Your Questions About Eliminate Your Debts

Sandy asks…

What is the best method for the US to eliminate its debt?

John answers:

Cut spending: military, Medicare, social security, unemployment benefits, etc.

Cut taxes. Now before you start screaming, think. If taxes are raised, as soon as the budget is balanced and the debt is paid off, the Congress will start spending again. We need to stop this once and for all.

George asks…

Is president Obama eliminating all student debts?

I heard some people, and I read some articles on the web that president Obama was going to wipe out all student school debts. The articles that I red was difficult for me to understand because I am not really inform how politics work and how the laws apply to me. And the people that inform me did not have all the information. I would like to see if someone could explain this on a high school level. I have a student debt that is hard to pay on the income I am making. Like to know how it works, how qualifies(if only a few) and what are the requirements for the debt forgiveness. And when does it come to be in affect. Thank you for all you who will give me an answer for my question!!!

John answers:

There are no plans that I am aware of to wipe out student debt. Sorry.

Daniel asks…

Once GM eliminates all of their debt they’re going to shoot up?

Do you think so too?

John answers:

Actually GM is not intending to eliminate all their debt, just a big part. I believe they are willing to keep about $17 billion in debt when they reemerge from bankruptcy.

Once this GM BK is complete, the current stock should in ever single report I have read and written, become worthless.

I have written some 71+ articles on GM related over the last year.

New GM stock to be issues as an IPO in about 1 1/2 years under current estimates. Current GM shareholders to get ZERO new GM stock.

See my latest GM post regarding this question. Link:
06-09-2009, GM Post #71

Betty asks…

help with my debt?

My income has recently been cut by $30k a year due to a loss of employment. We’re able to pay everything but one unsecured loan with the payment being @ $281/month. I’m looking to consolidate or eliminate my debt. Please help

John answers:

The first thing that you must break yourself of is the lifestyle that you are accustomed to living on making $30k more a year. You now need to take a serious look at your budget/create a budget in order to understand how this will work out. You may need to get an additional job for a short period of time in order to eliminate some of this debt. Debt consolidation is a scam. You pay a fee and they traditionally lump together all your debt with an interest payment that is an average of the whole (your high interest debt may go down but your low interest debt will go up). The only way you get a cheaper monthly payment is because they extend out the length of the loan. You don’t need a longer loan, you need to get angry and intense about this debt and pay it off! But it all starts with a budget.

If you properly write out and follow a budget, you will begin to experience freedom. This is strange to many people as most think that budgets are made to control us and take away freedom. However, a properly written out budget begins to control the money. We spend too much time making money to allow our money to control us. Once we know where every single dime we make is going, we can easily see where problems lie and make adjustments.

Start out by budgeting items that are essential on a monthly basis. You should always start out with food, then housing and utilities, then transportation. When you start, always overfund the food category. Housing should not take up more than one fourth of your take home pay. If it is substantially higher than this, you may want to consider getting in a better housing situation. You should stay away from car payments by paying cash for cheaper cars whenever possible. If you owe a large balance on your cars, sell them and get cheaper ones! You should never pay interest on a depreciating asset.

After these four items, start by paying out the minimum amounts on all of your other debts. We will come back to paying more on these debts a little bit later. Next, plan for insurance payments. Then list out other personal expenses such as child-care, education, recreation money, and other things that you anticipate. Finally, set money aside for lump sum expenses such as car replacement, vacation, holiday gifts, etc.There should also be a category for “blow” money. You will waste money from time to time so it is important to be aware of it and plan for it.

It is important to understand right now that you need to get out of debt if you have any (besides a house). The first step to doing this is to get some money in savings as an emergency fund (eventually 3-6 months expenses but at least 1,000 to get started) and cut up those credit cards if you have any. This way we accomplish the first step to getting out of debt which is putting yourself in a position to never have to borrow any more.

With whatever money is left at the end of the budget, we need to begin paying off these debts! Payments rob us of our most powerful wealth building tool, our income. There are two different approaches to becoming debt free. The first is to list all debts from the highest interest rate to the lowest, attack the highest interest rate and pay minimums on all the rest. The other way is to list all your debts from smallest to largest and attack the smallest first and make minimum payments only on all the others. The first may mathematically seem better but from my experience, the second approach actually works better from a behavioral standpoint. You get constant reinforcement as you knock out debts early and often. Either way, you need to cut your lifestyle and get angry. Have a garage sale and get a second job. Get intense and soon you will be free!

Once you are debt free (except for a house) make sure you are putting away 15%-20% of your income in a tax sheltered retirement fund. Also if you have kids, try to save for their college education.

Both you and your spouse need to get together and make a budget that you each agree about and buy into. Start taking these steps and you can become wealthy on a modest income. It will be tough and you will fail the first couple of months. It takes practice to get good at budgeting but don’t give up! Make sacrifices today that will pay hundredfold in only a few short years from now. This is your life, go and make the most of it!

Thomas asks…

Why don’t we eliminate the debt ceiling altogether?

Moody’s suggested this will calm the market’s fears. Honestly, I believe the debt limit is just making things worse at this point.

John answers:

Why not give an addict a kilo of heroin? Or a compulsive shopper an unlimited credit card? Or me the keys to all of Benny’s Liquor Superstores? Makes as much sense as eliminating the debt ceiling altogether.

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