How much debt is too much?

HOW do you answer this question? Let’s check what the Bible has to say about debt. The Bible says that one should neither be a lender or borrower. It does not seem to recommend the assumption of debt. Otherwise, it should say, it’s OK to be a borrower, but not a lender or vice-versa. This statement is clear. It does not sound like fake news. It’s straightforward. It doesn’t sound like a mysterious early morning tweet from the president. 

On the contrary, the Bible is specific. Don’t be a lender or a borrower. Why not a lender, because you might end up losing your money? Why not a borrower, because debt service will end up destroying your life? 

Debt will literally enslave you with minimum payments to keep them current that will cost you a fortune in the long run. You will eventually lose a fortune that should be in your bank account. You will need this fortune for your retirement but if you have too much debt, instead of having this fortune available for your use to augment your social security when you retire, you will have nothing but debt that keeps on asking for more money from you every month. For those of you who don’t have debt, read on, so you won’t decide to plunge into a sea of debt. 

So how much debt is too much? I posed this question here exactly 20 years ago. If you were 45 then, you would now be ready to retire at 65. Were they 20 long years? No, in fact, they were 20 very short years. Your 5-year-old son is now 25, done with college and working. Your toddler then is now an adult. Your 3-year-old daughter then is now 23, also an adult. She is now a registered nurse. Your son is now a mechanical engineer working for an international construction firm based in Hong Kong. Your parents who were then 69 are now 89. They have good genes but they have all kinds of aches and pains and both need caregivers to help them along. 

So what happened? Twenty years just passed by so fast you didn’t notice as time flew by so fast like a speeding train. Let’s just say that 20 years ago, you and your spouse had a net combined income of $4,000. I already said you were 45 years old then. You had a house mortgage to pay, maybe a second trust deed, one of those home improvement loans, had one or two car payments. Your son and daughter were still in grade school. 

You examined your debt level then when you read my article 20 years ago. You were in fact at a major crossroad in your life. You had about $30,000 of credit cards, which needed 25% of your net household income, or close to $1,000 to make minimum payments on your credit cards. It felt like wage garnishment and your heart was being ripped out through your wallet, right? What was left was $3,000, which you allocated for the house, the cars, food, electricity, insurances and other living expenses. After all these expenses, probably, your household had nothing left. 

If you had nothing left, where would you have gotten $1,000 a month to make minimum payments? By borrowing more. So, in one year you will have had to borrow $12,000. So in one year, you owe, not $30,000, but $42,000, and instead of needing only $1,000 for debt service, you needed $1,300, and so on and so forth. In year three, at 48, you will have owed $66,000, instead of $30,000, needing almost $2,000 minimum payments, instead of $1,000. You would have dug a hole so deep for yourself that you couldn’t get out of it. You might as well have MasterCard and Visa tattooed on your forehead because they own you and you work for them.

Let’s say that you did get a promotion that gave you an additional $1,000 of net income. Should that have gone to debt service of credit cards of $30,000? Think about it. $1,000 of debt service means $12,000 a year of money that should go to your savings and investments for your future, should it not. If you actually paid $12,000 a year to service $30,000 of credit cards, after using all of your additional income to keep your credit card masters happy, you would have paid them $60,000 in five years, and worst of all, you still owe them the same $30,000! 

Shouldn’t you use the $60,000 to save and invest for your family’s future instead? Aren’t you sacrificing your family’s financial future and opportunities in favor of servicing your credit cards that are taking 25% of your monthly net income? Although you may not admit what you are doing, you are actually killing the ability of your family to save for the future by keeping these cards current over the years.

If you read my article then and chose not to wipe out the $30,000 of credit cards 20 years ago, how much money would you have paid your credit card masters? A lot. You would have paid them $240,000 in 20 years. You would have paid them a quarter of a million dollars. And how much would you still owe them today, the same $30,000. You are making them rich, while keeping yourself poor. That’s the simple truth. 

If you took my advice 20 years ago and wiped the $30,000 out with a Chapter 7 petition then, how much would you have now that you are 65? You probably would have $500,000 if you invested the savings of $1,000 a month for 20 years wisely. Not with Bernie Madoff of course. If you bought Apple shares 20 years ago, you would now be extremely wealthy. Because $10,000 invested in apple only 10 years ago would be worth how much today? That $10,000, which was 10 months of minimum monthly payments for you then, would be worth $677,000 today! If you invested three years of minimum payments on credit cards 10 years ago, you would have a cool $2 million today! What a small change in your life direction would have meant in benefits for you and your family! Our God is so great, indeed! Because he blesses those who rely on Him with abundance!

You want to be a millionaire when you retire? Get rid of your credit cards now and invest your savings in equities. Twenty years from now when you check your million dollar portfolio, you will be so glad that you read my article today and made the wise decision of your life. And how would your credit score be 20 years from now if you wiped out your cards now? It would be perfect at 830.

If you need debt relief, set an appointment to see me. I will analyze your case personally.

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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California.  Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave, Mailstop 58, Building A-1 Suite 1125, Alhambra, CA 91803.

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