At the height of my debt debacle I owed over $400,000 at 6.8% interest. That amounts to nearly $30,000 per year just in interest. Let me say that again. I was paying $30,000 per year and getting NOTHING. Someone was getting rich and it wasn’t me.
It Could Be Worse
The student loan arena isn’t the only place where this travesty is occurring. Just yesterday I spoke with a colleague who took out a car loan for $30,000 at 18% interest. That’s $5400 in interest per year. His car payment was $500 per month, or $6,000 per year. That meant that he was paying only $600 per year towards his principal. Guess how long it was going to take him to pay off that loan? Way too long.
Unfortunately, he was involved in a car accident two days ago and his car was totaled. Thankfully, he is fine. However, his car was valued at $10,000 and he owes $18,000. So he now has an $8,000 loan on a nonexistent car at 18% interest. He is paying money towards something and getting NOTHING. He doesn’t even have a car to drive. Someone is getting rich and it isn’t him.
Turn It Around
It you take on debt you will be paying someone else for the “privilege” of carrying that debt. You can argue that debt used to start a business or buy a home will pay off in the long run. However, understand that you are still paying someone else. Ultimately, if you want to become successful, you need to be the one getting paid.
How to Be the One Getting Paid
In order to be the one getting paid, you need to be the one with the money. In order to be the one with the money, you first need to get out of debt. Learn how to suffer. Slash your budget and live on half of your income. Slaughter your credit card debt. Sell your expensive car with the finance payment and buy a car with cash that you can actually afford. Refinance and attack your student loan debt.
Once you have killed your debt, then the real magic can start to happen because you are no longer paying someone else.
Your Turn To Get Paid
To get paid, you have to buy things that make money. The first place to start is to build up your full emergency fund in a savings account that actually gives you some interest. An example is Ally bank’s high-yield savings account that currently pays 1.05% interest. You won’t get rich from this, but at least someone is paying YOU for once!
You then need to buy things that will pay you something more substantial. This includes rental properties, stocks, and bonds.
If you purchase a rental property, your tenants will pay YOU rent payments instead of you paying rent to the landlord. Wouldn’t that be a nice change?
If you buy small portions of businesses (stocks), the businesses will pay YOU dividends every quarter instead of you paying the bank to finance payments on that shiny new car. I’ve been steadily putting money into the Vanguard Total Stock Market Index Fund and at this point, I receive around $1,000 in dividends every quarter. How cool is that?!
Finally, if you buy bonds, you are essentially loaning money to the government or businesses and they will pay YOU for the privilege of borrowing this money instead of the other way around. The Vanguard Municipal bond index fund pays me a few hundred dollars a month at this point. A huge bonus is that this is tax free money. I’m still not getting rich, but it’s much better than paying someone else $30,000 per year!
Make The Choice
In the world of personal finance, you can either be the one paying someone else, or you can be the one getting paid. I’ve been on both sides of the aisle, and I can tell you that the latter is much better. If you have the discipline make a decent income, get out of debt, and start saving money, you too can be the one getting paid.