Friday, July 8, 2011

By Hannibal Chinchilla

The words "Debt Free" seem so unrealistic and far away, specially during these tough economic times. For generations we have learned from our elders to deal with debt in very different ways; if you ask you grandfather he will tell you to save as much as you can, don't trust the banks and pay everything off right away. Our grand fathers generation learned the hard way during the 10+ year Grand Depresion, long lines to get basic needs, food and no jobs available. Many survived and flourished to give us that sound advice. Unfortunately, we are bombarded by offers of quick credit, easy credit and don't worry, pay it later. Later sometimes never come. The traditionalists learned first hand, in contrary the boomers who have indulged in debt ridden portfolios and quick return on investments. It really doesn't work like that. Compounding interest only works through time. Early withdrawals of a 401K do not work. It negates actually the savings you can accumulate. Social Security is in jeopardy... Defined Benefit Plans are rare nowadays, these are pensions plans, who stays in a company longer than 3 years. Our grandparents usually work for the same company for 20+ years on average. We are left to fend for ourselves and our children. So what are we ought to do?

Realistically, we need to take care of ourselves; your company, your parents or children, the government, nor your friends will help.......We must face these times ourselves. This means self-discipline. This means making a real and realistic paradigm shift in our behavior. Yes, it is tough but it can work.

Here is a realistic way to reduce or eliminate debt through discipline and consistency:

First, write down all your debt, from smallest to largest, item one should be a small debt, a credit card, or a bill you can pay off quickly, then the second item should be larger, probably a couple of payments, third item, should be a bit larger and could take a couple of months to pay off, and so on. Get the picture?

The way it works is that we are accustomed to accomplishments and quick outcomes, when you pay off an item off your list, it will give you a feeling of accomplishment and it will feel good, really good. Then the second item, then the third and so on.

It will take time but it will start to feel that you are getting somewhere, just work on whole numbers and not interest.

Yes, interest is important but it will work better once you pay one off, you will see.
Caution!: you will need to stop incurring more debt, lower your expenses and increase your earnings, basic math, the more you bring in the easier it will be to start paying those small debts. Budget those expenses and see what is coming in and going out. Reduce or stop paying for nice to have or do items, you know what they are. The economy will take a few years to rebound, we are going to feel this for a while, so prepare yourself, deal in cash only and stay away from credit cards and debit cards.

If you are interested in getting my Cash flow worksheet email me at

Yes, my return on investment is that once you become debt free, you will seek advice to build your nest egg and happiness.

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