I Want to Get Out of Debt

Banks and companies have told us for years that we need their credit cards. To get us interested in using these cards, they offer all kinds of incentives. Have you ever stopped and asked yourself why they are doing this? It is really quite simple: it's a huge business, and they are making lots and lots of money by getting you to use their credit cards.

Once you have the card and are using it, they tell you that you only have to pay a small amount of the total amount you owe. Are they doing that because they are your friend? Not a chance. From what I have seen on current statements, they are making 20 percent interest on the unpaid balance.

Stop for one moment and think: do you make 20 percent interest on anything you do? In most cases, I am sure the answer is no way. According to Yahoo Answers and Fox Business Take Your Pick, the average American has two to ten credit cards and owes between $1,000 and $8,000 on them. If you're making minimum payments on your card, your monthly payment is almost all interest.

I have made every mistake, and I will tell you about each one. I cannot believe you like being controlled, and I'll bet you would like to do something about it. I have tried to make this book very, very simple to follow. Everything I pass on in KISS Finances, I have personally lived through.

I lost three businesses, two homes, my last commercial building, and about $10 million in the 2008-2010 crash. The federal government supported the banks, bailing them out with your taxpayer dollars. Those banks turned around and did everything in their power, which is great, to collect on loans of any kind. Let's stop and think for a moment: your tax dollars saved the banks, and now the banks are foreclosing on all kinds of properties and suing to collect on loans at a record rate. Most of the money I owed was for my business, which employed a lot of good people and built things to help the world grow.

I have two always-dos and two never-dos for you. Here's the first set: Always have a retirement fund, whether through work or something you contribute to on your own. Contribute, and always keep it up. Never use that fund for anything but your retirement. Don't let anyone — bank or person — con you out of your retirement fund.

One of the largest banks in the United States promised me — putting numerous pages in writing — that it would refinance my last commercial building if I gave them my $500,000 Roth IRA, which they could not touch in any way. I gave them that money based on the information we had in writing. Once they had the money, however, they immediately started foreclosure proceedings. After more than two years in court — the same courts we were taught are there to uphold the law — my $3-million building went to the bank, and the bank sold it to, I assume, friends for $1 million.

The point to remember here is that no one — not banks, not the government, no one — can touch your retirement fund for any reason. You should never use it for anything other than your retirement.

Now, here's the second set: Always pay off your home or primary home mortgage. Never borrow against it again. Laws vary from state to state, but you can always fight to keep your primary house.

To recap:

• Your two always-dos:

• Have and contribute to a retirement fund.

• Pay off your primary home mortgage as quickly as you can.

• Your two never-dos:

• Never use your retirement fund for anything but retirement.

• Never borrow against your primary house again after it is paid off.

Do a Monthly Budget

Your first question about a monthly budget might be how to get started. Fortunately, budgeting is a lot easier than you might think. The worksheet and guide at the end of this chapter, which includes many of the items everyone pays monthly, will get you started.

I highly recommend that you set aside an emergency fund of at least $3,000 and preferably $5,000. By looking at your monthly budget, you can determine how quickly you can create this emergency fund. Do it as quickly as possible. Once you have those emergency dollars, put them in a separate account and do not touch them except for a true emergency. An example of a true emergency would be when the hot-water heater breaks, and you do not have the money to replace it. The money to replace the hot-water heater comes out of your emergency fund. You must replace the money as soon as you can so it's there for the next emergency. Emergencies generally arrive when we least expect them, so keep this fund up to date.

To create a budget, make a list of every penny you spend a month. Three good tools for this are your checkbook register, bank statements, and credit card statements for the last three months. Use the worksheet provided, and fill in every item you can. Now review every item that is still open. You will find a number of lines to add anything not listed. The first time you do this, you may miss some things, but it gets easier and easier each month.

Add up everything you have listed for the month and subtract that amount from your total monthly income. You now know if you are spending more than you are making, about the same as you are making, or less than you are making.

I recommend that everyone carry a piece of paper and a pen to keep track of what each person in the family spends each day, using cash, credit, or debit. This will help you improve your budget, and all family members will have a real understanding of what they are spending every month and what they are spending it on. Some may be surprised by that information.

There are a number of things I recommend using cash for. Allowances, for example — Mom's, Dad's and the children's. For family dining and entertainment, I would take actual cash and put it in envelopes at the beginning of each month. Let's say you have budged $300 a month for eating out as a family. Put that amount in an envelope at the beginning of each month. Every time the family goes out to eat, take that envelope to pay the bill. Once the $300 is gone, the family no longer goes out to eat that month. Do this with everyone's allowances also. All family members can spend their allowances on anything they want, but when their allowance is gone for that month, there is no more until next month.

Pay Off Your Credit Cards

Now that you have done your monthly budget, you should know if you are spending less than you make, about what you make, or more than you make.

The first thing we are going to address in getting out of debt is credit cards. Credit card issuers have romanced us for years, assuring us that the little piece of plastic they are sending us is money. It is not money! It is a loan, and if it is not paid back in about twenty days, the bank is going to charge you unbelievable interest on your unpaid balance (the amount not paid back). Every statement I have seen recently from...