# The Debt Consolidation Myth ## Metadata - Author: [[Jesse Mecham]] - Full Title: The Debt Consolidation Myth - Category: #source/books ## Highlights ### 80/20 Guides - Pareto's 80/20 principle dictates that 80 percent of your results come from 20 percent of your effort. ([Location 29](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=29)) - A budget is just a scary word for “here’s what I want to do with my money.” That’s it. A plan for your money. ([Location 39](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=39)) - Every financial decision you make must be viewed through the lens of your overall financial plan—your budget. As you navigate the world of debt, this is no different. ([Location 45](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=45)) ### Introduction ### How You Got Here #### Frogs - Are we not all a bit like that frog when it comes to debt accumulation? The growth of the pile of debt is so darned imperceptible! A little here, a little there, and then suddenly WHACK! You’re in over your head, cash flow is crunched, and you wonder how you got into this mess. You’re boiling. ([Location 86](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=86)) #### Tornados #### Love #### Camels - Yes, we’ll be talking about the ins and outs of debt consolidation. It’s a horrible idea. (How’s that for a quick insight!) But I don’t want you walking away from this book just knowing it’s a horrible idea. I want you walking away knowing what kinds of behaviors you’ll need to change systematically in order to 1) pay off all your debt once and for all, and 2) never borrow again. ([Location 134](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=134)) - We want to treat the disease (money mismanagement, lack of preparation, misalignment of spending with your priorities), not the symptoms (a burdensome pile of debt that’s wreaking havoc on your cash flow—and is ... lame). ([Location 138](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=138)) ### Moving Forward ### True Values, True Priorities #### Your Vivid Vision ### Why a Vivid Vision? ### How to Create a Vivid Vision #### Find a Quiet Place #### Go Analog #### Getting the Juices Flowing #### Your Vivid Vision ### Nitty-Gritty Goals #### Find the Highlights #### Extract the Highlights #### Pick Five - Why All This Talk of Values, Visions, and Goals? I Just Want to Solve My Debt Problem! ([Location 413](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=413)) ### Going Backward (AKA Debt Consolidation) #### The Long Con - The proposition plays on your emotions: “Imagine how you’ll feel without all those pesky debts bothering you constantly!” Logic: “You’ll save so much in interest!” Savvy: “Look how smart you are, converting this bad debt into good debt that’s now tax deductible!” Need: “You could really use that extra $400 per month.” ([Location 450](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=450)) - We know these pitches work because all these debt consolidators are still in business. If they’re still in business, that means they’re making money. And who are they making money from? People like you. (Not for much longer, though, in your case.) ([Location 453](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=453)) #### Marketing Dollars Galore ### Eyes Wide Open - They’re making lots of money. And they’re making lots of money by convincing lots of people just like you that debt consolidation is the solution. It is not. ([Location 479](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=479)) #### The Appeal ##### Simplicity - The first play is on your desire to simplify your finances. ([Location 491](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=491)) - What the debt consolidators are banking on, however, is that your life will be simpler for just a little while, your core behavior won’t have changed, and you’ll be right back where you started—no, worse. ([Location 505](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=505)) - If you want to simplify your finances, then do it by just focusing on one debt that you’d like to pay off and do minimums on all the rest. That’s simple. You’re focusing on one goal and you’re knocking it out as fast as possible. Simple. ([Location 508](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=508)) ##### Math - The debt consolidation isn’t allowing you to pay off your debt early. Your grit is what’s going to get you to the early payoff. ([Location 522](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=522)) - Emotion got you into this debt, and emotion’s going to get you out. You’re just going to be far more aware of your emotions, far more aware of your true values, and rabidly focused on your goals. ([Location 537](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=537)) - it’s best just to focus on the stuff that moves the needle. And, you guessed it, that’s behavior change. ([Location 539](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=539)) ##### Math, but with Some Savvy #### Raw Emotion - They’ll basically pitch you on all the benefits of being debt free. All while leading you right into even more debt. ([Location 569](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=569)) #### Pitfalls ##### The Loan Term - Yes, the rate will be lower, but many, many times, the term of the loan is far longer. ([Location 591](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=591)) ##### The Loan Collateral - So how are debt consolidators able to give you a much lower rate than you’re getting from your credit card company? Because they also are likely looking for some loan collateral. This usually comes in the form of the equity in your house. Of course they can offer you a lower rate—they’re having you pay for that lower rate by basically removing all their risk from the transaction! ([Location 597](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=597)) ##### The Credit Limit Trap - When you consolidate your debt, you’ve removed the built-in brakes on your behavior that were those credit limits. ([Location 624](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=624)) ##### The Allure of Fake Progress - One of the less obvious pitfalls as it relates to debt consolidation is that the consolidating of your debt feels like progress and is nothing of the sort. ([Location 629](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=629)) - The debt consolidators will make you feel like you’re doing something super smart and extra savvy. They’ll make you feel as though you’ve already basically taken care of the problem. Now all that’s left is just to pay the same amount of debt as you had before.   This is not progress! ([Location 635](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=635)) - Note: Truth - The only way to rid yourself of debt forever is to change your behavior, and the only way to change your behavior is to get on a budget. ([Location 641](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=641)) ### Really Moving Forward #### An Introduction to the Method - This is about lasting behavior change. ([Location 651](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=651)) - Note: Primary theme of the book - Whether you go with low-to-high balance, high-to-low interest rate, or alphabetical ... that method isn’t nearly as important as your overall money management method. ([Location 654](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=654)) #### Rule One: Give Every Dollar a Job - Rule One dictates that you give every dollar a job. Every single dollar that comes into your life needs to be given a job. You need to intentionally ask yourself, “What should this money do before I’m paid again?” And then you set about having it do what you’ve intended it to do. ([Location 658](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=658)) - Folks are in debt because their money has been doing things they don’t value. ([Location 671](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=671)) - Quick Start Implementation of Rule One Determine how much money you have on hand. List the “jobs” you need that money to do (rent, utilities, phone bill, food, gas, etc.) and the amount next to that job. Assign money to each job until the money has run out. Repeat steps 1–3 as you earn more money. ([Location 676](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=676)) #### Rule Two: Embrace Your True Expenses - Quick Start Implementation of Rule Two Look back at your credit card and bank statements for large outflows. Are any of those recurring that you should prepare for? List your larger, less frequent expenses with the amount needed and the months until it’s needed. It’s okay to guess. Divide the amount by the number of months to make that larger, less frequent expense into a normal monthly bill. Incorporate these now-normalized monthly bills into your Rule One process of asking yourself, “What does this money need to do before I’m paid again?” ([Location 761](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=761)) #### Rule Three: Roll with the Punches - This highlights one of the key fallacies when you initially start budgeting, which is to pretend that just budgeting will somehow undo years of bad habits. Or that just budgeting will somehow bestow upon you wisdom beyond your years. That’s simply not the case. You’re still you, with all your bad habits, so let the budget teach you and guide you as to where you should focus your behavior change efforts. Don’t blame the budget and say it’s broken when in reality, it’s just highlighting the fact that you are “broken.” ([Location 811](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=811)) - Quick Start Implementation of Rule Three Change Rules One and Two as needed. ([Location 827](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=827)) #### Rule Four: Age Your Money ##### Breathing Room = Better Decisions ##### Bill Cycles and Paycheck Cycles Go Away ##### You’ll Sleep Better - Quick Start Implementation of Rule Four Once you’ve fully assigned your dollars jobs for current needs and future larger needs, look ahead and start funding those needs for the next month as well. Always balance your aggressive debt paydown strategy with the desire to step away from the financial edge. ([Location 920](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=920)) #### The Rules in Conclusion ### Three Principles for Successful Debt Elimination - There are three principles of successful debt elimination. First, you must exhibit a very high amount of aggression toward your very annoying debt. Second, you must employ the principle of focus. Focus will take that aggression and do something very useful with it very quickly. Third, you must recognize the principle of the sprint. ([Location 937](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=937)) #### Aggression - just start doing things that people don’t normally do. Take what people normally do, and do the exact opposite! ([Location 947](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=947)) - If you really want to pay your debt down as fast as you possibly can and be rid of it forever, then you need to demonstrate a serious amount of aggression toward it. You need to go just a little bit—or maybe a lot—crazy. ([Location 959](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=959)) #### Focus - What’s most important is that you focus on a single debt with aggression. ([Location 968](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=968)) - You want your money to behave like a laser, destroying one debt and then moving on to the next. Focus. Focus. Focus. ([Location 981](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=981)) #### Sprint - You must remember that this is a sprint, not a marathon. ([Location 987](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=987)) - you need to recognize that these behaviors can all be seen as a sprint. They don’t need to be sustainable. You only need to do them long enough to destroy your debt once and for all. ([Location 989](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=989)) ### Conclusion - When your money behaves in a way that supports your values, you feel content. ([Location 1007](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=1007)) - Whatever your values, debt stands in your way. Get aggressive, get focused, sprint, and destroy your debt once and for all. ([Location 1019](https://readwise.io/to_kindle?action=open&asin=B073HN2YS5&location=1019))