs Act. That’s not an issue for ordinary working class Americans, but does affect wealthy individuals in high-tax states, many of which are Democrat states likes New York, New Jersey, California and Illinois.
Varney says the Democrats clinging to this tax deduction for the wealthy at the expense of the working class tells you everything you need to know about their priorities.
“The Democrats are moving heaven and earth to help the rich. You heard right. The Democrats are running to the assistance of the top 1%. This tells you a lot about political change. If you thought the Democrats were all about working people, think again.”
He says the far left may want to tax the rich, but the Democrat establishment is looking to protect them.
“Maybe the socialist wing wants to seize your wealth, but the establishment is desperate to bail out their wealthy supporters. Specifically, they want to bring back the deduction for state taxes. Yes, that’s the SALT issue. It’s the big sticking point in the fight over the new virus package.”
He says for wealthy Americans living in Democrat states, it was a “major league” deduction. Without it, they are paying higher federal taxes.
“It was a major league deduction. It was a big tax saving. But that’s the old days. Now, no tax deduction. And the wealth, especially in high-tax Democrat states, are complaining bitterly. They’re paying more Federal tax, not less.”
Establishment Democrats are scrambling to get SALT repealed, says Varney, showing their true colors to their constituents.
“Oh, there is desperation. New York Senator Chuck Schumer, he is demanding a SALT repeal. So is Speaker Pelosi. She’s from California. So is candidate Joe Biden. The establishment is desperate to avoid even higher taxes in already high tax Democrat states which would make things even worse.”
“If SALT were to be repealed, the establishment helps its rich donors. It will be a Democrat gift to the wealthy. The main beneficiaries will be one-percenters. Forget ideology. Political self interest is what rules the Democrat elites.”
Ron Paul: This Is The Biggest Financial Bubble In History
Dr. Ron Paul believes that we are in the biggest financial bubble in history. He also said that when it pops, it will be very violent.
In a recent interview with Kitco News, Paul covered a wide range of topics. Some of these topics include the Federal Reserve, interest rates, and the economy.
He was asked about the Federal Reserve’s dual mandate of full employment and inflation control. To this, Paul said the Fed shouldn’t even be in the business of worrying about either.
“They shouldn’t even be in the business of pretending that if they want a good, healthy economy, and they want as best the employment possible, and the most balanced pricing system, you have to get rid of the system. You can’t have this artificial system from the Federal Reserve,” he said.
Free Market Should Set Interest Rates
Paul said the free market should be the one setting interest rates. Additionally, when the Fed thinks it has control over things is when problems start.
“You have to have a market rate of interest, and you have to have a money supply that’s determined by the market rather than by the politicians, because we are seeing the results of many, many years of this, especially since 1971 with what is happening now, it’s the runaway spending, we can’t have the runaway spending, if we continue to do this, and the fact that they pretend that they can control things, every time they think they have control then there’s a major correction, which we are in the midst of.”
He said the big event was when the Fed realized last fall that the bubble was starting to pop. He also mentioned that it began doing everything it could to keep it going. This meant cutting rates to zero.
“The big event that turned this whole thing on was in the fall when it was realized that the financial bubble was collapsing and they have destroyed for many, many years the most important function of the market, in the money supply are the interest rates. So we destroyed the pricing structure and that’s why we have so many mistakes, malinvestment, too much debt, too much government, and it wouldn’t happen if you didn’t have a Federal Reserve system that thinks they can manage the economy through monetary manipulation.”
Gold and the Market
Paul said the Fed can print as much money as it wants, but ultimately gold is what underpins the markets.
“I remember when gold was legalized in the 70’s, everybody thought the gold price would soar up, but it had already gone up, but at the time, our Treasury Department and the IMF (International Monetary Fund) dumped a lot of gold just to try and punish the people who knew that gold was a haven. So there’s a lot of monetary and gold manipulations, but ultimately the markets are determined by metals, not by paper money.”
He said we are getting close to a “cataclysmic” end to the bubble. The unfortunate result is that a lot of people will be wiped out financially.
“We are coming desperately close to a cataclysmic end to the current monetary system. I happen to believe it’s the biggest financial bubble in the history of monetary policy for the whole world. And the correction is going to be very violent, and it’s already pretty bad. People are going to get a lot poorer.”
“The bills have to be paid, the economy is going to turn down, and a lot of people have already gotten a lot poorer, but it’s going to get a lot worse unless we wake up and return to some sound economic and monetary policies.”
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