Finance

Defeating the Debt Star

In modern America, many households are threatened by something big and dangerous that can lead to disaster — too much debt.

Dec 15, 2015

People worldwide are hoping that Star Wars: The Force Awakens will recapture the excitement that began back in 1977 with the original Star Wars movie. Back then viewers were entranced from the opening scenes as Luke, Leia, and the other rebels worked desperately to destroy the Death Star. It was big. It was dangerous. Its success would bring disaster to the Republic.

In modern America, many households are also threatened by something big and dangerous that also can lead to disaster — too much debt. It’s a big enough problem that we could call it the “Debt Star.” According to Nerdwallet, the average credit card debt is $16,000 and the average student loan debt is $32,000. At $10 a movie ticket, that’s enough money to watch Star Wars 4,800 times.

The good news is just as there was a way to defeat the Death Star, there are also steps you can take to defeat the Debt Star.

1. Don’t Attack the Debt Star by Yourself. Just like Luke had help from the other rebel fighter pilots, you need your family by your side, not hiding behind some moon. Even if you are single, you need someone to keep you accountable to your plans to get out of debt. Working together you can support each other when things get tough. Do it alone and don’t be surprised to see yourself spin out and crash.

2. Shields Up. You can’t make any headway against the Debt Star if you keep adding more debt. The best shield to stop more debt is an emergency fund. Emergencies are a major fuel source for the Debt Star. Many people avoid debt from overspending, but then get crushed by debt when they have to borrow to fix a car or make repairs at home. If you build an emergency fund shield to protect you from emergencies, you won’t add to your debt. Start with a $1,000 shield and then build it up to equal three to six months of expenses.

3. Pick Your Targets Wisely. In the movie, Luke only had to make one incredible proton torpedo shot to destroy the Death Star. In real life, there is no one-second plan to make your debt go away. Instead you need to start by attacking the smallest debt first. Knock it out of the way and then go to the next smallest debt and start the chain reaction. Each time you pay off a debt you have more ammunition to pay off the next debt and you can mark a victory on the side of your X-wing fighter.

4. Follow the Secret Plan. After Princess Leia delivered the stolen Death Star plans to the Rebel Alliance, the Galactic Empire went to great lengths to retrieve them. To attack the Debt Star, you also need a plan to be successful. The plan is simple, but takes effort: Spend less than you make and build a monthly budget telling your money what to do. Easier said than done, but it can be done. One key to making the plan work is to control credit card spending. If you can’t pay it off each month, you are getting into more debt instead of out of debt. Remember, you must not turn to the debt side.

5. Use the Force. For impulse purchases such as food, entertainment and clothing, it could make sense to use a cash envelope system. When the envelope is empty, you can’t spend more. It forces you to only spend what you budget and no more. This frees up money you would normally spend so you can pay down debt faster.

The approach will not be easy. But a chain reaction of increasing debt payments should destroy the station. Man your ships. And may the Force be with you.

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