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May 2019

Eliminate Debt Forever

Most debts can be divided into good or bad debt, depending on whether it is tax deductible or not. You might decide to start with your bad debts before tackling the good debts, however you will eventually want to pay off all your debts, good as well as bad. True wealth comes from your net worth and the assets you own that bring you an income. Financial independence comes from making enough money from your assets to exceed your expenses. Remember, DEBT IS NOT WEALTH. Debt is debt and will eventually have to be repaid.

Firstly, work out what extra money you can put aside to add to your debt repayments. Any extra amount you can add to your repayments will help reduce the debts so much quicker.

Next, compile a list of all your debts. Include your mortgage, car loans, credit cards, store cards, loans from friends and family, school fees, anything that you owe basically.

Write them on a piece of paper down the page or put them into a spread sheet.

  1. Write down what it is, eg. home loan, credit card, car loan store card etc.;
  2. List the remaining balance owed (what is left to repay, not the initial loan amount, so unless you haven’t made any payments yet, this should be less than the value of the total loan);
  3. Then put the minimum monthly payment;
  4. You can also put in the interest rate for your information.

You should have four columns. You will need a fifth column. This is for your debt ratio calculations on each loan to work out your order of repayment.

Taking the first debt, divide your monthly payment into your debt balance. This should give you a number. So for example, if you have a $2,000 loan, and your monthly repayments are $100, the debt ratio is 20.

$2000 รท $100 = 20

Now do this for all your loans to give you your debt ratio number for each loan.

Rewrite your list or rearrange your spread sheet in order of the loan with the lowest debt ratio to the highest debt ratio.

This is the order in which the debts will be repaid. What’s important to note here is that the earlier debts to pay off are not necessarily the debts with the highest interest rates. The ratio lists the debts in the order that have the most impact on your cash flow.

Add the extra money calculated earlier to the first debt payments on the list, while still making the minimum monthly repayments on all the other debts. Keep paying off the number one debt on your list, with the extra payment until this one is paid off.

Now, if this was a credit card or store card debt, this does NOT mean that this is now available for spending again. Remember the goal here is to eliminate all your debts, not incur new ones.

In addition, this money is not available for you to spend yet. We’re on the path to financial independence remember, so we will have some short term pain for long term gain.

The entire amount that was used to pay down the first item is now available to be put into the second debt on your debt ratio list AS WELL AS the minimum monthly payment for this debt.

When the second item on the list has been repaid, the entire amount is now used to pay off the third item on the list.

So now the repayment amount is the minimum monthly payment for this debt PLUS the minimum monthly payment for the previous debts PLUS the extra amount you were able to put aside in a bid to actively reduce your debt.

You will find that because you are making extra payments, your repayment time is drastically reduced. You might even find that a debt further down the list which you haven’t gotten to yet, actually gets paid out before you have a chance to get to it, as you are still making the minimum monthly repayments into this debt. If this happens, add this minimum payment to your other debts.

Because you were already making minimum monthly payments to the other loans with just a bit extra into the current loan, you’ll find you don’t even miss the amounts you are directing into the next debt on your ratio list, as you were already making this payment anyway. Now it’s being put to a good purpose in reducing the amount of “dead money” interest you are paying.

Keep doing this until all your debts are repaid. Now, and this is very important, DON’T GET INTO FURTHER DEBT. Keep one of you credit cards if you must, and pay it off IN FULL at the end of each cycle.

Since you didn’t miss the money when it was being used for debt reduction, you can now redirect this “spare” money into your savings and investments.

Debt Of A Nation

In two distinct periods in our history has a sitting President tried to empower the public while reigning in the Nations debt. One during a time of the greatest internal struggle for national preservation namely the Civil War and another were we were headed into one of the greatest challenges that perplexed a nation primarily the Vietnam conflict. In 1861 President Lincoln needed money to continue to fund the Civil War. Bankers at the time were charging over 28% interest. Rather than pay up that high interest Lincoln pressed congress to authorize the Treasury Department to print full legal tender treasury notes [this is what the Constitution originally implied with no interest attached] to pay for the costs incurred form the war. When congress passed this legislation Lincoln stated ” We gave the people of this republic the greatest blessing they ever had. Their own paper money to pay their won debts.” Thus Greenbacks became the name this currency was called. To Lincoln’s credit the passage of the Merrill Tariff Revenue Act in 1861 along with establishment of the first ever income tax, a flat 3% on incomes above $800 [today equates to $19,000] all increased financial revenue to fund the Civil War.

Lincoln’s troubles began almost from the time he took office. By 1862 congress repealed the flat tax and instead established what was to become the basis of the complex tax system that we have today. A more progressive tax structure putting more of a burden on the less wealthy. Another set back was the National Bank Act of 1862. This act let banks become national in that they are charted by the Federal Government and authorized to issue interest bearing notes secured by Government bonds similar to what Alexander Hamilton did after the Revolutionary War in the creation of the First Bank of America. Passage of this bill ensured a market for the Federal Debt since the new National Banks would now be required to buy those bonds.

Had the National Bank Act failed to pass Congress Lincoln stressed that “Money is a creature of Law and the original issue should be maintained by the exclusive monopoly of national government. the Government should stand behind it’s currency, credit, and bank deposits of this nation. No individual should suffer a loss of money through depreciation or inflated currency or bank bankruptcy;” would have benefited the American public in a time of great uncertainty. Look what happened in 2008 with the Federal Reserve Bank running the show. Millions of our citizens suffered great financial loss. All the Federal Reserve does is loan money to the government at interest. What drives up our national debt higher are privately owned banks, the Federal Reserve, and a nation that continues to be engaged in armed conflicts anywhere in the world.

The London Times in 1863 who favored the Bank of England’s monetary policies wrote ” If that mischievous financial policy, which had it’s origin the North American Republic, should become indurate down to a fixture, then that Government will furnish it’s own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on it’s commerce. It will become prosperous beyond precedent in the history of the civilized government of the world. The brains and the wealth of all the countries will go to North America. That government must be destroyed or it will destroy every monarchy on the globe.” The wealth of the United States is in the hands of the private bankers not the American public. It is no wonder that the English were trying to help the Confederacy. When Lincoln issued the Emancipation Proclamation in 1863 the British populace who were opposed to slavery quietly withdrew their support of the Confederacy while Russia grew more supportive of the Union cause which helped the North and Lincoln preserve the Union.

In repealing the greenback law congress passed the National Bank Act in it’s place. All national banks were to be privately owned and the national bank notes they issued were to be interest bearing. The National Bank Act also provided that the greenbacks be returned as soon as possible as they came back in the payment of taxes. A hundred years later the United States Treasury Department computed the amount of interest that would have been paid if 400 million dollars would have been borrowed at interest instead of being issued by the Treasury Department as Abraham Lincoln initially did. Because of the greenback resolution the United States Government saved 4 billion dollars in interest. President Lincoln followed the exact interpretation of the United States Constitution by the government creating it’s own money interest free.

More recent President Kennedy in 1963 almost one hundred years after Lincoln undertook the gauntlet of reducing our national debt again following the Constitution issued Executive order 11110. This order circumvents the Federal Reserve Bank an makes possible the Federal Government not the banks print interest free money. In 1963 the Treasury Department under President Kennedy issued $4,292,893,825 interest free money. What is so startling is that not long after Kennedy’s death all the United States notes, which Kennedy had issued, were called out of circulation.