slide2How To Stay Debt Free Once You Get There !

My business is helping people get out of debt. I provide debt relief counseling for consumer debtors, and attorney negotiation services for people who have unsecured credit card debt.

However, today I thought I’d give some ideas I have about how to stay out of debt once you’re there. So, imagine you were a client of mine, who we successfully negotiated out of credit card debt. You’re now debt free for the first time in years. How do you stay that way?

Warning: The credit card industry wouldn’t like any of these suggestions!

First, the background: Just as a typical example, I looked up the CEO of Discover David Nelms and this is what I found:

“Discover Financial Services, with a surging stock tied to strong performance in its core credit-card business, moved last year to lock up CEO David Nelms for the long term with a $21.2 million pay package.

Riverwoods-based Discover gave Mr. Nelms a 112 percent raise over 2012, when he collected $10 million in cash and stock.”

nelmsHere’s the question you should be asking: “who really paid that $ and why did Discover give Mr. Nelms such a huge bonus?”

Answer: You paid for it, if you have a Discover card, as millions of Americans do, including many of my clients. Discover is neither the worst nor the best creditor, they’re average which is why I selected them. Mr. Nelms provided a way to increase their profits: “The company posted record net income of $2.47 billion, 43 percent above the board’s plan target of $1.73 billion.” Discover’s total loans grew 5 percent and “loan losses were the lowest in Discover’s 27-year history.”

In short, Mr. Nelms provided ways to squeeze more money out of consumer debtors, which raised Discover’s stock price, so they gave him a huge compensation package.

Now, here’s another question you should be asking yourself: “Why should I provide any of my hard earned money to help David Nelms’ lifestyle of the rich and famous?”

But, how do you avoid it? The credit card industry is endlessly creative. Their task is to provide more and more varied financial credit services, all designed to charge a fee for giving you the credit to buy stuff where you can’t afford to pay cash.

So in this and future installments of this newsletter, I’m going to be exploring all kinds of tips and techniques for getting out of debt and staying that way.

Today’s TIP #1: Get a Debit Card With As Big An Overdraft Protection as You Possibly Can.
You use this card only for emergencies. For all other reasons you pay cash. Your motto is: “If I can’t afford to buy it and pay cash, then I’m not buying it.”

NOTE: An example of an emergency is: “I was driving my college daughter to school, and my car broke down in Cleveland, and now it needs $1,500 worth of repairs before I can go anywhere.” ‘An example of an emergency is NOT: “that amazing dinette set I’ve had my eye on for months is on sale for only $1,500! It’s 40% off! I must buy it!”

table-jpgYes, it does look lovely. And, no, you cannot afford it unless you can pay cash. Why? Because you are paying an average of around 16% interest for using Discover’s credit. And that fee is why David Nelms is so rich.

Basically, you are funding a lifestyle that you can’t afford to buy through credit, and paying a fee to do it. This is the most significant reason why American consumers have little or no savings, small 401k or IRA or pension savings, etc.

So, this is what I tell all my clients after I get them out of debt: “tear up your cards, get a debit card with the biggest limit you can get, and pay cash for everything.”

Do you have additional tips & techniques to offer? I’m no expert on smart frugal living, but I have learned one or two things. If you have some ideas about how to stay out of debt, please feel free to post them in the comments section.