Automobile Purchase

If you can help it, DO NOT buy a car.   Furthermore, if you are going to buy a car, buy a used car.

Keep the car you have for as long as you can.   That's right, take care of your car, and keep it for 10 years.   As I have said, a car is NOT an investment.   Although most automobiles contain a ton of metal, it's the wrong kind of metal to be an investment.   On average, a new car will depreciate in value by 20% in the first year.   In the second year, your car will depreciate at almost the same rate.   Here's the good news, in the third year, the car depreciates at a "mere" 12%, and in the fourth year, at a rate of 10%.

What does this mean?   If you purchased a brand new $30,000 car, in two years, you will flush $11,000 down the drain.   On the other hand, let's say you purchase the same car that is two years old for $23,000.   In two years, the used car will be worth $17,000.   Over two years, your used car will loose $6,000 in value (that's better than a $11,000 loss), plus you saved $7,000 when you purchased the car.

Credit Card Debt

Whether or not you are carrying a revolving balance on your credit card, you know what I'm going to say.   DO NOT carry a balance on your credit cards.   Easier said than done, you say?   Yes it is, but if you are going to invest, you NEED to zero your credit card debt.   Here's why...

Let's say you have $5000 to invest, and you also have $5000 in credit card debt with an average interest rate of 18%.   You will need to get an 18% return on your investment after taxes, or about 24% before taxes, just to break even!

Stop Using Credit Cards

Cut them in half, or run them through your shredder.   I don’t' care, but STOP using credit cards -- FOREVER!   Perhaps it's a good idea to keep one card around for a REAL emergency.   Your savings should cover one emergency, but sometimes life will deal you a few emergencies, back-to-back.

Negotiate A Lower Interest Rate

Call your creditors and let them know your situation.   Tell them that if you are unable to renegotiate terms, then you have no other recourse except to declare bankruptcy.   Ask for a new and lower repayment schedule, request a lower interest rate, and appeal to their desire to receive payment.   As I have said, time and time again, everything is negotiable, and if you don't ask, you will never know.   The next time you purchase something, I don't care what it is (shoes, suits, electronics), ask for a discount -- 10%, 15%, 20%.   The bigger the purchase, the bigger the discount!   You will be amazed how often you will get a discount.

Low-Interest Cards

If you can't negotiate a new/lower rate, pick up a low interest card, and transfer your debt to that card. If you can't get a new card, look at the cards you have, and transfer the balance to those cards.   Many credit cards permit this, and it makes sense to do this.   Credit card companies don't like folks who "hop" from card to card.   Many credit card companies offer these low introductory interest rates with the stipulation that, if you transfer your balance from the new card within a 12-month period, the normal interest rate will be applied.   Read the fine print of the credit card agreement. The other thing to do, would be to transfer a portion of your balance to a lower interest card and pay it off within that introductory period.

Maximize Your Payments

Now that you have lowered your interest rate, maximize your monthly payment.   If you are telling me you have no money at the end of the month, and you can't pay more than the minimum, you need to reduce your luxuries.   That’s right, get rid of them all, and pay those cards off.   Are you drinking carbonated drinks?   Do you have cable tv?   Disconnect it.   Do you buy books?   Go to the library.   Do you have a cell phone?   Disconnect it.   Do you go out for lunch at work?   Pack a lunch.   Do you have multiple phone lines?   Get down to one.   Do you have caller id, call waiting or any other phone add-ons?   Loose them!   Do you buy snacks (chips, candy, etc.)?   Get healthy.   Do you dine out?   Sit down around your dinner table.   Surfing the web?   Drop your internet service provider.   If you are saying it's not easy to give up these luxuries.   If you can't give up these luxuries, in order to zero your credit card debt, I would not trade stocks.   Trading stocks takes a tremendous amount of discipline, and phenomenal lack of emotions.   Get strong, and use this opportunity to strengthen your family, and to teach your children.

Here's the bottom line.   You need to live below your means.

Other Options

You could cash in your savings and investments and use the funds to reduce your debt.   I know you don't want to do that, but sometimes it's simply a better way to manage your debt.   Even when debt interest is at a rock-bottom 12%, your investments would have to return more than 18% before federal and state taxes to equal that outflow of money.   Pay off the debt!   It is the same as getting that 18% return, and there is NO RISK on your part.

You can get a home-equity loan, borrow against your life insurance, borrow against your 401K (not a really good idea), and if you can, ask family for help (you may risk creating a rift).   When you have the cards paid off, DO NOT start using them again!   Did I really need to say that?   You would be surprised!

Bankruptcy -- A LAST Resort

The absolute last resort is bankruptcy.   I firmly believe that you have a moral obligation to repay your debts to the utmost of your ability.   There are times, though, when repayment may be impossible.   In those cases, then, bankruptcy may be the only available course of action.   Nevertheless, be aware there are significant drawbacks to using this avenue of relief.   Your credit record will contain this information for 10 years.   Furthermore, it also will cost you money to file for bankruptcy.   Attorney and court filing fees will cost a few dollars, and you must pay them to get the relief you need.