I recently sat for an interview with LoanNow on the importance of saving. Here is an excerpt:
What are the smartest financial decisions we should make?
I really can’t emphasize how important it is to save money. Virtually all other major financial decisions we make – buying a home, starting a business, investing for retirement – first require the existence of cash savings. Without savings, you cannot make a down payment on a house, finance a new businesses or buy a single share of stock; you’re sitting on the sidelines while your friends and neighbors are getting ahead. Step one – before you do anything else – is to save money.
What advice can you offer individuals and families loaded down with debt on managing it? What are your favorite methods for paying down debt?
Debt can be paralyzing. When confronted with rising debts, it’s easy to get overwhelmed with a sense of hopelessness and do nothing. And unfortunately, there are times when a debt load becomes unpayable and the only way out is to file for bankruptcy protection. But this is not something I recommend for the vast majority of borrowers because it ruins your credit, it carries an ugly social stigma and doesn’t eliminate all of your debts. For example, any debts you owe the government – such as IRS taxes or federal student loan debt – are not discharged in bankruptcy. And frankly, I consider bankruptcy the coward’s way out. If you’ve had a catastrophic setback, such as a major illness or the death of spouse, then there is no shame in filing for bankruptcy. But for the rest of us, there most definitely is shame in bankruptcy, or at least there should be.
The first step in getting debt under control is to stop adding to it. Cut your current expenses down to the point that your paycheck easily covers them. Next, prioritize. Higher-interest debts should be paid back first or rolled over and consolidated into something with a lower rate. After that, it becomes an exercise in lining them up and knocking them down one by one. Dedicate all free cash to eliminating one outstanding debt, and then once paid off, repeat the process on the next debt. It’s a long process but very doable if you keep the long-term goal in mind.
What are the worst things we can do when it comes to managing large amounts of debt?
The worst thing you can do is nothing. Interest compounds. That’s fantastic when it’s working for you as an investment, but it is fiscal suicide when it works against you as a borrower. Doing nothing puts you on the wrong side of compounding.
Along the same lines, attempting to pay back debts without a good game plan in place is a major mistake. Hey, any debt repayment is good debt repayment, but doing it right and prioritizing by paying back the higher-interest loans first can massively speed up the process.
You can read the full interview here.