How to Get Out of Debt

Riddle me this. What grows bigger the more you contract it? Can you guess? It's debt

What is debt? And what role does it play in the success of your business and your life

I'm Evanna Taylor. I'm the publisher of DIYMarketers.com and the host of Bizapalooza Chat. And today we're going to talk about how to get out of debt

Now, money and our relationship with money is something we don't typically like to talk about

unless it's how to make more of it. But our level of debt as individuals, and especially as small

business owners, is a critical player in the profit equation. So to come up with conversations

around debt. I'm joined by our guest, Jim Katzman, the manager at Largo Financial Services

where he helps entrepreneurs shave years of debt off, shave off years of debt

eliminate thousands of dollars of interest, and increase the life's thousands. Help them save

for a secure retirement. Jim, thanks for being here, and welcome to Bizapalooza Chat

Hi there. It's good to be here again. I am so glad that you're here. You know, this is one of these conversations that nobody likes to have. So before we get into the whole thing, it's always a good idea to sort of kind of set the stage and define what we're talking about. Could you please define debt for our conversation today

Right. Debt is anything that you owe money for on a continuing basis, be like a mortgage, car, student loans, that kind of thing

Sometimes doing installment loans on that's that's generally what you think of debt

You know, you have your utility bills and that stuff, but that's those are givens

But the things that you could conceivably have control over would be like the mortgage car loans and that kind of thing

so why do people have large amounts of personal and business debt is that a good thing or a bad

thing uh it could be good you need some you could say you need some debt like if you're in a business

you you invest so you go into some debt to take loans out to invest in your business and everything

so there there is that good debt bad debt is when you spend more than what you have and this is

more again on personal side but you can do it as well on business you spend more than what you have

and dig yourself in deeper and you wind up getting to the point where oh well we can make

minimum payments and try to you know try to keep our head above water but if you ever crunch the

numbers, minimum payments means that you're going to be paying for a credit card for 20 plus years

and maybe forever, depending on how that goes. So that's an example of bad debt. And you also can't

use that kind of debt to even get anything back as far as an income tax credit goes or deduction

Why, Jim? Why do we put ourselves in the circumstance? What do you think is

behind our, I don't know, propensity to get into debt? People just, they don't have a, sometimes you don't have a good grasp of wants and needs

You know, their eyes are bigger than their wallets. And so you say, this is something I

always wanted. We can handle this. And next thing you know, it's like the, you know, how do you say

you put the frog in water and you slowly turn up the temperature and you don't realize it

Whereas if you jumped into boiling water, you'd know right away. So it's a matter of you get

acclimated to it. And next thing you know, it becomes a way of life and you don't know any

other alternatives. Yikes. I mean, so clearly debt is not a good thing. I love that. Our what

eyes are bigger than our wallets. Yeah. Yeah. Quotable right there. How can you break free of

debt and save money for the future? Okay. I've gotten myself into debt. I am now repenting

Now give me like three, five, seven steps to get myself out of this

Yeah Step number one you have to have a good grasp of your spending So that where it comes in handy to take a it a simple sheet of paper and you just

log your expenses, where you're spending and what you're spending it on

And again, that could be your eye opener. Say, okay, well, I can spend less here and do this that way

And also maybe there's places, you know, people might be making minimum payments on credit cards and that sort of thing

Whereas they might be able to make bigger payments in some place, retire some of the smaller debt first

And as you retire smaller debt, that frees up money to apply to bigger debt and it kind of feeds on

You go for the low hanging fruit. You know, that's one approach. if you're putting $100 a month on a credit card

Well, maybe if you get that paid off, that frees up that $100. So wait a minute

You can pay it for your other debt. Step one. Make a list

Make a list and track all your expenses. Right. Was there a step two in there

Well, actually, a good step two is a good mindset change because now you have to be accepting of the fact that

hey, no, we can do something different. If you look at the numbers and you say, well, this is all essential

We need to have five nights out a week eating or something like that

So it could be like a mindset, free up some money here, some there

So your first step is understanding where your money is going to

And maybe you have a voila moment saying, oh, I didn't realize I'm spending this on that

So it's not changing our lifestyle as much as knowing that maybe we could do a little bit of modification and a little bit of modification can get you on the first step to a longer, you know, a good step along the way

Got it. OK, so let's talk a little bit about visualizing some of this stuff

You know, do you have any tips on how you can maybe get a good picture of where your money is going

We just talked about that. So never mind that. Yeah. Forget that. What are some common tax myths that we should just get over

Let me give you the biggest one. And this is this has been a pain for years. And this is actually

going to be changing based on how the laws have just been passed. But the biggest tax myth is that

we need a mortgage because we need to have that tax deduction. And, you know, that's that's what

we live for, that tax deduction. Our example is, let's say, why don't you give me $100? Fine

I'm going to give you $20. How do you like that deal? What? That sounds lousy. Well

that's exactly what you're doing. You're paying your lender $100, and the $20 is your tax deduction

the banks and the government have pounded it and made it acceptable through the years for us to

live for that tax deduction. So when April rolls around, here we go. There's your deduction

Meanwhile, you're giving government interest-free loans and what have you. Well, there's a couple

things that are about to change or have changed and you're going to see the effect. The standard

deduction for each person has, as of this year, to be filed in April is gone up. It's gone up to

the point that it's going to eliminate a lot of mortgage deductions. You aren't going to be

able to claim enough interest on your mortgage to use it as a deduction. So all this stuff you've

been saying, I need a big tax deduction. Well, guess what you're not going to have? So that's

That's one thing, and that's a big thing. But about two months ago, I'll say, at our Chamber of Commerce meeting, we had the comptroller of Maryland come in, and he said, people are in for a rude awakening come April for their federal taxes

because they're under the new tax cut job act, job act, tax cut act, whatever the proper name of it is

They, yeah, guess what? Your pay has gone up every week that you're going home

So that's good. But guess what? If you haven't adjusted your W-2

and consulted your accountant along the way, you in for a rude awakening come April because you going to have a lower return and maybe not even a refund on the return

And that has different effects. So people are going to file their taxes, and then when it comes to get their papers

they're going to find out, wait a minute, where's the money? Well, guess what

You've had it during the year. And this mortgage you're carrying, well, it didn't do you a darn bit of good

So that would be a myth that's going to come to reality based on what we've been told

And I'll take the word for the comptroller of Maryland as a good source

Okay, so let's talk about some tips, right? Because we got a bunch of business owners and entrepreneurs here

And who has not had this problem? What are some bootstrapping strategies that you can use to sort of save some money when you don't have any additional income

There, if you're talking about a person, of course, the one obvious answer is go and, you know, get a second job and that kind of thing

That's if you're open to working yourself to death, you know, on that kind of thing

uh that's a possibility uh the other part is just adjusting what your expenses are just get a good

again we're going back to getting a good grasp in your expenses there's two ways to to lower

your debt it's either to earn more or spend less that's that's what it comes down to so

uh yeah if you want to try to earn more and and you know get a second job and you know some people

I have trouble finding a first job, but, you know, there's that possibility

But, you know, the easier way is to just getting a grasp of, okay, maybe this is a nice to have thing

Maybe this bright, shiny object is bright and shiny, but we can get by with something else

We don't have to be jumping off to the latest thing. And, you know, don't be thinking, well, I have to keep up with the Joneses

Maybe the Joneses actually can't afford to do what they're doing either. So just look at what your needs and wants are and go accordingly

That's smart advice. Jim, what do you sort of know for sure when it comes to debt

Depending on what the debt is, you can know for sure. If you don't do anything different, it's not going to end soon

So it's like that definition of insanity. Do the same thing over and over again

You know, there you go. So you have to break the cycle

So if you're in debt, you know, well, you got here doing something

Well, you have to do something different in order to start changing the course and getting yourself out of it

So there has to be a change of some type. And it's hard to be generally prescriptive because every person is different. So you can't take a broad stroke and say, well, we all need to do this. Well, maybe some people are able to do this and not

not. So that's why it's important for each person to sit down individually with an advisor or your

accountant or what have you. But just watching TV and say, oh, so-and-so said do this, so that must

be right. That's never a good idea. Let's talk about something positive. Well, that'd be nice

Right? Because I was just kind of thinking I'm sort of feeling down. Yeah, well, I have that

ability. Yeah. No, it's just this conversation. You know, the idea of debt, it just is like so

icky. However, I want to talk the opposite side, which is what are the biggest things you

or your family might notice about your life once you are debt-free

Do you have less conversations and quarrels about money? That tends to be the biggest cause

of marital strife and what have you. So if you can go a day and not think about, oh, well

we have to not do this particular little thing because we have to put this penny aside and

everything, just, you know, you have peace of mind. And that's the main thing about getting out

of debt and getting everything else paid off. It's the peace of mind factor. And that's the

kind of thing you actually can put a price on. Yeah absolutely I can tell you when I never forget the day the month after we paid off our house it felt like we won the lottery Yeah

Because we were putting a lot of money towards the house and we paid ours

off in 10 years. And when that actually, it was astounding. Yeah

The, it felt like you won, we won the lottery like every month. Yeah

And, and again, that's a, that's a good feeling. And it's interesting how some people are resistant to that

And that goes back to being having been beat over your head that you don't want to to give up your mortgage because you need you need the tax benefit off of it

So it's a, you know, if you suddenly have, if your mortgage is a thousand bucks a month and suddenly you have a thousand bucks a month available, you know, until you find something else to maybe not necessarily spend it wisely on, you know, that's a good feeling

I know years ago you used to hear about, well, you had mortgage burnings, you know, when they paid off the mortgage

You don't hear that much about it because people are saying, well, we need to have the deduction

But again, it's a good feeling not to have to pay something like that

Yeah, I really, you know, I think, what is it, Jim, that you think that we have

Do you think there's been a culture change in how we see sort of what we deserve to have

Like I deserve and need to have the latest iPhone or I deserve or need to have a certain kind of car

I mean, do you think that's the kind of stuff that's driving our debt

It's possible. You know, up until the early 2000s, you know, you're doing, you hear the different financial advisors saying

Oh, you just put money here because, hey, the stock market has historically returned 12%

percent since since the great depression and you know they even though nothing in nature travels in

a straight line you know they don't they didn't emphasize the ups and downs so much well then 2008

hits and even before that you had the tech bubble but the but the 2008 mortgage thing seemed to

really drive things home that yeah maybe things aren't as much of a given as we thought they were

and maybe the market doesn't go up 12%. In fact, guess what

It went down 40%. And so that drove home that, you know

maybe you need to do something different and save different and have a little bit of mindset

I'm not sure if that's totally different because the iPhones are still selling and what have you

But maybe that put the brakes on a little bit and saying, hey, maybe we don't need

to have the latest upgrade or latest thing. Let's just pay off the first thing and go from there

But again, that's an individual thing. And as we say, your results may vary

What do you think small business owners should be doing for 2019

They should, if they haven't done it already, they really need to get with their accountant

and everything. Find out what this new tax law might mean for them. And I do emphasize might

because my understanding is the law is written with gray areas and not too clear areas that even

your accountant might not know. But if it's something your accountant isn't sure about

you really don't want to go there. So definitely, if you haven't done it already this year

hey, your accountant's not, you know, killing his or herself, you know, right now

because the tax season isn't here yet. It is a good time to get with them and say, hey

based on what we know about what the law is, what is changing as far as what we're able to deduct

and, you know, and this kind of thing. That's a key thing, because you don't want to

come around, you know, March, April timeframe and find out, ooh, this is nasty and where are we now

So that's not a good time to find out. Now's the time to find out. And if you make small adjustments

now, you don't have to, you know, make the big adjustments later. I think that's great advice

Well, Jim, I'm going to end it out there. Thank you, everyone, for being here. Thank you, Jim

for being here on Bizapalooza Chat. Well, thank you. Excellent. Join us here each and every Monday

2 p.m. Eastern, 11 a.m. Pacific, Bizapalooza Chat. See you at the Twitter