Approaching Debt Free « Health Now, Wealth Forever

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By Gary, on September 7th, 2010

Do you want to build your wealth?  I ask this question, which seems like a “not a smart one” because my last post on August 25, 2010 entitled Debt = Anti-Wealth states up front that debt is the opposite of wealth.  Are you in debt to the point that you have no ability to build your wealth?  If so, that debt needs to be eliminated for you to have financial freedom.

Think of income as food.  You have an income (food).  The income is adjusted by with-holding items (food is prepared for your use at a meal).  Now you can use your income for your budgeted items (you can eat the meal).  While you are using your income, you have to pay off your credit cards, student loans, car loans, etc. (as you are eating it, your food is losing its caloric and nutrient value).  After paying all of those, your income for this period is close to zeroing out (your food has been depleted of calories and nutrients).  If you are zeroed out, you have no ability to add to your wealth (you have no energy or health benefit from eating your meal).

In order to have financial energy, you must have a source of income and you must be able to use a portion of that source for building your wealth.  This means that personal debt must be controlled or eliminated.

The normal household is significantly in debt. As of March 2010, the average credit card debt per household was $15,788.   So don’t feel isolated or guilty.  Our current way of living encourages going into debt.  The result of such debt is that, without its elimination, financial freedom will never happen.

However, personal debt can be eliminated and controlled if you so desire.  Are you ready?

It will be a life-style adjustment, a change in your thoughts and actions.  You will be going on a journey with your money which will resemble quitting smoking.  It will require a deep, life-time commitment – and long-term re-commitments along the way.  If you need help with such a major life change, refer to the post Welcome to your Transition, by Nathan on November 4th, 2009 for tips and help.

As in any good diet, a good diet book is invaluable.  Such a book was recommended to me by my friend and financial adviser.  The book is ZERO DEBT, The Ultimate Guide to Financial Freedom by Lynnette Khalfani, Advantage Word Press, Second Edition: 2007.  Lynnette Khalfani has authored several books, has been on The Dr. Phil Show, The Jane Pauley Show, The Tavis Smiley Show and other national TV and radio programs.  She paid off more than $100,000 in credit card debt in less than three years and is considered a personal financial expert and “money coach”.  Her web site is

Like a good how to do it book, ZERO DEBT takes you through the steps to be debt free in a “short” time and then gives you tools to stay out of debt.  It is a 31 day program.

ZERO DEBT begins by having you take control of all of the credit card offers that you get in the mail – this eliminates some of the temptation to enter into more and more debt.  It teaches how to look courageously at all your debts, get your credit score, set up a filing system, negotiate with your creditors, when and how to switch to a lower interest credit card if you need to, what happens when you exceed your minimum monthly payment, how you can dispute errors in your credit report, where to go to educate yourself about your legal rights as a debtor, how to deal with collection agencies, how to identify and prevent identity theft, gives tools of facing the truth and setting realistic goals, makes you test your spending habits, shows how to set a realistic budget, suggests lifestyle changes, discusses tax strategies and ways to add income, shows you how to refinance your existing loans, guides you in picking a debt reduction strategy,  gives you a pro and con discussion about debt management plans, helps you with drawing up a will and evaluating your insurance coverage, directs you is setting up automatic savings accounts and discusses other money issues such as bankruptcy, delinquent taxes, student loans, payday loans, etc.

The appendices are loaded with help:  addresses of credit bureaus, sample letters, challenge form, and web sites.

ZERO DEBT is an easy book to ready.  I recommend that you read it through once to get the A to Z of the book, but then take it one day at a time and make the book really work for you.

If you have determined that your circumstances will prohibit you from reaching zero debt in 3 to 5 years, then you may need to consider other avenues such as debt resolution or bankruptcy.  Bankruptcy will require that you will need to find a bankruptcy attorney and pay a fee to them for their help.  Debt resolution is different from bankruptcy in that you will pay the creditors through a debt resolution company (drc).  You pay the drc a fee for their service and they take over negotiation with your creditors.  Both of these solutions will significantly lower your credit score.  Please be aware that congress has allowed the creditors to file with the IRS the difference of what you owed them and the settled amount as a loss to the creditor and a miscellaneous income on your taxes.  For example, if you owe a credit card company $15,000 and you settle for 40% of that and pay them $6,000, they will send you a 1099-Misc form for the difference, $9,000.  That will increase your taxable income by $9,000 and thus your taxes owed.