Hulk-smash

This accurately displays how you should feel towards high-interest Debt.

Instil hatred towards Debt

Debt. It’s dark shadow will linger over you, crippling your finances. It’s evil clenches can destroy relationships and make life miserable. It’s grasp will keep you from getting ahead. Children should grow up knowing it is a filthy word. We need to instil into the minds that as you should never talk to strangers, you should also never get caught up in the vices of high interest debt. With a vast sea of credit cards carrying high APR rates, climbing upwards to almost 30%, it’s easy for someone to get burned. The idea of a piece of plastic you can use anywhere for anything is a scary idea if your irresponsible. It’s no wonder people have gotten themselves into trouble.

Saving is important, but debt comes first

Spend less, save more is the key. If however you are caught up in the crutches of a deficit with a high interest rate, more importantly your concern should become ‘spend less, pay debt’. Put any savings or investing on hold for the time being. Long term market returns being somewhere around 6-8% before fees, your return will obviously be better paying off high-interest debt first.

How low can you go!?

A lower interest rate obviously seems more sensible. If your able to, put high-interest balances on an existing line of credit, or open one. (ONLY for the amount of your high-interest debt. I don’t recall the exact numbers but David Chilton writes in The Wealthy Barber Returns about a lady who had a credit card debt maxed out at quite a large sum. When he advised her to get a line of credit for that amount and destroy the credit card, the guy at the bank sold her on the idea of a credit line that was substantially higher than her existing debt because she was ‘eligible’. That’s just creating more room to increase debt.) Think of a banker as a sales person trying to up sell you on the products they provide. Know what your goals are and if you are ‘eligible for more’ kindly refuse the offer.

Get rid of your access to credit cards

After you transfer your amount (if possible) destroy your credit cards. You might have heard the story of the woman who froze her credit cards in ice to curb using them. You could try that, but I have access to hot water that will melt that brick of ice in a matter of minutes. You still have access, and if you are weak-willed you will get that card. If you don’t want to destroy it you can ask someone you trust to hold it until you become more responsible. Just make sure you don’t have access to it until you get yourself on a better financial track.

Pay high-interest first vs. Snowball method

There’s two main plans to action you can take towards paying off debt. I recommend the first, but either way it’s up to you. It’s best not to over think it. Just ‘Hulk Smash’ that debt irregardless. First up involves paying the highest interest first. If you have multiple debts list them in order from highest to lowest interest rates. Pay the minimums on the lower rates and then attack the highest amount first. Put as much money as possible to paying this off. As soon as your pay cheque comes in put as much as you can afford towards paying this off so you don’t spend it. Once that debt is totally paid off, take that same amount and add it to the next in line on top of the minimum your already paying. Rinse and repeat, until your personal liberation day of being debt free arrives.

The latter technique is called the snowball method. Experts say this is a better method for its psychological advantages. Instead of organizing your debts by interest rates they are organized by the principal balance. Paying the minimums on the other balances, you attack the smallest amount first. Once that’s paid off in full you move your payments into the next smallest amount. It is said that this creates motivation and builds momentum (thus ‘snowballing’).

I don’t want to say anything to piss people off here, but I think just having a solid plan of attack and actually seeing ANY debt levels going down is motivation enough. That’s why I think the first technique is the better option. If you have a $15000 credit card balance at 28% and a line of credit sitting at $10000 around 5%, it just seems smarter to pay off that credit card first IMO.

Consolidating into your mortgage

How about not doing that. Enough said.

Update: A great point was made by savespendsplurge that it is actually a good idea consolidating your debt into your mortgage at a lower interest rate. I agree in terms of lower interest rate, but I have to say that I don’t think it’s a good idea based on psychological reasons. Ask yourself this: Have you learned your lesson? If your spending habits haven’t changed then you may find yourself wiping your credit card balances and allowing for more mistakes. If you can take action and make the financial changes, then go for it.

You’re a free man/woman

Ahhh rejoice. You’ve done it. You’ll probably feel like a prisoner leaving the confines of a concrete cell into a world full of opportunity. Just make sure you’ve actually been rehabilitated. Don’t go back to your petty ways! Now you can start focusing on saving. Take that money you were using to pay off your debts and continue to build your future. RRSP’s TFSA’s and other savings are just waiting to welcome your dollars. Make friends with them. Your old friends were harming you, and it’s time to move on. Debt will be alright on its own. It has many other friends. Be sure it’s attempts to rekindle your lost friendship will render nugatory as you move on to brighter pastures.

 

FF$!

-Jason

 

 

4 Responses to SMASH High Interest Debt

  1. Consolidating consumer debt into a mortgage at a lower interest rate is a good idea.. if you are disciplined enough to not run up that debt again. Otherwise, forget it.

    • Jason says:

      Agreed. But if someone wasn’t disciplined enough in the first place managing money I worry that consolidating it in with the mortgage won’t help teach better habits. It could just add to their largest debt and feel like a fresh start for more debt. I just don’t think the lesson has been learned, but if the person can change habits then absolutely it will work in their favour.

  2. HULK SMASH PUNY DEBT!!!! DEBT IS SMALL AFTER SMASHING!!!!</b?

    If you are "saving" while you are accumulating high interest debt, that is not saving, that is STUPID! Sorry, couldn't resist.

  3. sharon says:

    The hulK has gone crazy

Leave a Reply

Your email address will not be published. Required fields are marked *

CommentLuv badge