Debt and Clutter – one solution for both

Feb 092008

If debt has taken hold of your life and you just can’t seem to see a way out then it might be time for drastic action.

Do you feel stressed when you get home and are confronted by clutter? Do feel like the walls are coming in on you? The thing is you probably have too much stuff. Things like too much clothes, too many shoes, too many magazines and too many gadgets.

I have often found myself wanting to scream from the top of my voice, “Why do we need all this stuff?” I don’t know where the line between buying something we actually need and just buying something for the sake of it began to blur. It’s almost like we sleep walk into buying stuff that is completely unnecessary. Help!!!! I’m actually getting a little stressed even thinking about it. How often have you gone to the ATM, taken out $50 gone to buy some essentials and then realising that you have about $7 when you get home? When you try to piece together where the money went you realise that you spent most of it on unnecessary items such as magazines or lottery tickets.

The feeling of regret this brings when you realise that the enjoyment and value that these items bring are very short lived. Sometimes they actually bring negative value for example soda will eventually rot your teeth so in the long run you will pay a lot more in dental costs than the initial cost of the can of soda.

Clutter on a grand scale

An old friend from college recently got in touch with me. It was great to hear from him. The one thing I remember most about him was that he was a pack rat and a very messy individual. I would dread going around to his apartment because I would have to fight with the half eaten pizzas and beer bottles for a place on his sofa. He also had lots of stuff – things like lava lamps and dozens of magazines scattered about randomly. I passed it off as the typical student lifestyle – one from which my own was not too far removed.

Anyway a lot had happened to him in the last couple of years. One major event was that there was a fire in his house about two years ago. He lost almost everything he owned.

My heart went out to him as he explained what had happened. Anything that did survive the fire was too badly smoked damaged to keep. While he had insurance the amount he received for the lost items was nowhere near what he paid from them. He would find it very difficult to replace all the lost stuff. But then he said something that stunned me and when I think about it makes perfect sense.

He said that there was one huge positive from all of this.

All the stuff that he lost was just that – stuff! old magazines, books, DVDs, computer games etc.  He had been meaning to throw out all the stuff for years and in one fell swoop had it done for him. He said that he felt an immense sense of freedom. Yes initially he said he was devastated from having lost so much of his stuff and indeed there were personal items of sentimental value that he lost but when he stepped back on got perspective on the situation he found that.

I’m lucky to be alive and able to create new photos with my friends and family.

I’m free of all the clutter in my home life that was like an oppressive weight around my neck.

Is that attitude too much like Pollyanna’s? I don’t think so. Ok it’s true that the fire was a traumatic experience and thankfully no one was injured but every cloud has a silver lining. My friend had been set free from all his clutter.

You see the problem was that the clutter was not only messing up his home it also came with a lot of emotional baggage. My friend told me that he would look around his house and he would get very stressed as he did not have the motivation or focus to clear out the clutter. The clutter was effectively crowding him out of his home!

Two years later and he is a changed man. He vowed not to let clutter take over his life again and he is winning the battle. His clean minimalist house almost puts me to shame. He explained to me that he now feels about 100 times freer than he did when he had all that clutter.

So how does all this help you with your debt situation?

Now I’m not for one minute suggesting that you go all Backdraft on your stuff and burn your house down. The 10 years in prison would make the whole process very expensive and lord knows we are in enough debt already without having to pay our debt to society with jail time. Ok so arson is ruled out. What next? Simple really…eBay!

My advice is that you sell everything in your life that is not an absolute necessity. Everything. You need to be ruthless.

The biggest problem is not the physical act of taking photos and putting them on eBay then sending the item to the buyer. No the biggest problem that you are going to have is to overcome the emotional attachment that you have to this stuff. It will take time but once you commit to it you have to see it through because now you are presented with a great opportunity to solve two problems at once.

Two problems solved in one go:

Problem one: The mayhem that you call home.By decluttering and selling all the excess clutter that you do not need you are creating a clean and clear living space for you and your family. No longer will you have to worry about what you friends will think when you invite them over for coffee.

Have you ever seen those house makeover shows that show the before and after pictures of someone’s house? From what I see the biggest problem in most of these houses is the clutter. Sure the décor could do with updating but the majority of them seem to be so cluttered. The solution is obvious really – get rid of the clutter.

Problem two: That debt burden that is weighing you down.

So having read about clutter you may be asking what on earth has this got to do with my debt and how will it help me solve it? Well the benefit of clearing out the clutter is that you will get a much needed cash injection from the sale of your items on eBay. Ok this will take time but its going to take you time to pay off your debts anyway and this is a piece of very simple action that you can take to help you tackle your debts.

When you sell an item on eBay the chances are that you are not going to get what you paid for it. Do not let this logic stop you from selling your clutter. The way you have to think about it is ‘How much is it costing me to keep this item?’ The costs of keeping an item come in a number of varied ways but the primary one is emotional. Each day when you return home from work you are constantly reminded what you have spent your money on and that you are in debt. So I say clear it all out.

Why eBay? It doesn’t have to be eBay. It can be any marketplace where you feel that you will get a fair price for your clutter. I use eBay as an example because it is one of the biggest marketplaces in the world.

Strip your home life down to the bare essentials, cut away the excess. Sure it’s going to be tough emotionally because like your debts this clutter has taken time to build up. Above all else and even if you take no action after reading this article I want you to see the causal relationship between the clutter in your house and the debts that you owe. The chances are you incurred a significant part of your debt by buying things that at the time you thought you needed but in retrospect they were not needed at all.

Like paying off your debts, clearing out the clutter will take time. Give it time. Give it as long as it takes. You want to build a better brighter future for you and your family? Then act now.

Debt Management Budgets – A waste of time?

Feb 032008

How often have you heard that the first thing you need to do in Debt management is to make a budget? I don’t necessarily agree. In fact in a lot of cases creating a debt management budget can be a complete waste of time.

So you want to tackle your debts. Great – this is a fantastic step forward in that you acknowledge that there is a problem.

For someone who is offering their services as a financial advisor one of the easiest things in the world for them to do is to give you a budget. They have a template budget that they fill in your numbers into. You have ‘X’ income and ‘Y’ Expenses. You have a free cash flow of (X-Y) that you can put towards paying off your debts. Then they go on to give you a money saving tip sheet, The tip sheet includes things like – shop around for the best offer, rent out a room; file your taxes on time etc. This is all very commendable stuff and indeed some of it may prove to be useful but there is one fundamental problem with this whole process. That problem is YOU!

The core of the problem is that you are not a robot. If you were then that budget and tip sheet would work amazingly well if you had a computer program for a brain. All the budget rules and money saving tips could be programme into your brain. If this were the case your debt problem would solve itself in a matter of time. Your debt problem would have been caused by the result of faulty programming.

The thing is you are human. Your logic is ruled by your emotion and it is not possible to change your debt situation without changing your emotions. You see if it were simply a case of dishing out Budgets and Tip sheets to everyone then there would be no debt problems. The emotions people attach to money can be crazy – and I’m not excluding myself here, money is the root of all evil, to go after money is to be greedy, greed is good etc.

With such crazy and widely different views on money is it any wonder that people have confusing and conflicting emotions when it comes to money? Now apply this to you debt situation. How are you supposed to move in the direction of your goal of financial freedom when all this time you have been accumulating debt? There is no simple switch that can change your course overnight. When it comes to debt it doesn’t work that way and no amount of fancy budgets are going to change that.

So how do you do it?

To make the budget effective you need to change how you relate to money. Up to this point you may have had a ‘live for the moment’ attitude but have now realised that this is not sustainable from a long-term perspective. The banks usually catch up with you.

To change your attitude towards money you need to change the way you think about it. The big danger is that if you let your debts take over every thought that you have you will turn what is essentially an inanimate object – money – into something that has a life of its own and is about to take control of your life. Okay the fact that you are reading this article indicates that debt has become such a significant part of your life that you felt compelled to search for information about it on the internet. This is a good and bad thing, bad in that your debt is at such a stage but good because it shows that you are willing to take action – however small – to rectify the problem.

You have got to remember you are not going to change the spending habits of a lifetime over night. Before your budget will ever become effective you need to change. How do you change? One of the simplest and most effective ways to change how you relate to money is to use NLP.

NLP is short for Neuro-linguistic programming. It consists of a number of different psychological techniques that allow you to shape your attitudes and beliefs about anything. It is this flexibility that will allow you to use it to change your attitude towards money. NLP is just one of a number of techniques you can use. The time you spend researching how to change your attitudes and beliefs about money will pay serious dividends in the years to come.

The alternative to not changing your attitude towards money goes something like this.

You have debts that you need to repay. You have ignored them until now but the pressure from your creditors has become so intense that you can not afford to ignore them any longer. Faced with some tough decisions – either go bankrupt or somehow raise the funds to pay off your debt. You manage to raise the funds to repay your debts you either consolidate your debts or borrow from a family member or sell your car.

Problem solved or so you think. The real problem began with the spending habits that you have developed over the years and these spending habits are going to be hard to control once you think the debt danger has passed.

The only long-term viable solution is to get at the root of your debt problem which is to tackle your attitude towards money and your spending habits. If you combine a determination on your part to tackle your attitude towards money with a good workable budget then is no reason why you will not succeed in clearing your debts for good.

So when you decide to make a change and tackle your debts the best approach is going to be a two pronged attack. The first prong is that you are going to research as much as possible about NLP and techniques that change your beliefs on the internet. The second prong is going to be that you research how to create the best budget possible for your situation and also you compile a list of money saving tips that will apply to your situation.

So in answer to the question ‘Are Debt management budgets a waste of time?’ the answer is No. However, for them to be really effective they need to be backed up with a change in attitude of the person who is using them.

The Pain of Debt

Feb 022008

Not long ago a friend of mine came to me with a problem. He had just recently broken up with his girlfriend and was having financial difficulties. He was not looking for money, well not exactly. He and his ex-girlfriend had taken out a 100% mortgage to buy their house. Since they were no longer together it had been agreed that he would take over the house and the repayments that went with it. The problem was the mortgage was in both their names and based on both their incomes.

My friend went to get the mortgage changed into his name but he ran into a brick wall. The bank was not prepared to change the mortgage into his name because it was not prepared to take the risk on my friend. You see my friend also has a significant amount of personal debt, credit card debt, overdraft and some outstanding student loans.

So if it wasn’t bad enough that my friend’s relationship broken up it also looked like he would lose his house. Now what did he want from me? Did he come looking for advice on how to repay his debts and stabilise his financial situation? Was he looking for motivation in his struggle with his debts? No, nothing of the sort. My friend was running short on options. He was looking for someone to go guarantor on the mortgage. This would mean that the person who signed as a guarantor on the mortgage would be liable for the mortgage repayments in the event that my friend could not make the mortgage repayments.

To be honest I struggled for a long time with this situation. What was I to do? I was caught between wanting to help a friend in need and not wanting to put myself in a position that could damage my future. Imagine the scenario – I go guarantor on the mortgage for my friend, now my friend manages to make the mortgage payments for six months. Okay, so far so good – it seems to be working out ok and my position as a good friend is assured. Now imagine that my friend gets laid off or his debts continue to grow and are too much for him to handle? What then? The problem then is that if my friend can’t make the mortgage repayments then it falls to me to make them for him. I have debt burden myself so I sincerely doubt that I could take on someone else’s mortgage repayments on top of the loan repayments I have to make each month myself.

As you can see it was a tough position to be in. I was angry at my friend for putting me in this position and trying to leverage our friendship so that I could solve his problems. I wasn’t happy about it at all. I wasn’t happy about the way it was making me feel and the way it had infected our friendship. You see that’s the thing about debt in all its ugly forms. If you are in debt and are struggling to cope with your debts then every single aspect of your life is view through the glasses of debt. Every decision you make is clouded by debt. You are no longer prepared to take risks like finding and starting a new and better job.

It was situations like this that made me mad enough to start this website. I get really angry when I see people beaten down by debt. They sleep walk right into a mountain of debt and wake up one day wishing it was all a bad dream. Some get depressed and end up on anti-depressants. Couples with debt problems begin to argue over money. The debt has made them afraid of losing what material things they have. Little realising that if they continue they way they are they will end up in a vicious cycle of spending to maintain a certain lifestyle and using debt to fund it. I’ve heard stories of couples staying together (even though they hated each other) simply because they could not afford to take the negative equity hit on their house. You see debt like this is oppressive – its slavery.

Getting back to the situation I had with my friend. He was getting desperate as the bank was looking for a guarantor and his ex-girlfriend wanted her name off the mortgage fast. So I took the middle ground – I really wanted to help this guy, after all he’s a friend and what use would I be as a friend if I couldn’t help him in his hour of need. On the other hand I didn’t want to be pulled down by his mistake – if things got a little worse for him then I would be dragged into his black hole of debt. Not a place I wanted to go. So here is what I proposed to him and how I proposed it to him.

“I will go as guarantor on your mortgage for the period of six months if you satisfy the following criteria.

1. Get a reality check – I want you calculate exactly how much you owe and to whom you owe it. Then I want you to calculate exactly how much you are repaying in loans each month.

2. Calculate the absolute minimum that you can realistically live on each month – so cover the basics only, mortgage, food, transport and health insurance.

3. Take a look around your house and life and sell everything that you do not need – everything. Use this extra cash to pay down your credit card debt.

4. Once the first three steps are completed I want you to set aside an additional 5% of your net income each month and add this amount to the monthly repayments you make on your smallest loan. Once you have paid down this loan take the amount you were repaying on the loan along with the additional 5% and add it to the next smallest loan. Continue in this fashion.

5. Cut up all your credit cards and operate only with debit cards or cash.

6. Create a daily/weekly/monthly budget.”

I said to my friend that I would go guarantor for six months to give him breathing space but I wanted him to change his spending habits. After the six months were up I would extend it for another year if he met the criteria I outlined above.

To the casual observer the terms outlined above may seem a bit extreme – some may argue that I should have simply gone ahead and signed for the mortgage and to hell with the consequences. He’s a friend goddamn it! My argument is this – it was this kind of attitude that got us into debt in the first place and I’ll be damned if I’m going back there. I’ve had too many sleepless nights for me to go back to drowning in debt.

So this is how it turned out. My friend said I was being unreasonable. I explained in detail the reasons why I wanted him to meet the criteria. It was for his own good and I had his best interests at heart. He didn’t take too kindly to my offer of help on condition. He got very offended. He said I was treating him like a child and in certain respects he was right. I was trying to control his spending behaviour but only because I could see exactly where he was going to run into financial trouble.

I tried to remain calm and kept repeating my reasons but as I said before when people are in a lot of financial trouble and the bank is calling it is hard for them to be logical. It did become a bit ridiculous and my friend became very upset. He couldn’t see why I was being so stubborn. I pointed out that I felt it was unfair for him to use emotional blackmail on me just so I could click my fingers and his problems would be solved. Well at least solved until the next debt threat!

The conversation went on in this manner for a while before my friend just got up and left in anger. We didn’t speak for weeks. I sent him an email to see how he was getting on and he called me. We spoke for a while and he apologised for storming off. I asked about the mortgage and he told me that his brother in law had gone guarantor.

We pretty much left it at that. We have met up and spoken since but our friendship is damaged probably beyond repair.

Part of me wonders whether the right thing to do was nothing – to make up some wishy washy excuse as to why I couldn’t go guarantor and leave him to his own devices. I don’t know what would have happened but to be honest I think the best thing that could have happened to him was to lose his house – or come close enough to losing it that he changed his ways. Now before you start typing that email of bile to me let me explain. I wanted my friend to realise how dangerous debt can be if used without thinking. I could see from his “I want it all and I want it now” lifestyle that he was using getting in deeper and deeper in debt. I wanted to help him realise this but he did not want to listen and certainly not to me. Who was I to tell him he had a problem? If the sheriff had come calling to take his stuff away would that have been enough?

Probably not.

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