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Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.
-Albert Einstein

Interest expenses upon a large debt load will subtract several thousands of dollars away from your bottom line and net worth every year. Bad debt, at best, will have you spinning your wheels, financially. At worst, default on out-of-control debt is a prelude to bankruptcy and complete ruin.

For real relief, debt management is a foundational component for any effective financial plan. Here, Onyx begins with open brainstorming and goalsetting sessions, for added motivation to stay the course.

Next, we will perform a data gathering analysis to free up cash to pay down debt. Our final mission, of course, is to put money to work in financial markets to build wealth.

We have the Green Light.

Life and Financial Goals

Goals grant a sense of purpose to financial planning. Common life goals might include funding a start-up business, first-time home purchase, UNC-Chapel Hill tuition, or a South Florida retirement.

Onyx Investments will lead you to categorize financial goals according to total costs and time frame. A comfortable retirement to Key West might call for $1.5 million in accumulated savings through the next two decades.

To begin, Onyx is likely to immediately advise debt riddled prospects to slash discretionary spending. Important milestones will never materialize, if you cannot get out of debt and stay out of debt.

Your Credit Report

As part of the Fair Credit Reporting Act, you are entitled to order one free credit report per year through AnnualCreditReport.com. At any point in time, you might also consider purchasing a copy of your credit report through Equifax, Experian, or TransUnion. For real-time credit information, consumers can access summary reports through multiple banking institutions and Credit Karma.

The credit report will generate a Fair Isaac Corporation (FICO) score, while also organizing your debts according to type, lender, size, and payment history. Verify that all information is, indeed, accurate before moving forward.

Equifax, Experian, and TransUnion all provide online resources and help desks to facilitate the credit report dispute process. Any dispute must be addressed, proven, or disproven within the span of 30 days.

Debt Refinancing

After verifying credit report information, you will contact each individual creditor and attempt to negotiate lower interest rates. Lenders are likely to agree to more favorable terms for borrowers who show a strong history of making timely payments. Make the big banks earn your business.

Prepare to make threats and take your money elsewhere if existing lenders refuse to play ball. Debt refinancing is a tactic where you take out a new loan and spend the cash proceeds to pay off older, more expensive debt. Credit card companies are now notorious for spamming consumers with zero percent balance transfer offers.

For large balance and mortgage refinancing, we will perform a cost-benefit analysis to weigh the magnitude of up-front expenses against projected future interest savings. Expect mortgage refinancing closing costs to total up to 3% of loan principal. Mortgage refinancing will add value, if you can reduce your rate by more than one percent and plan to own the home for several more years.

In extreme cases, distressed borrowers may consider a mortgage restructuring, where the bank agrees to write off loan principal, altogether. Here, at this point, all financial resources have already been exhausted, and home foreclosure is a very real possibility. Foreclosure will remain on your credit report for a full seven years.

Take Financial Inventory

In addition to your credit report, assets, insurance policies, income, and expenses are all taken into consideration, as part of a complete financial inventory. Proper insurance coverage is critical to preserve liquidity through emergency situations.

Sell off underperforming assets to raise cash for slashing debt. Bonds, CDs, and other fixed assets paying meager 3% interest make little sense on a personal balance sheet that also carries expensive 19% credit card bills.

From here, Onyx interprets stubbornly high debt balances to signal that significant lifestyle changes are in order. First, eliminate all discretionary spending on luxuries from your monthly budget. For the long-term, you might even consider downsizing, or renting out a smaller apartment on the outskirts of The City.

Differentiate between needs and wants to save money and get out of debt.

Strategic Payments

Commit to prioritizing debt payments according to interest rates. To do so, you will plow all free cash flow into the most expensive debt payoff, while continuing to make the minimum payments on all other credit balances. After paying off most expensive debt, you will then prioritize applying payments onto the loan with the next highest interest rate.

Personal finance guru Dave Ramsey, for his part, evangelizes the snowball method. When using the snowball method, you will prioritize payments according to lowest loan balance and gain renewed confidence as smaller debts are paid off.

Driving your credit score towards and above 700 is a reasonable goal that will open many doors. COVID-19 and its aftermath kicked off a feeding frenzy in leveraging cheap debt to load up on stocks and real estate for spectacular returns.