Dealing with Debt
Be Strategic and Maximize Your Savings
I know someone about my age who is an expat and has determined to never pay off their student loans. Their plan- do nothing.
I suppose that is a zen way to look at a problem, and since we don’t know the future, maybe it will work. This is not something I would advocate as a strategy for most people. If you feel like the above is the best way forward, you probably don’t need to read any further :).
My goal here is to outline a plan that I think will work for most people. I am not ever going to deal out investment advice.
Over the years though, I have developed a system to stay debt free and maintain a positive net worth.
The main reason to deal with debt is that it eats away at savings. However, I believe that debt also creates stress and negatively impacts people physically and mentally. Dealing with debt, really does make you feel better.
Here are some simple rules I have followed for a long time, and they have served me well:
Do not borrow money or carry debt in a foreign country, unless you plan on being a resident
Credit cards should be limited to those that provide travel benefits
Credit cards should be fully paid off every two or three weeks, or they should not be used (never wait for the statement as many billing cycles are predatory)
Small debts/commitments from multiple accounts should be avoided
Pay your mortgage first; Pay student loans second; Pay smaller commitments third
Keep at least four months of mortgage payments in an account to be used for payments (this is not the emergency fund)
Work towards maintaining an emergency fund equal to $10,000 USD and never use it unless you have an emergency
Student loans need to be fully understood in order to be mastered and paid off quickly; study loans and learn how to consolidate and attack the principal
Money in systems like Venmo, PayPal, WeChat, etc. needs to be cashed out frequently and used within your savings plan
When you get extra money consider applying payments towards the principal of mortgages and loans
Many people would argue that credit cards are evil, and need to be avoided. However, living overseas for 17 years taught me the value of having buying power in an emergency and the value of a good air miles program.
I would always pay for my annual air tickets and then request reimbursement. I was able to bank the air miles to be used later.
This made travel better, especially on the shorter holidays. If you are not one to travel, it could be fine to not have a credit card.
Credit cards are evil, and I actually pay them off every 2- 3 weeks, because I have the money set aside before I make the purchase. I am using the card for the convenience of the transaction. I would never recommend having more than two cards.
If you own property, you need to keep it. Getting behind on payments is a killer. Just make a point to send the first dollars of each pay check to maintain your property.
Emergency accounts take time to grow. Start with $500.00 and grow it. Set targets. For example, “By November, I will have $3000.00 in my emergency account.” Build this account along with the plan you have for savings and retirement.
Small debts can be anything from phone contracts, utilities, renewals for subscription services, etc. Ideally, you want to have as few financial commitments as possible.
I know people who pay for Hulu, Netflix, Disney+ and HBO Max every month. These small subscriptions add up quickly. They are not essential, and have zero asset value.
A better strategy would be to rotate subscriptions. Swap every quarter, and only keep one. In fact, if they allow you to use gift cards (Netflix does), then credit cards are not required. Use gift cards, top up the service for four months, and then rotate.
It is surprising how much money we spend on these small commitments.
I could write a full article on buying large items like cars, but generally, I never buy anything new if I can avoid it. I would rather have a used car, debt free, than a car with a loan. I work in IT, I haven’t bought a new computer in 10 years.
Refurbished is how I roll.
Finally, I made the claim that money in payment systems like PayPal and WeChat needs to be cashed out frequently. These systems have transfer limits, and sometimes they have fees. The money isn’t working for you in accounts designed to encourage fast and thoughtless spending.
I worked with a person in China who had $20,000.00 worth of tutoring money in their WeChat. They didn’t realize they couldn’t transfer it out quickly. When it was time to leave China and close their bank accounts, they still had $13,000.00 in their WeChat.
Don’t leave money on the table. If it is not growing as an asset or paying off debt, get it working in the right direction.
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Why is this SubStack called, Pancake on a Stick?
Pancake on a Stick is the single funniest story I have ever heard in my life. In about a year from now, the event will be reenacted and recorded. I named the SubStack after the story, because every time I think of the name, I smile and laugh. This helps with my writing and tone, and makes me always remember the most important things in life.
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Most social media is dead to me, but you can find me on LinkedIn and Youtube.
LinkedIn (A bastion of boredom but mostly on mission)
https://www.linkedin.com/in/tdeprato/
Email
info@tonydeprato.com
My video series on Expat Recruitment is BORING but useful Listen or Watch and you can master this process.