Principle #4: Plunging Deeper into Debt

Tim and Sherri Collins* should have had everything money could buy. Tim was a dentist who had graduated from a top dental school and had been practicing for seven years in California. Sherri had a master’s degree with a successful career in interior design. They had been married three years when they came to Money Mastery seek- ing help in 1996. Although their gross annual income was close to $600,000, they owned no home, had no savings, and didn’t feel like they could afford to have the child they so desperately wanted. They were burdened with 26 credit card debts totaling more than $59,000 in real debt, which did not include interest. The Collinses were also in arrears three years in income taxes. To make matters worse, they had used eight credit cards attempting to pay for the back taxes they owed. Tim had come from a wealthy family who had paid for his dental school- ing. As a child, he had never been denied anything he wanted and had never been taught any self-discipline when it came to money. To compound matters, Tim had been single for several years before meeting Sherri, so all the money he made as a dentist he felt he could spend entirely on himself. He also admitted that as a medical professional, he labored under the delusion that he would always have an endless supply of money, much like he had as a child growing up. Once he graduated from dental school, his family felt he was equipped to manage his own financial affairs, leaving Tim to manage money without any skills to do so. In addition, as a person with a passive personality, Tim sometimes let urgent matters slide. Spending to Tim was something he did without thinking, because it felt good and be- cause he had been raised to think that he didn’t need to deny himself. Sherri, on the other hand, was a fastidious, detail-oriented person with a proactive personality who had fallen in love with a man that was already thousands of dollars in debt. In 1996, when the Collinses first came to Money Mastery, Sherri was 36 years old and very concerned about bringing a child into such a financial mess. To compound matters, they were renting an apart- ment in a desert region of California and their home was constantly plagued by scorpions.

The Collinses could not imagine bringing a baby into such a situation, yet they had no way of leaving due to their financial burdens. “I felt so completely burdened,” says Tim. “It was unbelievable to me that we could be making $600,000 a year and still be so completely behind. To me the dollar figures said it all. With that kind of money I didn’t feel any urgency to hold back on spending. I kept insisting that the figures should have been enough so I couldn’t understand why we were so far behind. With as much education as I had, I had never been taught to consider the emotional side of money. Instead, I just spent without thinking of the consequences.” Finally, at their wits end, Tim and Sherri began tracking their spending and learned just exactly where all the money was going. They also began working with Money Mastery coaches to prioritize their huge list of 26 credit card debts. Using Principle 4, Tim and Sherri were able to apply Power Down payments to their debt load. Using the “Get Out of Debt” Report, the Collinses projected that they would be debt-free in 2.8 years if they used power down techniques as opposed to 15.5 years if they only used a mini- mum monthly payment plan. With 15 years of debt ahead of them, should they have chosen not to power down, they would never have been able to get their spending and bor- rowing under control to the point that they could start a family. Three years later, in 1999, the Collinses had purchased a house and were expecting their first baby. Today, after the birth of their son, the Collinses are well on their way to total financial freedom, having paid down every single credit card and meeting their IRS tax obligations. They are now saving $21,000 a year. “It was difficult to sort out all our debt issues at first, but we are so thank- ful for the principles we learned through Money Mastery,” says Sherri. “We are so grateful to have been empowered by these principles [which help us make] serious decisions about our financial future. Now we are looking with hope at where we are today, and where we can be tomorrow, and it means so much to us!

Fortunately, the Collinses were able to get out of debt and get their lives under control. But let’s stop and ask why the Collinses found themselves in such a financial bind in the first place. Because most people don’t make $600,000 a year, you might find it hard to believe that they could be in debt to 26 credit card companies. You can probably think of a lot of things you would be able to do with that kind of money. But that’s precisely what Tim and Sherri were thinking, too. They mistakenly thought that because they made that much money, there should always be enough regardless of how they spent or borrowed. As we instruct our clients about Principle 4 and the power it can have in their lives, there are two very important messages we like to emphasize:

 1. The Long-Term Picture: As you get your spending under control and pay off the first debt in your prioritized list, you must choose to think long-term so you can pay off the next debt. Only you can decide if you want to continue to be in debt or out of debt with a lot more money in the bank. You must learn to think about what kind of long-term emotional impact the choices you make today will have on you tomorrow. Remember: Every dollar paid in interest, is one less dollar to invest in your own future.

2. Opportunity Cost: Spending money always comes at a cost. If you choose to spend money on more consumable goods rather than toward paying off a debt, you must understand the consequences of that decision because it eliminates opportunities for the future. Remember the time/value of money and that debt decreases our ability to put money to work for us over time so that it can have more value in the future. As we noted in Chapter 3, it is up to you to make a choice about how your money will be spent. Remember: You can have anything you want, you just can’t have everything. If you choose not to power down, not only will you remain in debt but you will extinguish future opportunities to make money because you will continue to pay interest to someone else. As James Clayton notes, “Traditionally, persistent increases in public debt levels have often been compared to termites in the house. You can ignore these pests for quite a while, but eventually you will have a very big problem.”

 How big is your problem? To find out, ask yourself the following questions:
 1. Do I argue with my spouse over bills?
2. Is an increasing percentage of my income being used to pay off debts? Am I near or at the limit of my lines of credit?
3. Am I extending repayment schedules—paying bills in 60 or 90 days that I once paid in 30?
 4. Am I chronically late paying my bills?
5. Am I borrowing to pay for items I used to buy with cash?
 6. Do I put off medical or dental visits because I can’t afford them?
 7. Do I know my total debt, or am I afraid to add it up? If you are struggling with any of these concerns, now is the time to get your debt load under control. It’s your choice. You can continue spending like crazy while trying to pay down debt for another 30 to 40 years, or you can be empowered to get out of debt now so you can reap the following wonderful rewards:
 • Get completely out of debt within nine years, including your home mortgage.
• Begin saving, on top of eliminating debt, at least 2 to 4 percent of your monthly income.
• Begin to maximize your retirement income by making compound interest work for you instead of against you. All this is possible if you want to make it happen! If you have five or more debt items, it is mathematically predictable that you can be out of debt in nine years or less, even including a 30-year home mortgage. And the best part is that it’s easy and effective, requiring no additional out-of- pocket money. What’s more, it’s literally worth “millions” once you learn how to stop paying someone else so you can begin paying yourself! Decide today that you will no longer be a slave to the power of compound interest! Incorporate the Power Down system today by taking the challenge on page 75. As you begin this challenge to power down your debt, we hope you will find great strength and encouragement from the personal and inspiring story of one of the Money Mastery authors, Peter Jeppson. Peter tells, in his own words of how, through a tragic accident, he learned firsthand the power and peace that comes from eliminating debt. “As a young man just starting college, I was in a serious car accident. I was hit head on by another car and trapped in my Volkswagen Bug almost burning to death, until three drivers in passing automobiles stopped and pulled me from the wreckage.

 I spent more than two years in the hospital, depressed, broken, blind, and burned beyond all recognition. “At first I went in and out of a coma, fighting for my life. The doctors told my mother privately that I had no chance of living. Once I did stabilize, the doctors informed me that I would never walk again, and that there was no chance I would ever see again having lost my eyelids and most of the skin on my face. “As the days came and went, I recovered enough to be out of danger of losing my life. But I became very despondent and discouraged. While in this terrible situation I received help from so many caring people who read to me, bathed me, played chess with me, and gave me pep talks to buoy up my spirit. From this service, I learned some of the most important lessons in life. I learned that self-worth and self-esteem come from within and that beauty is what is on the inside. “Over time my health gradually began improving. Eventually I did walk again and thanks to the many doctors who worked with me, my eye- sight was saved. But as I lay in ICU for months, the medical bills began to pile up. I did not have health insurance and every Friday the hospital accounting office came to my room to review my bill with me. After every Friday’s meeting

I would become so upset about the thousands of dollars of debt I was incurring and knowing there was nothing I could do about it, that I would schedule a morphine shot for pain relief. Just a little calculation and anyone can figure that seven months in ICU times $1,500 (at the time) per day was costing me a literal fortune. Add to this another two years mostly in the hospital and 28 major surgeries, and I began to stagger under the weight of this tremendous financial burden. It was while under this incredible pressure that I learned the lesson that would change my life forever. “While in the hospital, my brother Bil brought me the book The Richest Man in Babylon by George S. Clason. The chapter on the ‘Clay Tablets’ about powering down debt was so impressive to me. At first, the methods described in the book seemed too simple and too good to be true. I couldn’t fathom ever paying off all my debt. But then I found myself asking, “Yes, but what if this system really works? I certainly have nothing to lose! It’s easy to test the math—I can do that in my head.” What I found by doing the math was that if I applied a Power Down system to my debt load, I could completely eliminate it in five years. Then I had different members of my family write down the math when they came to visit. Their numbers checked out what with what I had figured in my head. In time, I was released from the hospital. But even with those debt-reduction methods still fresh on my mind, I was so overwhelmed by what I owed (besides my hospital bill I owed money to seven different doctors), I didn’t know if I could ever get out from underneath it all. However, I once again tested the figures and found that I could indeed, be out of debt in five years if I applied Power Down principles.

“Bankruptcy was mentioned over and over by friends and family members as a way to start a new life financially. My own father, who now had been divorced from my mother for three years, told me he was going to file bankruptcy himself. Because I was still a minor when the accident happened, I could be included in his bankruptcy if I wanted and wipe my slate clean. “His suggestion caused me to review all the work the wonderful doctors and nurses had done to save my life and restore my eyesight, and I realized there was no way that I could bail out on my obligation to them. As I declined my father’s invitation, he told me he thought I was making a stupid decision, but I then thought about how money had ruined his marriage to my mother. I thought of all the arguments he had had with her about money. I thought about how upset it made me feel every time I heard them fight and I was determined to do something different financially with my own life. It was then that I committed myself to applying the systematic Power Down approach to my debt. “Five years later, I paid off my last medical bill. Even though my body was terribly scarred, those scars began to stand as a symbol of victory over my own personal debt and as a sign of triumph at beating impossible odds, both physically and financially. “Although most people do not carry any outward scars, so many individuals today have scarring on the inside caused by a lack of self-esteem due to financial worries and crushing debt.

I have learned, over 30 years of taking every opportunity to teach thousands of people about the Power Down approach, that if you have five or more debts it is mathematically possible to eliminate all of them in nine years or less using this method. I learned it for myself personally all those years ago and I have seen it work over and over again in the lives of countless people. It simply works—no matter how much debt you have, no matter how bad it is, no matter how high the interest rates are, no matter what! It works! If I can do it, you can, too! Gaining the vic- tory over debt is a huge accomplishment that I strongly encourage you to work towards. Begin now! Don’t wait another day to relieve yourself of this terrible burden that scars, destroys, and maims your life.”