Roadblock #7 - Short-Term Debt

It’s a Fact… People who can learn to live debt free will create significantly more wealth over time.

What is short-term debt?

Have you ever bought something you couldn’t truly afford and you borrowed money in order to afford it? Short-Term Debt, without a doubt, is destructive and some contributors are:

• Credit Cards that don’t get paid off at the end of each month.
• Car Loans
• Student Loans
• Home equity lines
• Revolving Credit

Beyond your primary mortgage, you should have no short-term debt on your balance sheet whatsoever.

What is the real cost of debt?

The cost of consumer debt is not just the payment itself, but it’s the lost use of that money that’s now gone from your financial picture forever. A $10,000 annual credit card payment (into property that’s going down in value over time) will cost several hundred thousand dollars in payment, by the time you reach retirement. It’s those payments each year plus the lost use of money that’s no longer a part of your financial picture. If you take five years to pay off debt and then start saving, what you’ve lost is time that can never be recovered. You also expose yourself to short-term situations that might occur that you have no defense against, such as the loss of a job, or some other life event that requires capital. That money is now not in play because you’ve used it to pay off a credit card balance.

What should you do if you’re in debt?

First, stop purchasing items you cannot afford. Next, pay the minimum payments on your credit cards for the time being. Use that additional cash flow to increase your short-term savings liquidity and to make sure that you have a strong protection portfolio. If you had a choice between your credit card company or your family, who would you choose? There’s ways in which debt can be eliminated permanently from your financial picture without leaving you exposed in the interim. After you’ve established strong protection
and savings on your balance sheet, work to completely eliminate short-term
debt. Financial Balance®, by definition, includes a life that’s debt free.

The Living Balance Sheet® (LBS) and the LBS Logo are registered service marks of The Guardian Life Insurance Company of America (Guardian), New York, NY.