The Truth About Debt…
The Debt Formula You Do Not Know About.
Remember being 18 years old, and everyone pressuring you that you need to start building your credit score, or you won’t be able to have the freedom to get a phone or a car, or rent, or a house, or a good rate on utilities???
Well, they were pressuring you to get into debt, so you can get a good rate on fixed payments and contract deals, that most won’t help you build net worth.
Part of the contract we sign at 18 years old, when we get any form of debt, is we will pay X amount every month or year, till it’s paid off. It’s called the debt formula.
Debt Formula
Debt = Change of Lifestyle for ‘X’ Amount of Months/Years
When you take out a student loan for $10,000 and a 3.25% Interest rate, with the intention of paying it down in 10 years. You are signing a debt contract, where you will make a fixed rate of $1,325 per year or $110.42 per month. Meaning you will have to make a minimum of that amount every single year.
For most individuals that means holding a job for 10 years straight, that will make a minimum of $40,000 per year to cover their bare essentials and in addition their debt. Meaning the cost of living and your lifestyle cost increases by the debt you put yourself in.
For many years myself, I have struggled with debt. Particularly credit card debt. I really wanted to have a good credit score, although as a young 20’s person, my income isn’t solid for 10 years straight. I take on contract work, that requires constantly saving money to prepare for when the contract ends. I made my lifestyle cost higher than my income, without the acknowledgement. There’s so may people in their 20’s whom are in my situation.
Removing Debt But Building Credit
I decided to Dave Ramsay my credit cards. I use prepaid cell phones to cover my bills. It’s a more affordable option. I get unlimited calls, unlimited text, and a data plan for $30 per month from Cricket Wireless, whom is powered by AT&T. Instead of credit cards I use credit builder accounts. You pay a certain amount of money every month for a year, and at the end of the year, you have a savings account waiting for you. At the same time you get to build credit. The company Loqbox, allows you to put the funds in their partnered bank saving accounts after. It’s a great way to build an emergency fund while building credit.
Another tool is by taking your monthly rent and utility payments, and reporting them to credit bureaus. The company LevelCredit enables individuals to report payments they normally make for credit reports.
Instead of putting individuals with poor money management habits into financial debt to build a credit score, you can build credit an alternative way, for things you always pay for or need.
With these tools, you can build credit while building your emergency fund, and paying for your basic necessities regardless of your lifestyle. Having control of your finances regardless of money habits to fit into your personal lifestyle.
