Inside, we’re watching each part and summarize the highlights so you don’t even have to watch if you don’t feel like it…
Debt is stupid
Debt is an aggressively marketed product
Living without debt requires a paradigm shift
We used to think debt was a sin
1910 Sears catalog called buying on credit “folly”
Today, Sears has made more money on credit cards than on merchandise
Credit card issuers sent out 4.2 billion offers last year
Credit cards are a product
Banks are in the business of selling debt
Debt has become enmeshed with the fabric of everyday life
Don’t get him wrong, Dave only blames himself for when he got into debt
We have become a culture of borrowers, aka, sharecroppers
“The rich rules over the poor and the borrower is slave to the lender” Proverbs 22:7 (NKJV)
Dave uses a chain to demonstrate how he got into debt, wrapping it around himself more and more as he buys a couch, TV, stereo, and no-money-down home, on credit
According to Larry Burkett (?), we spend the first 5-7 years of our marriage trying to reach the same standard of livings as our parents, only problem being that it took them 35 years to do it…
Of the 52% of marriages that end in the first 5 years, 90% of them cite money troubles as the primary cause
Eventually Dave and his wife decided to go completely broke and get rid of everything and work like crazy to escape their payments
Myth: If you loan money to a friend or family member, you’re helping them
Truth: The relationship will be strained or destroyed.
Myth: By cosigning a loan, I’m helping a friend or relative
Truth: The bank requires is requiring a cosigner because the person isn’t able to pay. Be ready to pay the loan and have your credit damaged.
If you cosign a loan for your children, you’re not blessing them, you’re bringing them into a master/servant relationship
If you really want to help them, give it to them as a GIFT
Myth: Cash Advance, payday loans, pawnshops, rent-to-owns are needed services for poor people to get ahead
Truth: These are horrible, greedy, ripoffs
Myth: You can get rich playing the lottery
Truth: Powerball is a tax on the poor and people who can’t do math
If you took $32/month, the average amount a lottery player spends, and instead invested it in a good growth stock mutual fund from age 20 to 70, you can retire with over a million dollars
Myth: Car payments are a way of life
Truth: Staying away from payments by driving reliable used cars is what the typical millionaire does
Myth: Leasing is what sophisticated people do
Truth: A car lease is the most expensive way to pay for a vehicle
If a car dealer sellls a car for cash, he makes on average about $82. If he sell it with a financing plan, he makes $775. Leasing, $1300
Myth: Sophisticated people write off part of the lease
Truth: Smart people buy items that depreciate in value used
Myth: I can get a great deal on a new car!
Truth: A new car loses 60% of its value in the first 4 years you own it
Instead buy a 1 or 2 year old car
Unless you make $600k plus a year, then it doesn’t really matter!
Sometimes Dave feels like his radio show is the “sell the car show” as that’s his number one piece of advice to people
Dave himself bought a 2 year old car with 23,000 miles on it
Myth: Home equity loan is a good because it’s a tax deduction and it’s a substitute for an emergency fund
Truth: You don’t go into debt for emergencies and a tax deduction is not good math
People who justify going into debt for tax purposes are really saying “let’s send the bank $5,000 to keep from sending Washington $1,250”
Myth: I’ll take out a 30 year mortgage and promise to pay extra
Truth: No one pays extra, don’t take out more than a 15 year fixed rate loan
An FDIC study says that on average 97.3% of people do not systematically prepay a 30 year mortgage. See graphic:
Myth: It is good to take out an adjustable or balloon mortgage because “I know I’ll be moving”
Truth: You will be moving when they foreclose
Adjustable rate mortgages were invented in the early 1980’s to transfer the risk of higher interest rate mortgages to you
Myth: You need to take out a credit card or car loan to build credit
Truth: Open credit cards with zero balances and car loans count against you when qualifying for a mortgage
Myth: You need a credit card to rent a car.
Truth: A debit card will work at nearly all major places
Myth: You need a credit card to check into a hotel, make a purchase online or over the phone
Truth: Your debit card will work just as well
Myth: I pay my credit card off every month, and earn miles and points, and a free hat
Truth: 78% of Americans do not pay off the balance every month. If you pay with cash only, you spend less
Consumer Reports says that 75% of frequent flier air miles are never redeemed
Though I have no problem with debt or money management, he’s almost got me convinced to cancel my American Express card.
63% of bankruptcy filers blame credit card bills and 89% of filers STILL get offers
The credit card industry is out of control, they’re trying to give lines of credit to dead people, poodles, and children
Myth: I’ll get my teenager a credit card so they’ll learn to be responsible with money
Truth: Teens are the number one target of credit card companies today
Citibank spent 100 million dollars this year JUST for marketing credit cards to high school and college students
Having a credit card doesn’t make you an adult, it merely means you can probably breath air
Credit card companies are priming children for brand loyalty. A back of a Raisin Bran box says Visa is the official sponsor of Grinch’s “Whoville.” Citibank sponsored a learning tool cash register with their name on an included credit card “toy.” “Cool Shopping Barbie” was pulled off the market in 1997 after consumer advocates complained about her being sponsored by MasterCard, though they waited until afte Christmas to do it. She came with her own little MasterCard.
19% of the bankruptcies filed last year were college-age people.
The number one personal finance curriculum sweeping schools today was sponsored and designed by VISA.
Myth: Debt consolidation saves money.
Truth: Debt consolidation is a con. Smaller payments equal longer time in debt.
Myth: Debt, properly used, is a tool for financial prosperity
Truth: Debt is proof that the borrower is slave to the lender
75% of the Forbes 400 most wealthiest people say that getting debt-free is the number one way to build wealth
The number one thing you need to pay off your debts is INTENSITY
Dave has 6 steps to get you out of debt, which he wants you to employ with the focus and drive of a gazelle running from a cheetah
1. Quit borrowing more money
2. Save money
3. Pray. (Obviously, this step is not for everyone)
4. Sell a bunch of your stuff
5. Temporarily get a part-time job
There’s a great place to go to when you’re broke… to work
6. Pay off your debts using the debt snowball: pay minimum payments on everything except for the smallest debt. Then put as much money as you can towards paying it off. After you knock that one down, go onto the next one. He says the psychological win is more important than paying off the highest interest payment, as it motivates you to keep paying off debt.