18 January 2011

Managing Debt

In my post 'Improving Your Credit Rating' I spoke about how dismal my credit rating was and mentioned a few tactics I will be utilizing to improve it. I also mentioned that I would be going into greater detail about why managing debt was an essential skill that needs to be understood and employed by the investor.

An essential part of speeding up my process will now revolve around my ability to get a handle on managing new debt, after I dispose of old debt from past purchases for silly things such as my insatiable love for fashion and other things such as old mobile bills when I used to be a chatterbox with no regard for the bill that would follow! When I first embarked upon this journey old debt was the main thing that concerned me and I thought that once it was sorted, I could get creative and start making money without having to worry about other debts that I owe and having to rely on borrowing money. I quickly realized however, that beyond the initial desire to be debt free, there is a second level rarely spoken about.

The Second Level

Wanting to get out of debt and be free from the threat of being taken to court; free from having constant calls and letters etc, is a very good thing and something that everybody can strive for by being creative. Even if it means temporarily taking a second job to accomplish it, the hard work required is worth taking on. It should be temporary however, because ideally you want to be looking at utilizing free time to look for investments or build your wealth, whichever way you decide to accomplish that.

There is a second level however, which I never knew about and was a complete paradigm shift. There are plenty of companies whom, when you analyze their financial statement, have plenty of debt. So how is it that they are still able to report record profits etc. The reason is because debt is actually supposed to make you rich!! Most who become fabulously wealthy borrow money, or for the proper terminology, utilize OPM [Other Peoples Money] and manage that debt well by allowing what they have invested in to pay off their monthly debt payments and give them extra on top! [Profit]

Increase Rating, Increase Debt

So I now have a new mantra; ‘increase my credit rating in order to increase my debt!’ And how does this work? Well, increasing your credit rating means, at least in theory, that you have a strong handle on managing debt and therefore managing money. When you get yourself into that kind of position, you can ask for larger sums of money without coming against much resistance and you can also negotiate the terms of the repayment of that money [or the interest rate] a lot more. Relying on the fruits of your own labour limits the amount of new ventures you can embark upon and consequently limits the amount of income that can flow into your back pocket each month. It also means that the journey to become rich becomes a slow one, almost like travelling to another country on foot! 

I realized that borrowing money and getting into debt is actually essential for those who really want to become wealthy and that, if you know what you are doing, it doesn’t have to be risky at all.

So the aim is to completely eliminate all of the silly debts which are not only making those I owe money to richer, but also affecting my credit rating, and start getting into the kind of debt which I will manage and will consequently make me richer month by month, year by year.

Although this may come across as insane seeing as taking on new debt and never really paying it off is an extremely scary notion, I now know that if I manage it, it can linger in the background forever and continue to make richer without me having to worry unduly about it at all!

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