The Credit Score industry is new. A hundred years ago it hardly existed, but today it is a multi-billion dollar industry (about $4B in the USA alone.)
That such an industry exists indicates immediately that Poor Habits are out of control. Before the “credit score” or “credit rating” system, the criteria for loans was based simply on a person’s character.
How important is your credit score?
Those who practice Rich Habits and use debt only for the purpose of investing know they are plenty of ways to borrow money that does not require the use of one’s personal credit score. But it’s vital to those who practice Poor Habits and overspend, they are the ones who desperately try to keep a “good” credit score, and they pay the most for it.
Let’s look at some numbers.
Bill, Dave, and Jane are in the same financial situation. They all earn $60,000 gross salary per year, and they all have credit card debt of $50,000.
Bill is desperate to keep a good credit score, but he can only pay $800 per month. Paying such a small amount adversely affects his score, but he maintains his payments. If we assume the credit card has an annual interest of 18%, it will take Bill over 15 years to pay off his cards. In total, he will pay $148,800 to eliminate $50,000. During that time, Bill’s credit score is below average due to paying so little towards his debt.
Dave, on the other hand, discovers he can save interest by using balance transfers. He gets a new credit card with an interest-free period of 18 months and transfers his $50,000 debt. Like Bill, he can only afford $800 per month. Repeating this process of using interest-free cards, it will take him just over 5 years (62 months) to pay off all credit card debt. Dave’s credit score is also average.
Jane decides to implement the Rich Habits Solvency System (as described in the book Rich Habits) and instead of paying $800 towards her cards, she immediately puts them on hold and then negotiates a 10% settlement. This process takes about 6 months, and during that time, Jane is not paying anything toward her debt. Instead, she saved $4,800. She scrapes together another $200 and pays $5,000 (10% of $50,000) clearing her credit card debt entirely. Jane does NOT declare bankruptcy, this is simply a negotiation process done directly with the bank's lawyers or possibly the bank's debt collectors. Jane is now debt free and vows to practice Rich Habits, building her wealth.
What about Jane’s credit score? Well, that would be pretty low, but if Jane applies the Rich Habits, she could easily build her score back up. In fact, in a year or two, her score would be better than Bill’s and Dave’s because they are both still struggling to pay their cards each month.
So what does it cost Bill to keep his credit score compared to Jane? An extra $143,800 and 15 years years of additional stress.
Here’s a summary of the above scenarios.
You can use this Credit Card Pay Off Calculator to work out your own numbers.
Here's the Rich Habit that applies:
What about the moral obligation of the debt?
Some will argue that Jane has “ripped off the system.” My reply is, what about the moral aspect of lending someone almost their entire annual salary? Why is the system geared to keep people ignorant of Rich Habits and trapped in a never-end cycle of debt? Whether you decide to utilize this legal and valid method of eliminating your killer debt, the moral question is a personal one, and it depends on your circumstance. What if Jane’s husband was suddenly ill and no longer able to work? Or perhaps she lost her high-paying job or suffered from a natural disaster?
My purpose in sharing this information is to help people rise up the Rich Continuum faster toward Rich. Those who wish to abuse the system by intentionally repeating the process of racking up credit card debt only to negotiate a reduced settlement, are of course, practicing Poor Habits, and are not my audience. But I’m not about to withhold this vital information just because there are a few who will abuse it. Such people will never be Rich, no matter how much money they have.
I’m interested only in those who want to improve their financial position, who cease Poor Habits and lead by example, practicing Rich Habits and decide to live a life free from financial stress and worry. Such people, as I have witnessed many times when they finally break free from financial stress and the burden of killer debt, naturally help others do the same. It is for them that this information is written.
As a final word, remember the Rich know everything is negotiable. And that includes debt. There is no need to suffer endlessly in a cycle of overwhelming debt. There is no need to compromise.
By knowing this information, you can be free of killer debt in no time, just like my client Ben discovered.
I want to personally thank you for your time and expertise last year. I was in such a dark place and you helped me so much. I remember the feeling after I first met you. I said to myself that “everything is going to be fine”.
From your book and your personal guidance and techniques, in the last 12 months I have negotiated (and settled) $1.571m in debt - on half my income. I still have about $180K to go but the systems and processes have made it so much easier.
It’s funny that most credit card companies, banks, loan companies, other debtors all operate with very similar systems. I have learnt to negotiate and hold my ground so many times now. As you taught me - no one has a gun to my head; no one can take money from my bank without my permission. My payments to them are on my terms.
In the last year, I have hit so many milestones:
1. Reduced my debt by 92%.
2. Reduced my monthly expenses by 48%.
3. Increased my income by 60%.
4. Settled all my tax debt.
5. Settled all my old business-related debt (over $800K).
But more importantly, I have reduced my stress; Increased my leisure time with my family and built a future with little debt and an increase in my income. I am now in control of my money rather than it controlling me.
If you want to find out more, read Rich Habits.
If you want help eliminating your killer debt, check out the Rich Habits Coaching Programs.
Comments and questions welcome.