Page 94 -

Go on a Debt Diet

Exhibit 8.2 Stan and Barbara’s Debt
Type of Debt Balance ($) Monthly Payment ($)

Consumer debts 14,600 790
Car loans 15,000 565
Mortgages 120,000 1,320
Total 149,600 2,675 min.

Debt termination money of extra 10% = $268 per month

This 40-year-old married couple with two young children earned a comfortable
annual income of almost $70,000, yet they were deeply in debt and struggling
to pay their bills each month (Exhibit 8.2 ). Worse, they had no plan for how
they were going to pay for their children’s educations and fund their own

retirement. I was working as a financial planner when they contacted me.
They were frantic. Every one of the many advisors they had consulted said

that their best solution was to file for bankruptcy.
Like so many other consumers, they were giving away a large part of
their income to bill collectors every month. They were carrying $14,600 in
consumer debt, and paying approximately $790 in minimum monthly pay-
ments. In addition, they owed $15,000 on two cars, and $120,000 on two
mortgages, with monthly payments of $565, and $1,320, respectively. Talk
about sticker shock. Their total monthly debt payments added up to $2,675.

Stan and Barbara’s financial situation was really bleak. They were buried
in debt and broke. They didn’t have any savings for emergencies, and their
spending was so far out of control that they were buying groceries on
their credit cards. If a real emergency hit them, they’d be in serious trouble.
Those “easy” monthly payments had boxed them into a corner, so that $2,675
in payments really wasn’t theirs.
Worse, that $2,675 is gone forever every month because they haven’t
learned to properly manage their habit of uncontrolled consumption. Listen
closely because this is the really dangerous part of the debt trap: Most people
in this trap continue to buy new stuff, even before they pay off the old stuff.
With this program, we will pay off all the debts and not take on new debt to
replace the old debt. We will keep rolling the money forward from one debt
to another, terminating each debt (one after another) forever, and building
more and more momentum until you are totally debt-free. Then—and this is
the exciting part—we will roll all that money forward into an AIP to ensure
continuing fi nancial freedom.
Once I understood how Stan and Barbara spent their money, I showed
them how my plan could work for them. They were able to take control of their

71

8/23/07 3:11:42 PM
c08.indd 71
c08.indd 71 8/23/07 3:11:42 PM