Consumer Debt – The Worst Kind of Debt

Consumer debt is the kind of debt you put on credit cards and other types of revolving retail accounts.

What makes this kind of debt so odious is: There are no fixed minimum payments. And there is no fixed term in which to clear the debt. You could be making (mostly interest) payments for decades.

It’s not that hard to rack up large amounts of consumer debt shopping at malls, retail stores, and department stores. Twenty dollars here, twenty dollars there… next thing you know you’ve got some serious financial obligations.

My wife stumbled on a show last night called Clean House: Search for the Messiest Home in the Country. This show shines a light on families who have shopping, hoarding, and cleanliness/organization problems.

Sharon Baglien: Shopaholic in Denial

Last night was a re-run of the third episode of Clean House in which the crew tackled Sharon Baglien’s home in Cincinnati, Ohio. From the first scene, I could not believe what I was seeing. Baglien’s house, garage, attic, basement, and an off-site storage unit were crammed floor-to-ceiling with junk.

I say “junk” because not much of it was getting any use. But the truth is, most of the junk was brand new — still in the box, tags intact!

There was so much stuff in the attic that the ceiling was cracking. There was nowhere to sit for meals. And when the house was finally emptied, it took 400 50-gallon plastic containers, 75 large packing boxes, and 300 large garbage bags to hold everything.

The show’s crew then had to rent a 7,000 sq ft space for the “yard sale” to sell all of Sharon Baglien’s stuff. I was truly stunned.

But what stunned me more than anything else was Sharon’s persistent denial. She repeatedly denied being a shopaholic. She repeatedly excused her own behavior by saying that it was “just 30 years’ worth of accumulation” — as if the amount of time that had passed made everything okay!

If I accumulated for 30 years straight, I wouldn’t have had even a fifth of what this woman had in her house.

Anyway, with such an addiction to shopping and hoarding (she had been paying monthly rent for a storage unit for decades), I have to imagine that Sharon is also facing some substantial consumer debt. And while her situation is extreme, it paints a vivid cautionary picture.

The Problem with Consumer Debt

The problem with consumer debt is that it must be paid off by the sweat of your brow. Clothes and food and dishes and kitchen gadgets and “stuff” all depreciate rapidly. In most cases, you’d be lucky to get pennies on the dollar when you tried to resell your stuff, even if it was barely used.

Cars depreciate, too, but not nearly as fast as consumer goods.

This is a unique quality of consumer debt when compared to secured debt. Debt that is secured can usually be cleared by simply selling whatever was used to secure the debt.

Consumer debt, on the other hand, cannot be cleared by selling the items you purchased. Unfortunately, you will have to work off the debt — or settle it, or declare bankruptcy. And none of those is much fun.

Secured vs. Consumer Debt Ratio

As you take stock of your own finances, pay close attention to the ratio between your consumer debt and secured debt. If you have debt, it’s better to have secured debt.

There was a time not that long ago when the majority of my debt was consumer debt. Now that has changed. I mostly have secured debt now. Which means that in a pinch I could liquidate a few items and clear my debts quickly.

(Of course, being debt free is best of all, but I’m not there yet.)

Another option that I recommend is consolidating consumer debt into a Prosper loan. I did this at one point and it worked really well for me.

What’s nice about a Prosper loan is that there is a fixed monthly payment and there is a fixed pay-off date. You’re not making payments for the rest of your life. The whole point is to pay off the loan. (This is in contrast to credit card companies who want you to carry balances forever.)

Remember: Consumer debt can be ugly. So stay away from it as much as you possibly can. And if you have consumer debt, develop a plan for how and when you’re going to pay it off.

Become Debt Free – The Secret Nobody Talks About

Here’s how to become debt free in four simple steps:

First, you need to assess your current financial situation. It’s kind of like going to the doctor for a physical exam, except this time you’re examining your outstanding loan balances, your monthly income, your monthly expenses, etc.

You need to have a clear picture of how much you owe, how much you make, and how much you spend. This will tell you how bad (or how good) your financial situation is.

Second, you need to look for ways to trim expenses. Some of the best expenses to cut are those that are a) frivolous and b) recurring. Frivolous expenses that get auto-charged to you every month need to be eliminated if you truly want to become debt free.

Look also for ways to save money: on your cars, your house, your food, your health, your entertainment, etc. For many families, it is actually quite easy to cut $100 or even $200 in monthly expenses without much trouble.

Third, you need to put together a plan for credit card debt reduction. Depending on your circumstances, you may want to put together a debt snowball plan. Or you may want to seek Christian debt reduction help.

Every situation is unique and there are no one-size-fits-all solutions. So consider carefully what the best course of action is for you and your family.

Fourth, you will want to increase your income. This is the step that is sometimes hardest. But it is the one step that can really accelerate how fast you become debt free.

You might consider starting a side-business. Your options are endless. There are dozens of opportunities for service-based businesses, as well as online businesses. You may also consider taking a second part-time job.

Okay. These four steps cover the basics. Now here’s the secret…

The Secret to Become Debt Free

So far, I’ve given you the four simple steps to become debt free. But I’ve left out the biggest secret of them all.

The secret is consistency.

It’s always easy to get excited about doing something and pursue it with a passion for a couple weeks or even a couple months. The true challenge is what you do when the excitement wears off and you’re tempted to buy some shiny new toy.

Here’s the truth: You can spend 6 months, a year, or even 2 years following your plan to become debt free. But all it takes is one weak moment to erase all that progress.

Similar to the person who loses 10 pounds and gains back 15, it’s easy take 2 steps forward and 3 steps back — and actually find yourself in a worse financial position than when you started!

So consistency is key. But so is the ability to pick yourself up when you’ve made a mistake. Because, honestly, it’s almost inevitable that you’ll make mistakes along the way to become debt free.

The question is: Will you have the resiliency to forgive yourself, get back on track, and keep moving forward? Only you can answer that question.

What Did They Do 100 Years Ago?

Whenever somebody tells you that you have to have something… or you personally feel that you have to have something… ask yourself this powerful question:

“What did they do 100 years ago?”

The reason this question is so powerful is because it forces you to think outside of modern conveniences and modern “necessities.”

It also forces you to challenge your assumptions about how life is lived — and how it should be lived.

Let me offer you a few examples.

Example #1: Vaccinations

Everybody assumes that all children should be vaccinated. But what did they do 100 years ago? And what were child mortality rates? And how did vaccines impact those mortality rates?

Example #2: Cars

Everybody assumes that a car is a necessity. But is it really? Can you get by with a bicycle or simply walking? What would life look like if you couldn’t have a car?

Example #3: Health Insurance

Everybody assumes that health insurance is a necessity… that you’d be crazy to go without it. But what would your life look like without health insurance? How would you get health care, and how would you change your lifestyle?

My point is that we all make assumptions. Some of them are right and some are wrong.

And we have to be willing to challenge our assumptions if we ever hope to discover the wrong ones.

So next time you’re faced with a decision that involves purchasing something, just take a moment and reflect: What did they do 100 years ago?

Hunkering Down

Turns out January’s retail sales figures weren’t too encouraging. While January isn’t a very important month for retailers, it only confirmed the downward trend in retail sales.

As this AP article says:

“They are hunkering down,” said Chris Donnelly, a partner in the retail practice at consulting group Accenture. “There is this key focus on survival.”

While news like this leaves retailers cold, it’s actually what should be happening right now. Every market correction is equal to or greater than its previous exuberance.

When people overspend, at some point they have to underspend. That’s just how it works. And since so many people overspent — all at the same time — there is a massive market correction underway.

I personally never went crazy with consumer spending. So my current retail buying habits are essentially unchanged. We still buy clothes occasionally, etc. No more and no less than before.

(In fact, my wife has to drag me out of the house once or twice a year to update my wardrobe. I’ve been known to wear the same shirt for 7+ years before realizing, “You know, I should probably get rid of this shirt.”)

What got me into debt trouble was spending money on so-called business opportunities. It’s been a long time since I’ve been in that market/mindset, and I’ve come a long way (thankfully).

But there are pull-backs in nearly every market. Both retail and business opportunities are finding it’s harder to hit their sales numbers. (I’m unique in that I get a first-hand view of this through my clients’ businesses.)

So is it time to hunker down? I think that’s good advice. Lay-offs aren’t going to end anytime soon. In fact, every month that passes, the “closer to home” it gets. People I know are now losing their jobs.

And unemployment isn’t much help. Word on the street says the unemployment offices are so overwhelmed that it could take weeks or months to even get in touch with somebody — even longer to collect your first unemployment check.

If you’ve been blessed with financial abundance during this time, and you know somebody who’s financially hurting, be willing to reach out and help them anyway you can. In times like these, it’s important to come together and be generous to those in need.

Unorthodox Ways to Save Money

There are a lot of “frugal zealots” out there who already know just about every money-saving trick in the book. I didn’t want to rehash the same old tips, so I came up with a few that are a bit unorthodox.

You might have thought of these… and maybe not. I hope they will at least get you thinking in new directions.

Unorthodox Money-Saving Tip #1:

Stop Cleaning Your Ears with Cotton Swabs

Here’s what it says on the side of a box of Q-Tips (a.k.a. “cotton swabs”): Do not insert into ear.

The reason it says this is putting a cotton swab into your ear canal can damage your ear drum. Plus, there are more and more cases of people getting ear wax compacted in their ears such that they must have a medical procedure to remove the wax.

Ear wax is like mucous in the nose: It’s there to prevent certain things (like dust and germs) from entering your body. So ear wax is a barrier against sickness. If you remove the ear wax, no more barrier.

Plus, the way the ear is designed, you shouldn’t have to clean your ears with cotton swabs. Whenever you chew, the area inside your ear moves and expresses ear wax. It naturally moves out.

So: I conclude that cotton swabs are not necessary. You can stop buying them and you’ll be fine.

Unorthodox Money-Saving Tip #2:

Shave Once a Week Instead of Daily

I’ve never had a problem with shaving too frequently. Even when I worked at Merrill Lynch, I shaved once a week. Still do.

Most guys shave every single day. And no matter if you’re using an electric or a blade, you’ll go through them 7 times faster if you’re shaving daily versus once a week. If you use a blade, you’re also spending money on shaving cream.

If you reduce shaving to even every other day, you can cut your shaving costs in half — a significant savings over the course of a year.

Grow a beard and you’ll save even more. ;-)

Unorthodox Money-Saving Tip #3:

Break Down Your Trash to Fit More Trash Per Bag

I’m amazed by people who finish a box of cereal and just throw it in the garbage. The right way to do it is to take the bag out of the box, then break down the box so it lies flat. Then recycle the box.

When you don’t “pack your trash” by breaking it down, you fill plastic trash bags with, essentially, air. What an incredible waste.

Would you buy plastic trash bags, fill them with air, then throw them away? Sounds stupid, yet this is exactly what millions of Americans do.

Throwing away a cardboard milk carton? Flatten it first. Cereal box? Flatten it. Plastic cartons? Crush them.


At our house, we use the plastic bags we get from the grocery store for our trash. Saves us a ton of money. And since we recycle a bunch of trash, we only put out one trash can a week, usually half full. That’s for a family of five, with one kid in diapers.

Trash bags are expensive. If you’re going to buy them, at least fill them properly.

Unorthodox Money-Saving Tip #4:

Drop the Comprehensive Insurance & Go Liability Only

State laws differ, so this may not be possible where you live. But as soon as you pay off a car loan, drop the comprehensive insurance and go with liability only.

This will save you a fortune over the lifetime of your car, assuming you don’t cause a major accident.

When you get rid of comprehensive insurance, guess what? You become a lot more aware of your driving. You take fewer risks, drive safer. That’s because if you CAUSE an accident, all the costs to repair your car will fall on your shoulders.

Now, I still recommend having liability insurance as well as uninsured driver’s insurance. I have both. But I save hundreds of dollars annually by not paying comprehensive insurance.

Unorthodox? Yes. Certainly not for the faint of heart.


Hopefully some of these tips will be useful to you. Do you have any unorthodox money-saving tips of your own?