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I get a lot of junk mail. On any given day, my mailbox is stuffed full of credit card offers, letters from dealerships who supposedly want to buy my car, and magazines trying to sell me stuff. While most of it is not offensive, everyone once in a while I’ll get something that absolutely pisses me off. Does, “Horrific Financial Advice, Right from My Mailbox?” ring a bell. Anyone?
Well, it happened. I got another piece of offensive mail this weekend, and its contents were borderline criminal. Behold the piece of mail that set my hair on fire yesterday:
It starts off okay. “Get rid of credit card debt in as little as 36 months,” it says. Unfortunately, the devil is in the details. Not only are they trying to rope people into a loan for $40,000, but the interest rate can be up to 29.99% APR!
Still, my anger rumbled deeper the further I read. It’s bad enough to try to convince people to take out a loan with a 29.99% APR, but they took it even further. Of course.
“You can borrow as little as $2,000 or as much as $40,000 and there are no prepayment penalties,” the flyer reads. Borrow too much, however, and it’s totally cool. Why?
Straight from the flyer:
“You can use your loan to pay for other expenses like remodeling your kitchen, family vacation, medical expenses or whatever your needs might be.”
Debt Consolidation Loans: Don’t Buy the Hype
The fact that someone is offering loans with ridonkulous interest rates isn’t what makes me mad; it’s that they’re pretending it will actually help you. But when you read the fine print, you find out that they want you to borrow as much as you can, plus take a family vacation to boot!
What really sucks is the fact that so many people buy into these scams. Debt sucks so much that people are willing to do anything – try anything – to dig their way out. Unfortunately, the same mindset that got them into debt is the one that often causes them to dig an even deeper hole.
Here’s the truth: Debt consolidation loans and balance transfers are only the answer to your problem if they actually help you save money. Like, for example, if your credit card is charging a 24.99% APR and you do a balance transfer to a card with an introductory 0% APR. Even then, you’ll want to run the numbers to see what your savings will be after you pay the balance transfer fee, which is normally 3% of your total balance. Now that makes sense.
How to Get Out of Debt Without Borrowing More Money
But borrowing more money is rarely the answer, and is actually the worst possible strategy to get out of debt. Yep, you heard it here first, folks. The best way to get out of debt is the old-fashioned way, which just so happens to be the way that sucks the most. Here’s how you can dig your way out without borrowing another dime:
Track your spending, fool!
If you want to free up money for debt repayment, it’s important to know where your money is going in the first place. To accomplish this goal, you need to track your spending. You’ll probably hate yourself for a while once you get started, but rest assured that’s part of the process. Seeing all of the ridiculous ways you waste cash is the best way to make better choices, my friend. As my husband Greg would say, “To stop sucking, you first have to know you suck.”
Become a budget genius. Or at least try.
If you want to start saving, learning to use a budget is one of the first things you should do. While my family uses a zero-sum budget based on last month’s income, there are plenty of ways to do it. Start by writing down your monthly essential expenses, then see how the total figure stacks up to your income. Greg has written a great step-by-step guide to budgeting that will walk you right through it. Trust me, it works!
Now, do what you were born to do (and pay off debt)!
There are lots of ways to start paying off debt – there’s the debt snowball, the debt avalanche, and the debt crunch. Hell, I’ve even heard whispers of a Debt Strangle, Debt Karate Chop, and Debt Decapitation method in some circles. Whatever you do, just don’t do the Debt Turtle method. I hear it’s slow as hell.
In all seriousness, there are a gazillion debt repayment strategies to choose from. The key is actually doing it! In other words, take the money you free up from tracking your spending and budgeting and mail it in. Got it?
The Bottom Line
Taking out a loan with a 29.99% APR is quite possibly the worst way to get out of debt. Yeah, it’s that bad. As a financial decision, it’s right up there with buying a $25,000 car when you make $8.25 per hour, buying a $1,300 vacuum from a door-to-door salesman, and crowdsourcing money on GoFundMe to pay your car payment (Yes, someone I know did this recently).
If you want to get out of debt, do yourself a favor and make sure your strategy doesn’t involve borrowing more money. Because, let’s face it, companies who send crazy mailers like these actually hope you fail, and in fact, encourage it by enticing you to borrow more money than you really need.
What strategies have you used to get out of debt? Do you agree that borrowing more money is the worst strategy ever?