The Wage Slave’s Guide to Eliminating Debt

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This guide is intended for individuals who wish to eliminate debt in order to escape the corporate wage slave lifestyle. Debt is a tool to keep the poor and middle class loyal servants to the economy, the state, and the wealthy.

Not your Typical Debt Reduction Article

Ironically, debt reduction is BIG business. It would seem contrary to logic that profits would exist in reducing the amount of money owed by an individual. Most debt reduction plans are not designed for permanently eliminating debt, but quite the opposite. They are designed to reduce debt to improve your credit score so you are free to borrow more money in the future.

The reality of debt is that it is extremely difficult to settle in a short period of time. You may see TV commercials with gimmicks saying they can permanently reduce debt while simultaneously building wealth. These are scams an estimated 100% of the time. If these companies can afford the expense of a TV commercial, they are making money somewhere.

Debt reduction is incredibly simple, but potentially very difficult. It will take sacrifice, willpower, and common sense. Unfortunately, there are very few shortcuts and you will need to fight your way out. The steps below are designed for the wage slave who wants to live free of debt forever.

Step 1 – Stop Accumulating Debt

Now that you know debt is a tool to keep you a wage slave, you must reject the impulse to acquire debt at every opportunity.

Burn your credit cards and start paying them off. Don’t worry about the so-called credit card “rewards” or “miles”. Rewards programs are nothing more than a tactic to manipulate you into purchasing more junk. Think you’re smarter than the credit card company and can use rewards to your advantage? You can’t. Rewards programs work because most of the participants are on the losing end of the game.

When your credit cards are reduced to a pile of smoldering plastic, your spending habits will change overnight. Experiment by spending with cash only for one full week. Your desire to impulse buy will change dramatically.

Never finance a depreciating asset. A depreciating asset is any product that loses its value over time. A few examples include vehicles, electronics, furniture, travel expenses, and virtually all consumer goods. If you can’t afford to pay cash for a car, ride a bike or take the bus. Sounds pretty shitty, right? Just remember the road to freedom is paved with sacrifice and hard work.

Be very cautious of the mortgage. For most, the mortgage or “American Dream” is a trap. It’s a 30 year sentence to hard labor in the middle class penitentiary. Want to take a break and explore Boliva for a year? Say goodbye to your home. Even if you’ve paid 29 years into your loan, the bank will still take away the entire house when you default. Not to mention, over the course of a 30 year mortgage, you end up spending over twice the purchase price of a house. For example, a 30 year 200,000 mortgage at 6% will net $431,640 in payments to the lender. This means you’ve paid over twice the amount of the purchase price of the home! For what? The bank didn’t have to lift a finger or take any significant risks to secure this windfall profit.

Step 2 – Annihilate Existing Debt

Assessing the damage. Every dollar of debt to your name represents and obstacle to your liberation. Take each form of debt and put it into a spreadsheet to get an idea of how screwed you are as of today. This spreadsheet will help you eliminate the the most damaging debts first.

My Debts in 2011

Debt Account Interest Rate Payoff Amount
Capital One Venture Card 19.90% $6,120.00
American Express Gold 18% $2,700.00
American Express Blue Cash 18% $870.00
Car Loan 7.50% $22,000.00
Mortgage 5% $210,000.00
Student Loan 6.80% $40,500.00
Totals 12.53% $282,190.00

This was a snapshot of my indebtedness as of July 2011. Making approximately $75,000 a year combined with my wife was enough to payments on this debt, but it was not enough to cover settlement of this debt by a long shot. Here’s how I eliminated the impact of this debt in less than 1 year.

Focus on highest interest rates first. Assuming you’ve followed step 1, you can now start paying off credit cards. Pay as much as possible on the highest interest debt first, while making minimum payments on all other debt. Get debts paid off one-by-one, as opposed to spreading the money around. Prioritize your efforts based on interest rates. I paid of the Venture card and 2 Amex cards using this method.

Get rid of depreciating assets. For most, this means selling your financed car. A car depreciates in value and brings a bunch of other unwanted expenses to the table. In addition to finance payments, you have to consider insurance, repairs, oil changes, gasoline, car washes, etc. If you’ve financed a TV, sell it before it becomes obsolete. I paid off my car an bought a quality used car with cash.

Mitigate debt if you can’t pay it off. Paying off the mortgage is an unattainable goal for most families. Instead of paying it off, I decided to convert my house to a rental. Now I have some other poor bastard paying my mortgage. Although the debt is still my responsibility, it generates income sufficient to cover the debt against the asset.

Student Loans, the most poisonous of debts. Federally backed Stafford Loans are perhaps the worst form of debt the wage slave can acquire. They cannot be forgiven or reduced. The only “relief” is by way of income based payment reduction, but this only makes matters worse in the long run. Like no other form of debt, they resign the optimistic individual into indefinite servitude. As sad as it sounds, your only option is to pay them off as quickly as possible using your hard earned money. Once you have mitigated other forms of debt, you will have more free cash to put towards student loans and reduce their burden. Therefor, it is wise to focus on student loans as final task in your mission, as the last prison guard preventing your escape.

Step 3 – Save Aggressively

After you have successfully paid off your debts, you must shift your focus to saving the money you earn. At the bare minimum, you should shave at least 10% of your earnings.

Where should you put your savings? Putting your money in the bank may not always the best decision. It is always better to own some form of tangible wealth, rather than the shaky US dollar. Someday, the dollar will collapse and the general public will pay the price.

Owning a variety of tangible assets such as positions commodities and natural resources will likely net you the best results. Nothing is completely safe, but you are likely to see better performance from investments in increasingly scarce resources, when compared to the value of the US Dollar.

Final Thoughts

Most of the promising young wage slaves our generation will look at this viewpoint with deep resentment. It will be wrongly interpreted as an attempt to prevent them for eating their slice of the pie, when in reality the pie will eat them.

Logic must always reign supreme when involving yourself in debt. Debt is easy to acquire for one reason, it makes the wealthy more powerful. There exist winners and losers in every deal, so make sure you know what side you’re on. Hint: the borrower is almost always on the losing side!