The Real Secret to Getting Out Of Debt

Warning.  What you’re about to read here may go against everything you’ve been ever told about getting out debt.  Everything you may consider as “common sense” when it comes to getting out of debt may be exactly what’s keeping you in debt.

 

My Story

In 1999 I almost went bankrupt.  Besides the tens of thousands of dollars of debt, my credit was so bad that I got rejected when trying to open a checking account!  Yes, it is possible to have such bad credit that you don’t just get rejected when trying to borrow money from the banks, you can actually get rejected trying to open an account to give them money.  I was trying to open up a simple checking account with a no-fee bank, and they rejected me.  What a slap in the face.

 

The Turnaround

As many of my readers already know my story, I won’t go into too much detail, but let’s just say that I have done fairly well over the years paying back every penny I ever owed during those days and I guarantee that if I applied with that same bank right now they wouldn’t have any problems opening up a checking account for me (or a credit card or mortgage etc.).   

 

How I Got Out of Debt

The real secret to getting out of debt may shock you.  Your brain has probably been so programmed to accept the conventional way of thinking about debt that what I’m about to write here may really piss you off.  You’ll probably think I’m an idiot, because it may completely go against your beliefs (the ones that have been conditioned into you by the media and society) but it’s how I got out of debt and it’s really the only way anyone gets out of debt.

Before I go into how it’s done, let me first go into the traditional ways people try to get out of debt.  Let’s say that Bob and Mary are a typical married couple with 3 credit cards each, $20,000 of combined debt (not including their mortgage) and they both work for a living.

 

Myth #1: Make Regular Payments To Your Credit Cards Until They Are Paid Off

The first thing people try to do when trying to get rid of their credit card debt is to make the regular (minimum) payment that is asked of them.  For example, Bob gets his credit card statement which says he owes $10,000 and the minimum payment is $200.  So Bob makes the $200 payment with every intention of never charging anything to the card until it’s fully paid off.

This doesn’t work.  You’ll never pay off your credit card making minimum payments.  I’m not going to go into the mathematics of why this never works, as it would take the whole article to cover all the different points, but just know that you’ll never get out of debt paying the minimum monthly payments on your cards.  Mathematically speaking, even if you had the discipline to pay down the debt without ever charging another amount onto the card, it would still take you decades to pay it off.  Chances are what will really happen is as soon as Bob pays off $1,000, that shiny new LCD Television he always wanted goes on sale and he ends up racking up his credit card again.

 

Myth #2: Get a Debt Reconciliation Loan

Debt reconciliation loans promise to put all of your credit card debts into one debt with a single payment and a lower interest rate and a lower payment, but what ends up happening is Bob and Mary combine all of their debt into this one loan, and guess what happens next?  Two years later, they now have a $20,000 debt reconciliation loan PLUS another $20,000 in new credit card debt.  Not only have I personally experienced it myself, I’ve seen dozens of other people make this same mistake.  They try to get out of debt, but they end up getting into more debt.

 

Myth #3:  Get a Lower Rate on Your Credit Cards

Although it is possible to lower your credit card interest rates by negotiating with your creditors, this is only a partial strategy.  All it really does is lower your minimum payment.  Let’s say Bob lowers the interest rate on his $10,000 credit card debts, and now his minimum payment is only $160/month instead of $200/month.  That’s great, but he still won’t pay off his credit card debts for a LONG time.  What will mostly likely happen is that he’ll just rack up the credit card again as soon as he’s paid off some of the principle on his card.

 

Myth #4: Lower Your Living Expenses

All of Bob and Mary’s friends say that they spend way too much money, and that’s why they are in so much debt.  All Bob and Mary need to do is just lower their expenses each month and they’ll get out of debt.  Instead of going out for lunch, they just need to pack a lunch right? 

Packing your own lunch, clipping coupons, and all the other “Thrift Ideas” in the world won’t get you out of debt.  They’ll just depress you and make you miserable.  Neither will keeping a super detailed budget of every expense and putting money into little envelopes for each expense.  Been there, tried that, it doesn’t work.

 

Myth #5: Get Into a Lot of Debt and Then Just Declare Bankruptcy

Declaring bankruptcy is not the solution.  It doesn’t actually solve the problem that caused you to get into debt in the first place, it only hits a reset button and then you get to go into debt all over again!  Not only that but it’s a lot harder and more stressful going through a bankruptcy than most people think.

 

The Real Problem

The reason none of the “solutions” above will ever work long term for getting you out of and keeping you out of debt is because they don’t address the real problem you’re having.

I know this is going to sound really simplistic, and you probably won’t believe me when I tell you this but the REAL reason you’re in debt is simply this:

 

Your dreams are bigger than your current income.

 

This is the real reason people get into debt.  Their dreams and aspirations are bigger than their current income AND THERE IS NOTHING WRONG WITH THIS!  You WANT to dream big.  You want to have large aspirations. 

From every angle we are bombarded with images of new fancy cars, beautiful homes, beautiful vacations, new shiny toys and tens of thousands of beautiful things that life has to offer.  We are told to dream and to dream big.  We walk into MEGA STORES with beautiful toys on display and we want to play with them.  All of that is wonderful, because we do want to live life to the fullest and experience all the beauty that this world has to offer us in complete abundance, but the real problem is that most of us simply don’t earn enough income to afford all of this.

Most people who make $3,000/month live with $4,000/month dreams, and those who make $5,000/month live with $7,000/month dreams.  We simply don’t make enough money to reach our dreams, so we go into debt.

The credit card companies and the banks are well aware of this.  They know that your dreams are bigger than your income so they know you’ll get into debt, and they’re happy to make interest off of your dreams!

This is the first realization I had on my way to getting out of debt.  I realized that the problem wasn’t that I was spending too much, the problem was that I wasn’t making enough to live my dream life and I was using credit cards as a way to temporarily bridge that gap.

It’s simple math really.  I’ll sit down with people who make $2,000/month, their monthly living expenses are $2,300/month and they have big dreams and the
y’re looking for some way to get out of debt.  They look at all the Myths I outlined above but the math is very simple.  If you’re spending $2,300/month and you’re only making $2,000/month, you’re never going to get out of debt.  You can flip balances from card to card, you can make minimum payments all you want, and get debt reconciliation loans but ultimately there is only one solution to your problem:

 

The real secret to getting out of debt is to dream big, and to use the fire of desire within to inspire you to earn more money, and not to pack on more debt.

 

I know this is going to piss off a lot of people because a lot of people live with the belief that their income is fixed, but the truth is that the absolute best and permanent way to get out of debt is to use the energy of desire that your dreams create to help you increase your income, and focus all your energy on that instead of trying to lower your expenses or shut down your dreams.

Imagine if you doubled your income this year.  Would that help you get out of debt?  What if you tripled your income?  Would that help you get out of debt?

Well, that’s the secret.  Focus all of your efforts and energy on increasing your income to match your dreams, and not on trying to live small.  When I see people who make $2,000/month trying to pay off their credit cards and get out of debt, I’d rather focus on helping them increase their income to $5,000/month than to lower their expenses by 20%. 

It’s weird but nobody talks about this.  Everyone is so focused on conserving and reducing their expenses but nobody focuses on increasing their income.

When I realized that my dreams were large, and my income stunk, my life changed.  I now began to focus on learning everything I could about how to build wealth and how to make the kind of money I would need to live the life of my dreams.  Instead of focusing on debt, I started focusing on wealth.  I started to look for ways to double my income.  I stopped talking about trying to save money, and I started talking about earning money.  Guess what happened?  My income skyrocketed and it was super easy to pay off my debts.

 

The Dreaming Big Paradox

In order to be able to make more money, you need to dream big.  You have to have dreams that inspire you to get off your butt and to go out there and do something to make a lot of money.  Your dreams need to be bigger than your current income.  If you are currently renting a one bedroom apartment because that’s all you can afford and you’re feeling cramped, you need to be dreaming of owning a big house or whatever kinds of dreams that will get you motivated.

However, where a lot of people make the mistake is that they dream big but they don’t do anything to go after those dreams, so they end up getting frustrated when the dreams don’t come to them and they end up getting into debt to temporarily finance those dreams. 

You have to get comfortable with having dreams that are beyond your current income level.  If you are currently making $2,000/m you need to be comfortable with having a dream of a $5,000/m lifestyle.  Let me explain.

Let’s say that you currently make $2,000/month.  When you sit down and put together a vision board, or set some goals of making more money and having a better lifestyle, these goals are going to create a feeling of motivation within you.  This inner desire for a better life will make you uncomfortable.  You won’t be able to sit on the couch and do nothing because you’ll feel antsy.  You’ll want to get out there and do something because your dreams are going to start pulling you towards them.  This is OK!  You WANT THIS!  This feeling of desire is exactly what will get you towards that lifestyle you want.

What you want to do is to use this energy of desire to get you to find ways to increase your income.  What you DON’T want to do is to cheat yourself by using DEBT to temporarily finance that lifestyle you don’t have yet.  If you do this, you’ll always be in debt because the minute you achieve the next level, your dreams are going to increase and once again you’ll have that energy of desire within you and once again you’ll try using DEBT to bridge the gap instead of finding ways to increase your income.

You need to learn to convert that energy of desire into INSPIRATION to provide more value in the world, to be creative, to make money doing what you love, and NOT INTO DEBT!

This is the real secret to getting out of debt.  Learning to manage this energy of desire.  You need to learn how to be COMFORTABLE being UNCOMFORTABLE due to having this feeling of desire. 

People get into debt because they have no level of tolerance for feeling the energy of desire.  As soon as they desire something, and that energy begins to burn a fire within them, they quickly run out to the store and use their credit card to put out that fire.  Don’t do this!  Start the fire and learn to live with it.  Use it to fuel you, and when you’re ready, dream bigger and have an even bigger fire.  This is how wealthy people work.  They dream HUGE and they use the fire within to achieve those dreams.

I have huge dreams within me.  The fire within burns hot, and I’m ok with it.  I use it to fuel my efforts.  This is what you want to learn to do.  Develop the patience to desire something without the need to immediately go out and extinguish that desire, because the minute you do that it will just be replaced with another desire.  Use the energy of desire to help you grow, not to put you into debt.

A decade ago, when I realized that it was the energy of my dreams that was putting me into debt my life changed.  I learned that I was channeling that energy in the wrong direction, and only once I learned how to channel that energy into the right direction (instead of trying to extinguish it!) did I got out of debt.

Forget the debt reconciliation loans, and the interest rates and all that hooplah. Focus your energy and your intentions on growing as a person and increasing your income and living the life of your dreams and learn to be comfortable with the fact that once you reach your dreams, you’ll probably start dreaming of even bigger dreams and you’ll once again have the fire of desire within you which will inspire you to grow once again.  This is natural.  Don’t try to put out that fire with your credit cards.  That’s how people stay in debt forever.

I know someone out there is probably setting their New Year’s Resolutions for 2009 and getting out of debt is one of them.  If you are this person, I wrote this article for you.  The reason you’re in debt is because you’re a dreamer and the world needs more dreamers like you.  There is no value to the world for you to play small.  Dream big!