Regardless of your personal and financial circumstances, your education and your background, the chances are the first step you need to take in debt elimination has to take place in your mind. The Western mindset, especially in the US and UK, is firmly fixed on consumer debt. It is the way you have been reared in a debt ridden society.
To be realistic, let us assume that total debt elimination is not practical, nor necessarily desirable, from a financial point of view. The one major exception is in buying a house. When you buy a house, very few people are likely to be in a position to do so with cash. Unless they have inheritance, are very wealthy, are moving down the house market, or moving from an expensive to a cheap area, people buying a house will require a mortgage.
There can be considerable financial gains in the long run from taking on mortgage debt. Firstly, you have to live somewhere, so living in your own home is more desirable than renting for the rest of your life. Secondly, if you are lucky the capital growth on the house over the years will increase your underlying wealth, in a way that cannot happen with rented accommodation, which has the opposite affect. So, let us assume, for the purpose of this article, that by debt elimination we mean the elimination of all your consumer debt, except your home mortgage.
You may well find that, if you can change your mindset to be against borrowing to feed your consumer desires, that mortgage will be paid off much sooner than your average contemporaries. When you reach that stage, then there is every possibility that your debt elimination will become total, and your mindset will be so changed that there is never a need to take on any new debt.
Changing The Mindset To Support Debt Elimination
You are unlikely to find it easy to alter your attitude towards consumer debt. After all, it is the way you have probably been brought up, surrounded by easy credit. However, changing that mindset is both possible and financially desirable; debt elimination is achievable if you can successfully get through this first stage in the process.
So, how do you change the way you think about debt? Now, I am talking purely about consumer debt, not borrowing money to start or expand a business; about using debt to satisfy your material desires earlier than you can really afford them. Business finance can, and often does, justify itself through increasing your wealth at a faster rate than the interest charges decrease your wealth.
Consumer debt, on the other hand, is guaranteed to reduce your financial well being. When you borrow money to spend on consumable items, such as holidays, and diminishing assets, such as cars, then your wealth building is undermined; your assets are reduced over time. That, really, is the key to altering your mindset to favour the elimination of debt from your life. You need to:
1. Be aware that consumer debt is not good for your financial well being. You are increasing the bank's assets, and decreasing your own, by spending on credit.
2. You need to resent the fact that the banks make money out of you, when it should be the other way round. It's your hard earned money we're talking about here.
By giving constant focus to those two things you may develop a mindset that is shifting towards debt elimination. You can then give yourself greater strength in your determination by convincing yourself that, not only is debt elimination possible in the long term, but it will bring with it many rewards:
1. You will feel financially comfortable and in control; it really is a great feeling as those around you drown themselves in debt.
2. Over the years you will accumulate significant wealth compared to those earning the same amount but whose debt has always been out of control.
3. You will be able to walk in to a travel agent and pay cash, or debit card, for each vacation, while the person behind you in the queue will probably pay by credit card and then struggle the whole year to pay it off before the next vacation.
4. You will be able to walk into a car dealer and negotiate the best possible price for a new car as a cash buyer, knowing that the cash is your own and not the bank's.
5. You will be saving regularly for all your needs, while paying off your mortgage within the term.
All the while, your wealth will be accumulating, not being stripped bare by interest charges.
Imagine, in 10, or even 5, years' time, a comfortable financial life with no pressures. You may not be a millionaire, but beside your peer group you will be a beacon of financial stability and growing wealth. It's a long term process, but once you have the mindset, the journey can become a smooth one, with good planning and determination. Debt elimination really can be the final goal.
In the next article I will look at planning to eliminate debt.
