Destroy Debt: Part 1 – Don’t be a (Debt) Dick

Every Sunday, I send you something to THINK about, a question to ASK yourself, something to TRY and invite you to SHARE.

THINK

“If you’re trying to get out of debt, you have to be willing to treat everything as expendable.”
Phil McGraw

Society would have you believe that consumer debt is normal and you work on reducing it over time.

I know this because I was one of them. I was a ‘Debt Dick’.

I had over £15,000 in personal debt – a bank loan, credit cards, two maxed-out overdrafts, and I owed money to friends.

I know how shitty it feels.

I felt worthless, stupid, guilty and overwhelmed.

BUT I managed to turn it around and become financially free by 34.

If I can do it, so can you!

This week’s Newsletter is for anyone in debt. I’m going to share:

3 common examples of people living with debt
3 alternative approaches
The underlying reason why they have it
How to start destroying debt

This is a 2-Part Series:

PART 1 – This week, I’m going hard in the paint to change how you think about debt
PART 2 – Next week, I’m going to share a proven step-by-step process for destroying debt

This isn’t a holier-than-thou post. I was guilty of this too.

My sympathies go out to everyone in debt.

I still see it with my friends, family and coaching clients. It’s everywhere!

And I’m here to change that.

Are you ready?

Q. Can you spot the common thread that binds all three people?

EXAMPLE 1 – JEFF:

Jeff wants this thing. He’s wanted it for a while. It’s £100.

He gets paid in 3 weeks but he wants it now.

He’s maxed out his overdraft, has no savings, and needs to pay your rent next week, so he sticks it on a credit card.

It’s only £100. Problem solved.

Credit cards only require a minimum monthly repayment of between 1.0-2.5% of the balance. So that £100 spent can be covered next month for £1.

Why wouldn’t he buy it?

It’s basically free money!

Next month, there’s another thing that Jeff wants. He’s wanted that for a while too.

It’s £150 and it’ll go SOOOO WELL with that thing he bought last month.

Once again, he doesn’t have enough money to purchase it this month but it’ll only cost him £1.50 next month if he sticks it on the credit card.

So he buys it.

EXAMPLE 2 – JACKIE:

Jackie’s car is knackered and she needs one for work.

She’s been diligent with her money and has £20k in savings.

After weeks of looking at car porn online, she finally decides on a lovely new car that costs £20,000.

She could use her savings to buy it outright but she feels uncomfortable spending it all and not having a safety net.

So, she gets the best of both worlds by keeping her savings pot intact and purchasing the car on finance.

She signs up for a 7-year deal, at 9.9%, which will set her back £330.99 pm.

It makes a dent in Jackie’s disposable income, but she can manage it.

Jackie is delighted. She’s still got £20k in savings and she’s got a brand new car. Winning!

EXAMPLE 3 – JAKE:

Jake has always been in debt. It gets him down from time to time but he’s done a good job of protecting it from his family, so they don’t worry.

He has a well-paid job but it’s stressful and he works hard, so he likes to reward himself and his family.

He takes the family away on holiday twice a year
He has a monthly date night with his wife
His wardrobe is full of the latest fashion
He buys himself the newest tech when it’s released
You get the idea…

He goes through phases of paying down the debt. He makes a dent, and then he needs to pay for a holiday, an expensive meal or the release of the latest iPhone, which puts him right back to square one again.

Only deeper into debt.

The Common Theme?

My question to you….

What’s the common theme that binds all of them?

“Their names all start with J”

No. Well, yes but that wasn’t my point.

“They all have debt!”

No. Well, yes they are in debt, but it’s more specific than that.

I think it’s easier if I just tell you…

You could associate several themes between the three individuals but I’m going to focus on one for today, which happens to be the core message for this week’s Newsletter.

They think debt is helping them, when it’s slowly killing them.

They’re all too comfortable being in debt.

They’re in a f*cking emergency and they don’t realise! 😱

They’re choosing to live above their means now (spending more than they earn), but are oblivious to the fact that they’ll have to live below their means (spending less than they earn) in the future.

People get REAL squirmy when you suggest living below their means.

“I don’t want to live like a poor person”
“You only live once, why not enjoy it?”
“I’ll worry about that later”

… don’t get me started!

If the thought of living below your means bothers you now, what makes you think it’ll get any easier in the future?

It won’t.

It’ll get harder and continue to get harder.

If you have credit card debt, car finance, a bank loan or a combination of the three, you’re in an emergency.

Don’t tolerate it and kid yourself into paying it down over time.

Don’t be a ‘Debt Dick’.

Kill it.

As quickly as possible!

ALTERNATIVE FOR JEFF:

If Jeff wants to buy that thing that’s going to make his life so much better, great!

Save up for it and buy it.

If he doesn’t have the money in savings, he can’t afford it.

A credit card doesn’t mean you can afford it. It means you REALLY can’t afford it – due to what you’ll owe on top of the item you can’t afford.

I know this sounds crazy Jeff, but perhaps you could just…

Wait. Save up for it and buy it when he can afford it.

If Jeff was 21, with £3,000 credit card debt, he only paid the minimum amount each month (at 21.9% APR), and he didn’t spend any more money on the card.

Do you know what age he’d eventually clear the debt?

29?

NOPE.

39?

NOPE.

49!

YES! 🤒

AND… he would have paid £4,750 in interest…. 🤢

On £3,000! 🤮

Credit card companies aren’t stupid! They’re getting 21.9% a year return on investment guaranteed. That’s roughly twice the returns of the stock market!

People complain about the rich, greedy, finance twats, robbing hard-working folk.

I hear you. I agree. Then…

STOP F*CKING PAYING THEM! 🤬

The problem is, people don’t stop. They’re too comfortable with debt, so they extend their credit limit and get more cards or even a loan.

Credit cards don’t help you. They slowly kill you.

Kill them before they kill you.

ALTERNATIVE FOR JACKIE:

Jackie had £20,000 in her savings but she didn’t use it.

Why?

“Jackie” was a coaching client. So, I was able to ask her.

She said, “I thought it would be irresponsible to use it all. I wanted money in savings just in case of an emergency.”

I get it and I like it.

So I asked Jackie, “How much would you be willing to spend on a car if you had to buy it outright?”

She said, “I don’t know… £10,000 to £12,000 max.”

I replied, “But you’ve just spent £27,803 on a £20,000 car, which is over twice as much as you said you were comfortable spending…”

I continued to drill the point home. 😬

“…and the moment you drove it off the forecourt, it was no longer worth £20,000. It will continue to lose money every week you drive it. But you’ll still have to pay £27,803 for it.”

She realised, “Shit! I never thought of it like that!”

It’s not Jackie’s fault. What she did was normal. Most people do it.

The thought of saving up money to buy a car in full seems unrealistic or overwhelming.

However, if you take a moment to consider the amount you’d be comfortable paying in full versus the total amount spent with finance (whole term), you’d see a massive discrepancy that will change your mind, like Jackie.

I recommended that Jackie sell her car, take the hit, buy a cheaper one and free up her disposable income again.

😮 (her face)

She could invest that money instead and be WAY better off.

Jackie could purchase a £10,000-£12,000 car and save £330.99/month instead.
If she invested £330.99/month into a global index fund, producing 10% a year, for 7 years, it would be worth = £40,033.

Now that’s an alternative.

The funny thing is if you suggested to Jackie to spend that £40k on a brand new car in 7 years, she’d probably say, “No way, I worked too hard to build that!”

Just like her £20k savings.

Debt makes you delusional about value.

ALTERNATIVE FOR JAKE:

Jake is the one that worries me the most.

Debt is part of his life and identity. It continues to eat away at his self-worth and well-being.

He’d like a bigger house, a nicer car, and a new watch but can’t afford it because his expenses are already too high and he’s saddled with monthly debt repayments.

And yet…

The consumption of holidays, evening meals, clothes and gadgets are ALL more important than paying off his debt.

T H I S D R I V E S M E I N S A N E !!

Probably because I can relate to it. 😔

He’s WAY too tolerant of debt and he needs to fix it. Immediately.

The solution is simple (not easy).

TRIGGER WARNING⚠⚠

All spending beyond food, getting to work and back, and essential bills is banned.

There is no extra spending until his debt is cleared.

The next £1 Jake has in his possession beyond food, transport and essential house bills, goes into paying down debt.

There are no holidays, date nights, new clothes or gadgets.

There is no ‘fun money’. He can’t afford it.

He will eventually integrate all of these back into your life, and they’ll feel AMAZING when he finally clears that debt.

Every £ he pays in interest payments to the rich, greedy, finance twats, is money being taken away from him and his family’s future.

He isn’t ‘providing’ for his family by using debt. He’s ‘stealing’ from them.

Imagine all the holidays, date nights, clothes and gadgets he can afford once he stops paying expensive interest on his debt.

£100/month for 10 years at 10% = £20,484.50

£500/month for 10 years at 10% = £102,422.49

Does he want that in his pocket or the rich, greedy, finance twat’s? 🤔

It’s up to him.

Investing When In Debt

A lot of people ask me about investing when they have personal debt.

If I were them, I wouldn’t.

If you have a bank loan, credit card, car finance, store card, or in some cases a student loan (depending on interest rate), you should destroy the debt before investing.

Why?

The interest rate on debt is guaranteed. Stock market returns are not.

If you owe 9.9% on car finance and 21.9% on a credit card, you might be able to get equivalent returns in the stock market in certain years, but you could also get 0% or even negative returns in other years.

So, take the guaranteed savings of paying down debt.

There will be plenty of time to start investing soon, when you’re debt-free.

Paying Down Low-Interest Debt

What about student loans or low-interest bank loans you got before the recent rate increases?

Here’s my guiding rule of thumb:

If the interest rate of debt is lower than what you can get in an easy-access savings account, then you don’t need to pay it now.

Right now in the UK, you can get easy-access savings accounts around 5%.
If the interest on your debt is below 5%, you’ll be marginally better off saving at 5% and accruing interest, than you would by paying down the debt. (Mathematically speaking)

But don’t discount the additional cost of debt – emotional and psychological drain.

If it bothers you having 3% debt on a £2,000 bank loan, then pay it off.

If in any doubt, kill it.

Work Hard Now, Not Forever

I know that Jeff, Jackie and Jake won’t be thrilled about my suggestions above.

Perhaps you won’t be either but remember this…

You can take it easy later.

You can buy that thing, that car or that treat when you can afford it in the future.

Right now, you need to dig deep, do some hard work and kill that debt.

Everyone’s situation is different but be open to the possibilities. Can you:

Downsize, move home or rent out a room?
Go down to one car or live car-free?
Pick up evening, weekend or seasonal work?
Indulge in more modest holidays, birthdays and Christmas arrangements? Or cancel them for 12 months?
Delay the wedding, family pet or parenthood?
Sell anything around the home you don’t use or value?

Be open to the possibilities. This isn’t a permanent decision.

Most people can eliminate personal debt in 18 months.

Don’t be a ‘Debt Dick’ for any longer than you need to be. Life is so much better when you’re on the other side.

Work hard for 18 months, change your life and enjoy the rest of it.

[TUNE IN NEXT WEEK FOR A PROVEN STEP-BY-STEP PROCESS FOR DESTROYING DEBT]

Reflect and share this with someone.

ASK

Take a moment to consider the following:

“Are you too tolerant of debt?”

“Imagine all the things you could do and buy without expensive monthly debt repayments?”

“How hard are you prepared to work in the short-term to make that a reality?”

Write down what comes to mind.

TRY

I went hard this week. Harder than normal.

I only do it because I care about you. I hope you know that. 🧡

Debt drives me nuts for several reasons…

It held me back throughout my 20s, it held my dad back most of his life, and I’ve seen the damage it’s had on others I care about.

I appreciate there was a lot to think about today, so here’s a summary:

Debt isn’t helping you, it’s slowly killing you.
Imagine all the stuff you can do and buy without expensive monthly debt repayments.
Do you want 10% returns in your pocket or the rich, greedy, finance twat’s?
All spending beyond food, getting to work and back, and essential bills is banned.
Save up and pay for stuff in full.
Work hard for 18 months, change your life and enjoy the rest of it.

This week is about altering how you think about debt.

If you don’t change how you think, you’ll keep doing what you’ve always done.

If you’re ready, we’ll tackle Debt Destruction step-by-step next week. 💪💥

I managed to turn my life around. It might seem daunting, but so can you.

HIT REPLY and tell me how you plan on Destroying Your Debt.

I read and reply to every email, and remember, I’m rooting for you.

Remember: Little by little, a little becomes a lot.

Reply to this email and share how it went for you. Let me know if you’d prefer to remain anonymous.

SHARE this email with someone who has debt.

SHARE your Debt Destruction plan with a loved one.

SHARE what you’re going to save up and buy in full with me and the rest of the world.

Lead from the front and inspire others to follow.

Have an awesome week!

Huw