When Will I Get Out of Debt?

When Will I Get Out of Debt?That’s a great question isn’t?

Could you answer it with any kind of precision today?

I wanted to talk about how you can get out of debt.

About what it takes to end that slavery.

My assumption is that you want to be free of the chains and the burden of carrying debt.

However, that’s a big assumption because debt is normal and the numbers suggest that for the average American, that’s ok.

Just take a look.

The total household debt is $11.65T (as of Q1 2014):

  • Student Loan debt is at: $1.11T
  • Auto Loan debt is at: $875B
  • Credit Card debt is at $659B
  • Mortgage and Home Equity Debt stands at $8.7T

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As a financial coach I can teach you the process, the steps for getting out of debt.

I can also give you the reasons of why it is a good idea to live free of any debt.

What I cannot give you is the desire and the passion to get out of debt. That has to come from you.

In order to get out of debt, something has to change in your spirit, in your heart.

You will get out of debt only when you:

1 Admit that using debt will not bring you prosperity

You basically have to stop believing the lie that debt is a tool to help you win with money.

Just look at the high levels of credit card debt, car loan debt, and student loan debt.

Ask any of those people to see if they are prospering with their finances.

2. Get sick of paying interest

Do the math exercise on any of the debt items you are carrying today.

See how long is going to take to pay it off by just making the minimum payments each month.

Then, compute how much that item you bought on credit, will cost you in the long run.

Just do the math. It should scare you and/or make you mad.

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3. Get tired of carrying the debt burden

There has to be a moment when you say: “No more! I am not living this way! I have had it!!!!”

Until that happens you will be happy to go along and you will continue to rationalize your debt.

You will listen to the conventional wisdom that says debt is ok and that credit can help you.

When will you decide to become debt free? What are you waiting for? What will it take?

When you are ready to change your life and win with money, I can help.

 “The rich rules over the poor, and the borrower is the slave of the lender.”
Proverbs 22:7 (ESV)

The Best Kind of Vacation

Baseball Tour 2013

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I just returned from a great vacation with my wife. We are both great baseball fans and for the second year in a row, we went on a Baseball Tour.

The road trip included 6 games in 7 days including stops in Cincinnati, Cleveland, Toronto, Pittsburgh, Detroit and St. Louis.

We truly had a great time the trip ranks right at the top of our list for a vacation. My wife is already thinking about what cities will be part of Baseball Tour 2014!

We came home with lots of souvenirs and pictures and many memories. But you know something we did not bring home? Credit card bills. That’s right, this vacation did not follow us home.

We have made a commitment to a debt-free lifestyle, which includes how we have our fun. Taking a vacation is a great thing and you should do it. But don’t go and plan a vacation thinking about relying on credit cards to make it happen.

Instead, spend some time planning your vacation. Based on where you want to go and what you want to do, come up with a vacation budget. Typical items may include air fare, lodging, car rental, gas, event tickets, tolls & parking, souvenirs, and food.

Then, start saving for your vacation. Add a line item to your budget for a vacation sinking fund to make sure you are saving with a purpose.

I hope you enjoy your next vacation and I truly hope you have the best kind of vacation: a debt-free vacation.

When are you planning to take your next vacation?

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5 Money Tips For My 18 Year Old Self

Jose at 18 years old

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If you could, would you like to talk to the younger version of you? What would you say? What pearls of wisdom would you like to pass on?

Last week I had trouble finding something to watch on TV (big surprise, right?) so I decided to instead choose a movie from our collection. I picked the 2009 “Star Trek” movie which rebooted the beloved franchise.

In the movie, time travel and altering the timeline are a major part of the story (those are usually my favorite story lines). If you have seen the movie, you know you end up with 2 Spock’s and they eventually meet. The older Spock has some words of wisdom for his younger self. You can watch the clip here.

So that gave me an idea. If could travel back in time, what sort of financial advice would I give to the younger me? After thinking for a while, here are the 5 Money Tips for my 18 year old self:

1. Don’t Work so Hard to Build Your Credit History with Credit Cards. 

Midway through your third year in college (around 21 years of age), you will receive a wonderful opportunity to have a paid internship with a large technology company. This will be something that you will treasure for years to come and that will prepare you for your professional career later on.

While you are gaining all that experience and making some money, you will receive some conventional advice. Well intentioned people will tell you need to get a couple of credit cards before you finish your internship so you “can build your credit history”. They will tell you, that you can’t live without credit cards and without a credit history.

Don’t fall for the trap of credit cards! You will end up with 2 of them and no income because you will still be in college!

Instead what you should do is to work to build up your savings. If you take that advice, you will get used to credit cards and those first 2 will eventually turn into 7 or 8 and debt. And by the way, those first 2 won’t really help your credit history (see the next piece of advice below).

But you can live without credit cards. They are simply a crutch that will not allow you to walk on the strength of your income. Stay away from them!

2. Don’t buy a brand new car right out of college with a high interest loan.

You will work hard for your college degree and you will get a very good job to start your professional career. The temptation will be to reward yourself with that nice car that you earned with your degree.

If you pursue this course, you will end up with a 5 year loan and a nice interest rate of 11%. The finance manager will tell you he is doing you a favor. Don’t believe him.

Instead take your time and save some money from your nice pay check for a few months to save for a nice, reliable used vehicle.

You could save $400 for 10-12 months (the average monthly car payment) and then move up in car with cash later. And remember: new cars lose 70% of their retail value in the first 4 years.

3. Don’t Mistake Your Credit Lines for an Emergency Fund. 

While you are carrying those 7 or 8 credit cards, you will also have a couple of credit lines open. You will feel pretty good that everyone is trusting you with so much credit. You will feel that if something were to happen you would have access to money and you could deal with it.

What I would tell you is that a credit card/credit line always represents risk and not security. The “convenient access” to money is really a mirage. You will get into trouble and start carrying balances on those cards.

For real security, what you should instead is to build an emergency fund to cover 6 months of expenses.

4. Don’t Borrow Money from your 401K Plan

As a result of having too many credit cards, and a car payment you will eventually want to reset everything and start over. More conventional wisdom will tell you that consolidating your debts into one easy payment it’s the way to go.

You will do some smart things and you will begin to save money in your company’s 401K plan early so you will have a nice balance. Guess what? One debt consolidation option available to you will be to borrow from the money in your 401K plan.

People will say, “You are borrowing from yourself and the interest you pay goes back into your account”. Great idea right? Not quite.

Why is this a mistake? First, you will unplug that amount of money from your investment vehicle missing on the growth opportunity for the length of the loan.

Second, if you lose your job, the money is due back within 60 days of leaving your job. If you don’t pay it back, it is considered an early withdrawal with the associated penalties and tax implications.

You will make this mistake 3 times but be blessed enough that you will keep your job during those times. But don’t take that first chance ever. Instead, get on a plan to pay your debts without borrowing money.

5. Don’t buy a house without a nice down payment and don’t take a 30 year mortgage. 

You will eventually get tired of paying rent and you will set a nice goal of buying a home by the time you are 30 years old. Nothing wrong with and it’s good to set goals for yourself in all areas of life.

However, more conventional wisdom will say to look for creative financing and programs that help first time home buyers. You will barely have enough money to cover your closing costs and nothing more (and you will borrow that money from your 401K plan). And you will also take the conventional 30-year mortgage because no one will challenge that convention.

However, this is what you should do to get ready to buy a house. First, run the numbers and target a house that leaves you with a monthly mortgage payment (taxes and insurance included) that is not more than 25% of your monthly take home pay.

Second, wait and save at least 20% of the home cost as a down payment (so you can avoid paying for the Private Mortgage Insurance -PMI-).

Finally, take only a 15-year fixed rate mortgage. There is no law in the land that says you have to take a 30-year mortgage.

What money tips would you give to your 18 year old self?

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Why do we stay in Debt?

Debt Ball ChainSubscribe to future posts from Figueroa Financial by e-mail

Have you seen those funny AT&T commercials with the kids? There is one adult sitting around with a group of kids and he asks a simple question comparing two options.

For example: “which is better, slow or fast?” or “which is better doing one thing at once or 2 things at once?” Here the video of one of my favorite ones:

The point is to hammer down that choosing AT&T over any other mobility provider is not complicated. As I watch that commercial it reminds of our general attitudes about debt.

Which is better, having tons of debt or being completely debt free? It’s not complicated right? Debt free is the best way to go. Which begs the question, why do we stay in debt?

As of January 2013, the average household consumer debt stood around $23,000. Why do we continue to carry debt on our credit cards? Why do we continue to sign-up for car loans or car leases? Why do we assume that the only way to get a college degree is to sign-up for thousands of dollars in student loans?

I have written before about why we go into debt. Today I want to give you the 3 main reasons we stay in debt:  

1. We buy into the Culture of Debt

In this day and age we are focused so much more on what we think we need and what we want. We live in a day and age where waiting for something good to happen is almost completely foreign to us. We want it and we want it now.

So the culture says that it is perfectly ok to stay in debt as long as you can manage it. Don’t carry 9 or 10 credit cards, but 1 or 2 is ok (you know, because you can get those rewards). You can’t afford to pay for cash for a car? No problem, just “rent” (i.e. lease) one. It’s like getting a brand new car every 2 years. After all, old cars breakdown all the time and you “need to be safe on the road”.

Wan to buy a home but don’t have enough saved for a down payment? No problem, borrow from your 401K plan. Need an emergency fund? Sure, get a home equity line of credit (HELOC) so you can access it in case of an emergency (which sometimes is defined as doing that home renovation we desperately “need”).

Do you want a college degree? The culture has defined that a student loan can be classified as financial aid. They never put too much emphasis on the fact that they expect you to pay for the loan. In some corners of the financial world, they call student loans “good debt” because it’s an investment in your future. Don’t get me wrong, I think education is a great investment. But there has to be a better way to obtain a great education than going deeply in debt.

You see? Our culture today says is ok to be in debt and stay in debt as long as you get what you want now.

2. We are not Willing to Sacrifice

If I asked 10 people on the street or did a Facebook poll, 9 out of 10 would most likely tell me that they would like to be completely debt free. Again, it’s not complicated. Debt free is the best way to live.

But you will never get out of debt until you are willing to do something differently. There is no victory without sacrifice.

But a lot of people that are in debt will not get on a budget, will not get a second job, will not cut back on expenses, and will not sell stuff to generate more income.

When you are not willing to sacrifice, you will find every possible objection of why it does not apply to you.

3. We have lost all Hope

This is probably the most dangerous reason of them all for staying in debt. You may think that this is the way it will be for you between now and the end of your days. You have lost your hope that it can be better.

You may think that it is impossible in your current situation to live a debt free life. You may have convinced yourself that you will always have a car payment, that you will always need a credit card for emergencies, and that it will be impossible for your child to go to college without student loans.

You may have convinced yourself that you will never make enough money to deal with everything that you have to do. So you stay in debt, because “that’s the only way” and “everyone else is in the same boat.

Do you want to know a secret? It does not have to be that way. You don’t have to buy into the debt culture, you can sacrifice, and yes you can hope for a better tomorrow. I know this the case because I used to be in debt and deep financial distress.

But I am no longer there. I know it can be better and I know you don’t have to stay in debt. I can help you, just say the word!

What are some of your reasons for staying in debt? 

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“Houston We Have a Problem”: 3 Financial Lessons from Apollo 13

Gene Kranz Apollo 13 SMRemember that famous line from the 1995 film Apollo 13: “Houston, we have problem.“? I have been feeling like that at work recently. Things have been a little busier than usual with my project and it seems that at every turn, there is a new major problem to solve.

So the movie has been on my mind a lot. If you recall, the Apollo 13 mission was supposed to get another crew to the moon. On the way there, a problem surfaced with the space vehicle and the issue was no longer getting the men to the moon, but getting the men safely home.

My favorite character in that movie is NASA Flight Director Gene Kranz played superbly by Ed Harris. Gene was the one person who kept everyone on an even keel and focused on the problem at hand even in the midst of the crisis. I think his leadership had a lot to do with the successful resolution of the situation.

When you think about your finances, do they resemble the Apollo 13 mission? Too much month left at the end of the money, mounting credit card debt, high car payments, no savings, no plan for the future. If this is you, I know how you feel because I have been there.

So let me share with you 3 Financial Lessons that we can learn from Apollo 13 based on my favorite Gene Kranz’s lines:

1. “Let’s look at this thing from a… um, from a standpoint of status. What do we got on the spacecraft that’s good?”

In the movie, when the crisis surfaced everyone in Mission Control went into a panic. It was Gene who brought everyone to a point where they could focus on the issues. When you face the problem with your finances, you have to start where you are.

For example, Don’t panic about what seems to be an insurmountable debt or the fact that you don’t have much saved for retirement. Think about what’s working. Do you have a job, an income? Good. Can you and your spouse discuss money openly? Great. Are the cars running? Excellent! You can get back and forth to where you need to go. Are the utilities paid? Can you put food on the table? Fantastic. You can live to fight another day.

Focus first on the priorities of life and then on establishing control one step at a time. Get on a budget. Build a beginner’s emergency fund. Focus on paying off your smallest debt. With these building blocks you can get control of your financial situation.

2. “We’ve never lost an American in space, we’re sure as hell not gonna lose one on my watch! Failure is not an option.”

Gene did not let his team lose hope. They could not think about failure because he did not allow for that option. You need to make it clear to your family that winning with your finances is your only option. They will take their lead from you so you need to lead with hope.

Your attitude should be that you will do whatever it takes to achieve victory. You will sacrifice, you will work extra hours or take a second job. You will take your lunch to work. You will sell some assets to build your savings or to pay debt. Don’t give yourself the option of failure because if you do, you will fail and so will your household.

3. “With all due respect, sir, I believe this is gonna be our finest hour.”

Finally, when Gene’s superiors were thinking about impact of the possible disaster on NASA, he reaffirmed his belief in his team and the fact that they would rise to the present challenge.

It does not matter where you are with money today. It does not have to stay that way. You and your family can have a fantastic tomorrow and you can change the direction of your family for generations to come.

We all have made mistakes with money. The question is, what are you going to learn from them and what will you do to make your tomorrow your finest hour?

What change will you make with your finances to start the journey towards a better tomorrow for your family?