AXIOMS of FREEDOM

BOOK I OF XIII

FREEDOM FROM DEBT

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Special Report

The primary reason most people have money problems are that in school they were never taught

cash flow management. Without this training, they wind up working harder and harder in the belief

that making more money will solve their problems. Unfortunately, more money often just sends

people deeper into debt. More money won’t solve problems if cash flow management is the

problem.

I don’t embrace the notion “cut up your credit cards and live below your means,” but if you’re so

deeply in debt that you cannot even imagine expanding your means, you’ll need to follow a

debt­reduction plan first. Debt reduction will get you out of the hole and on the path to financial

freedom.

Your debt­reduction plan will compel you to live within your means before trying to increase your

means. The initial step should be this: Pay yourself first. Put aside a set percentage of any and all

payments you receive, whether from work or other sources. Deposit the money in your investment

piggy bank in an investment savings account, and don’t take it out until you’re ready to invest it

some other way. Think of each dollar in your investment piggy bank as an employee ready to work

hard for you.

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Control Spending

When you find yourself deep in a hole, you need to stop digging. And that means curbing your

spending—avoiding the temptation to buy things like a robot lawn mower, a car that gets ten miles

per gallon, or a second pair of high­end athletic shoes. Admittedly, this requires willpower.

Nowadays frugality is out of favor. To get out of debt, though, you need to adopt the old­fashioned

virtue of delayed gratification.

By cutting back on money wasters, you’ll increase the percentage of income you keep. It’s

important not to consider this a temporary step. If you truly want to stay out of debt and enjoy

security, comfort, or riches, you ought to make purchasing assets a life­long practice. There are

hundreds of ways to trim a budget. For example, you can practice wiser money management. Here

are some ideas to inspire you:

∙ Pay bills on time to avoid late fees.

∙ Use only one credit card until you get control of your spending.

∙ Pay off your credit card balance each month to avoid finance charges.

∙ Find a credit card with a lower interest rate and no annual or transfer fees, then consolidate

your debts so you will pay less in interest and fees.

∙ Don’t use automated­teller machines (ATMs) that charge a fee—you’ll be paying for your

own money!

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You can also adopt wiser shopping habits:

∙ If it ain’t broke, don’t fix it. The avocado­green refrigerator stays!

∙ Switch to less expensive brands of everything from shampoo to cars. When buying

big­ticket items (necessities only, of course), read magazines like Consumer Reports to

make sure you’re getting quality along with a lower price tag.

∙ Shop at wholesale clubs and discount department stores.

∙ Respect your budget; if you’ve reached the $200 food limit, skip the potato chips or the ice

cream.

∙ Consider starting a part­time business, even if you have a full­time job, and review your

expenses to see if any could be deductible business expenses.

∙ Don’t take a vacation until you have the money to pay for it.

∙ Shop for discount airfares—or drive.

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When it comes to wise budgeting, household expenses are another area ripe for reining in. The

following ideas are meant to inspire you only—there are dozens of other ways to cut:

∙ Turn the thermostat down and the lights off.

∙ Winterize your house from top to bottom, insulating pipes, drafty windows, crawl spaces,

and other energy­guzzling areas.

∙ Curb your cell phone use.

∙ Shop for lower­cost insurance and raise your deductible.

∙ Don’t run the dishwasher unless it’s full.

∙ Don’t water your lawn every day and cut the grass yourself.

You’re probably thinking, Save $2 by changing shampoos and $10 by cutting back on cell phone

chatter? That’s small potatoes. In fact, you’d be surprised how quickly those savings add up. If you

save $25 a week—and most people can easily trim that much—you’ll have $1,300 a year to put

towards your credit card balance. Save $40 a week and you’ll have $2,080!

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Eliminate All Unsecured Debt

Simply speaking, there are two types of debt: secured debt and unsecured debt. Secured debt is

debt with collateral behind it, such as your home mortgage or car loan. Unsecured debt is debt with

no collateral behind it, for example, personal loans, medical bills, and the charges on your credit

card. Once you’ve cut expenses, the debt you should attack first is unsecured debt. While some

unsecured debt is unavoidable—most is unnecessary, the result of unbridled spending. There are

also two types of debt, good debt and bad debt. Review your unsecured and secured debts to see

if they are good or bad debts. Consider most unsecured debt as bad debt. Remember, good debt

is debt that buys an asset, so it is usually secured debt.

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Some Notes on Credit Cards

Credit cards can be wonderful bookkeeping tools, particularly if you use one credit card for

business purposes and another for personal use. But beware—credit cards are only useful if you

pay off the total balance due each month, thereby eliminating interest charges. One reason many

people get mired in debt is that credit card companies make it so easy. What can you do? Simple:

Don’t get sucked in.

Credit cards have benefits, to be sure. With a credit card you can secure rental car reservations,

purchase tickets over the phone, and solve the problem of checks that stray in the mail. But there

are so many types of cards that you have to shop to find a budget­friendly one. Just the card

alone—forget your charges—can eat a big hole in your pocket. There are late fees, over­limit fees,

and annual fees, the latter of which can approach a whopping $100. As for annual percentage

rates (APRs), they can reach as high as 26.5 percent. Does the APR really make any difference?

Say you’re paying $500 a month on a $10,000 balance. With an APR of 18 percent, it’ll take

twenty­four months to pay off the loan, and you’ll also be paying almost $2,000 in interest. With an

APR of only 9.5 percent, it will take only twenty­two months to pay off the loan, and you’ll pay

$1,000 less in interest. Now let’s assume you only pay $175 on the card. It would take you 131

months, or almost 11 years, to pay off the $10,000 at 18 percent and 77 months, or over 6 years,

to pay off the $10,000 at 9.5 percent, and you will have paid $12,872 and $3,364 in interest

respectively.

Clearly, getting out of debt requires credit savvy. Examine the terms of your credit card agreement. If you

don’t like what you see, call the company and see if it will lower its rate to keep you on board. If not, start

looking for a better card. When you find one with a lower APR, make sure it isn’t a temporary promotional

offer. Also make sure there aren’t any transfer fees. You don’t want to incur debt to consolidate debt.

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Homeowner’s Quick Tip

If you’re a homeowner and your report is excellent, find out whether you’re receiving the best

possible mortgage rate. Nationwide, homeowners spend $100 million more than necessary each

year because they don’t know they qualify for lower interest.

Auto Advantages

With some auto prices approaching the cost of a small home, consumers can’t be lazy about

comparison shopping. Here are a few money­saving resources available to car buyers:

∙ CarPoint (www.carpoint.msn.com). This allows you to browse one hundred models inside

and out, determine invoice prices, and contact local dealers.

∙ Consumer Reports New Car Price Service (1­800­651­4636; www.consumerreports.org).

For a nominal fee, this provides up­to­date pricing information. You’ll find out what a model

actually costs a dealer, giving you a basement price for negotiating.

∙ CarBargains (1­800­475­7283; www.checkbook.org). Once you’ve selected a make and

model, this nonprofit service will obtain firm, rock­bottom quotes from five local dealers for a

fee of $165.

∙ Keep your old car as long as repairs are not too costly.

If you need a car, consider leasing one or buying a secondhand one in good condition. Another

option: shop for a new car through an auto­buying club or on the Internet, which can save

hundreds or even thousands of dollars.

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Check Your Credit History

Records of all the financial transactions you make—from retail purchases to home equity

loans—are fed to credit bureaus, which digest the data and issue a credit report. The report

grades your credit worthiness and is available to anyone with whom you wish to do business.

Based on your rating, creditors will decide not only whether to grant you a loan or card but also

what interest rate to charge you. The lower your rating, the higher your interest rate. You’re legally

entitled to review your report, and you should do so. Errors are frequently made and should be

corrected. The Federal Trade Commission’s Bureau of Consumer Protection has guidelines for

disputing inaccuracies. To order a copy of your report, contact any or all of these major credit

bureaus:

∙ Trans Union (1­800­888­4213; www.transunion.com)

∙ Equifax (1­800­685­1111; www.equifax.com)

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Debt Reduction Planning and Action Steps

Now that you have an idea of how to get to living within your means so that you can be free to

expand your means, it’s time to look at what specific actions you can take right away to eliminate

your debt.

I remember that I had a lot of debt when I started my journey of self discovery and transformation

back in 2003. I recall that I had a debt of about $100,000 and growing while I was working as an

engineer and making good salaried income, my spending habits were having me accumulate a lot

more debt than my income could service. Of course, because I was living such a comfortable and

sometimes extravagant lifestyle, I never stopped to notice how fast my consumer debt was rising.

Much of my debt came from my student loans and credit cards. As time went on, I noticed that

there were number of things I wanted to do or buy that I couldn’t because I couldn’t afford them as

I used to initially. Eventually, I saw that my lifestyle was becoming a lot more restrictive than I

wanted it to be and then I would try to fool myself and justify to myself that I didn’t want those things

after all or that I did not want to do those fun hobbies anymore. This experience of my life came to

a resounding peak when I had an opportunity to participate in a very powerful training program at

Landmark Education that I had put deposit to registered for and found that I could not afford to pay

the balance. I had a very straightforward conversation with one of the staff members of the

company that was delivering the program. That conversation changed my financial life. I still

remember the conversation as if it happened yesterday.

I called Landmark Education and said that I would not be able to participate in their

transformational Advanced Course that I had initially registered for because I could not afford to

pay the balance of the tuition by the balance due date that was a month away. The staff member

on the other line just simply said to me “Well when do you want to stop having your life be dictated

by your finances or lack of?” I said “Well as soon as possible!” To which he replied, “Then work it

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out! And call me back when you’ve done so! And if you can’t, then we’ll talk about that when we

cross that bridge in a month” and then hung up!

In that moment, something shifted in me and I decided to take control of my finances and start

paying off my debts. I thought it was best that I learn my lesson and pay back the money. As

those of you who have fallen behind know, it is hard to get ahead with debt hanging over your

head. In fact to make extra money, I even took on a paper route delivering newspapers from 1am

to 4am for a month. I remember the worst were those Saturday nights when it would be raining and

the papers were extra thick because they had so many pamphlet inserts. Each pamphlet I had to

stuff in the paper by hand and then try to squeeze the whole bundle into these cellophane plastic

water proof baggies that always seemed like they were way too small to hold these gigantic

newspapers. Once that was all done for the hundred or so papers then it was all about trudging

through the cold wet streets dropping huge cellophane wrapped newspapers door to door for the

next 3 hours. Those were the toughest nights by far. In hindsight, however, I can say that doing all

that I could do to keep paying back the money owed was a wise decision as it made me stronger

as a person.

All through this period I kept up my monthly payments working at so many other odd jobs, after

working at my day job, just to cover my debts, eat and keep a roof over my head. So, I know well

what it’s like to be swimming in debt. I know what it’s like to struggle financially as well as endure

the stress and anguish it causes.

For me, paying the money back was a wise decision because it made me smarter as an investor

and businessperson, and more confident about my future. By 2006 I was out of consumer debt

and had paid back most of the student loans. I can say that today, I am extremely grateful from the

experience and the lessons I learned digging my way out of debt and from learning how to live

within my means while at the same time expanding my means.

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As most of you know there is good debt and bad debt. Simply put, good debt makes you rich and

bad debt makes you poor. More specifically, good debt is debt on which someone else makes

your payments, and bad debt is debt you pay for. An example of good debt is a loan on a rental

property where your tenant pays rent and the rent covers your mortgage and expenses — and puts

additional money in your pocket. An example of bad debt is the debt on your car or your home,

debt you have to pay for.

Many people simply say, ‘Get out of debt.” That makes good sense if you are loaded with bad

debt. But if you have a higher financial IQ you may want to get into debt… a lot of good debt…

debt which someone else pays for and debt that will ultimately make you richer. In financial terms,

good debt is often referred to as leverage.

A word of caution before running out to get into good debt: Please remember that debt is a

double­edged sword. If the economy changes, good debt can change to bad debt very quickly.

The bottom line is that in order to become a successful investor you first must put your personal

finances in order. Simply said, if you have too much bad debt due to poor financial habits, please

do not get into any more debt, good or bad. Once you get your personal finances in order and

under control, you may be ready to go out and look for sound real estate investments to grow

richer on. Remember, the problem with having too much bad debt is that bad debt makes it harder

to acquire good debt. For many people, just getting out from under bad debt is enough to make

their financial future brighter, even if they do not invest.

The following are the 10 steps I followed to get out of bad debt.

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Step 1 ­ Tell Yourself the TruthThe first and probably the toughest step of all was to commit to tell myself the truth. To face the

grim reality of how much I owed and to whom I owed the money to. I knew I could easily lie to

myself and pretend I was okay financially, which is what many people do.

Step 2 ­ Stop Accumulating Bad DebtI basically put a freeze on all debt. Anything I purchased was paid off that month. I stopped adding

to my existing credit card balances and took on no new loans. That step alone forced me to be

much more cognizant of what monies were flowing out.

Step 3 ­ Make a List of all the Debt You OweWrite down every single debt you owe. This may include credit cards, school loans, car loans, boat

loans, IOUs to individuals including friends and family members, store credit accounts, home

shopping and online balances due, vacation home, and your personal residence. Do not include

debt for investments, such as rental properties and business investments. And just a reminder, your

home is not considered an investment in this exercise. We are dealing only with bad debt and bad

debt is debt that you pay for. Good debt is debt that someone else, such as your tenants, pay for.

I realized it was important to clean up my past, and at the same time I needed to create my

financial future. So I added one more piece to the equation.

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Step 4 ­ Pay Yourself FirstI decided that with every dollar bill that I made, I would take a set percentage off the top, before

paying any bills. It was vital that the money come to me first, instead of paying everyone first and

hoping there would be something left over.

I set up 3 accounts: one for savings, one for debt elimination and one for investing. I then set the

percentage for each bank account at 10% each, for a total of 30% of all income I received. If I

received $99 in income then $9.90 went into the savings account, $9.90 into the debt elimination

account and $9.90 into the investing account. I did this with every dollar of income I received.

Here is a key point – it’s not the percentage or the dollar amount you commit to that’s most

important. You may choose to start with only 2%. What’s important is creating the habit of putting

this money aside every month. I had formed some bad financial habits which were what got me into

so much debt. In order to pay off my debts and build my financial future I needed to create new

habits that supported me in doing so.

The steps are simple:

1. Set up three accounts: savings, debt elimination, investing (You could use a spreadsheet to

track the amounts in each account and just have 1 actual bank account. This way you can

save on fees associated with keeping an account open)

2. Decide what percentage of your income will go into each bank each month.

3. Hold yourself accountable to “pay yourself first” with every dollar that comes into your home.

Once the first four steps are in place, you are ready to move on to the formula for the elimination of

bad debt.

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Steps 5 through 10 walk you through the specific formula that I followed to get out from under the

debt I owed. If you follow these guidelines closely you will be amazed at how quickly you will erase

each debt, one at a time, from the list you put together. I paid off the debt i had amassed within five

to seven years. You can too.

Step 5 ­ Make A Visual Picture of Each DebtFrom the list you’ve made in Step #3, create a spreadsheet that contains each of the debts and

from there you can then determine which order each debt will be paid off. Here is how you do that.

Create a spreadsheet with the following headings:

Name of Debt Total Balance Minimum Monthly Payment Score Rank

In far left column is the name of the debt, such as Visa. In the next column write in the total balance

owed. In the next column write the minimum monthly payment due. Now, divide the total balance

owed by the minimum payment due. For example, if you owe $2,000 on your Visa and your

minimum amount due each month is $100, then $2000/$100 = 20. Write that number in the column

with the heading “Score” and highlight it in red. It would look like this:

Name of Debt Total Balance Minimum Monthly Payment Score Rank

Visa $2000 $100 20

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Do that for every debt on your list. If you owe money to an individual with no set minimum monthly

payment then decide what you want that monthly payment to be.

When completed, your spread sheet may look something like this:

Name of Debt TotalBalance

Minimum MonthlyPayment

Score

Rank

Visa $2000 $100 20

Mastercard $2400 $150 16

Amex $1500 $120 12.5

School Loan $6000 $250 24

Car Loan #1 $12,000 $350 34.3

Car Loan #2 $20,000 $700 28.5

Personal Loan – Carol $4000 $175 22.8

Dept. Store C.C. $800 $100 8

Home Store C.C. $1200 $120 10

Jewelry Installment Loan $400 $45 8.8

Personal Residence $150,000 $900 166.6

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Step 6 ­Determine the Order forPaying Off each Debt

Looking only at the highlighted numbers of each debt, the Score number, find the lowest number

and place a #1 next to that debt under the column with heading of “Rank”. Find the next lowest

number and write a #2 in it’s Rank column. Continue to do that until there is a ranking next to each

of your debts. Again, go from the lowest to the highest number. The highlighted numbers in the

“Score” column are the number of months it will take to pay off that specific debt.

For example, if the smallest score you find is a 3 then you would write a #1 next to it. This is the

first debt you will pay off. If the largest highlighted number is 300 then this would be the last debt

you pay off.

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It will look something like this:

Name of Debt TotalBalance

Minimum MonthlyPayment

Score

Rank

Visa $2000 $100 20 6

Mastercard $2400 $150 16 5

Amex $1500 $120 12.5 4

School Loan $6000 $250 24 8

Car Loan #1 $12,000 $350 34.3 10

Car Loan #2 $20,000 $700 28.5 9

Personal Loan – Carol $4000 $175 22.8 7

Dept. Store C.C. $800 $100 8 1

Home Store C.C. $1200 $120 10 3

Jewelry Installment Loan $400 $45 8.8 2

Personal Residence $150,000 $900 166.6 11

The question I often hear is, “Shouldn’t I pay off my debt with the highest interest rate first?” Not

necessarily for this formula to work. The reason is this: It’s important that you see some immediate

results in this process otherwise it is easy to get discouraged and quit before even paying off one

of your debts. By paying off the debt with the lowest Score, you are also paying off the debt that

will be the quickest to pay off. So you see results quickly. You have a win early on. You can see

what you are doing is working. This ‘progress’ makes it easier to keep moving ahead with this

formula.

So now you have a clear outline of every debt you owe and the order in which you will pay off

each debt.

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Step 7 ­ Find an extra $100­$200 per month“Where am I going to find an extra $100 to $200 a month?” you ask. Face it, if you cannot come

up with an additional $100 each month, then what do you think your chances are of becoming

financially set in life? Probably pretty slim. If $100 per month is stopping you then financial

freedom will be nearly impossible to achieve.

So do whatever you need to do, that is within legal, ethical and moral boundaries to create this

extra amount of money each month. It may be a part­time job on Saturdays, selling items on e­bay,

or creating a mini­seminar on your favorite hobby. You will probably surprise yourself with how

easy it is.

Having said that, there’s nothing stopping you from creating more than $200 per month either.

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Step 8 ­Except For Your #1 Debt, Pay Only theMinimum Payment Required of Each of

Your DebtsLet me guess, you’ve been told if you just pay a little extra on each credit card or loan then you will

reduce your debt quicker. Is that correct? That’s what I was told. However, my credit cards never

seemed to get paid off. I didn’t feel I was making progress or getting ahead.

For this formula to work, pay only the minimum payment due on each debt and put the extra $100

to $200 towards debt #1. So against debt #1 you are paying the minimum monthly payment

required PLUS $100 to $200 extra.

Continue doing this for 3 months (ie. For a full quarter). On the next months payment date, for Debt

#1 only pay the minimum payment PLUS the additional $100 to $200 PLUS all the money that had

accumulated in the Debt Elimination account. Continue this every month and every quarter until

Debt #1 is completely paid off.

Go back to your spread sheet of debts and place a big strikethrough through debt #1.

Name of Debt TotalBalance

Minimum MonthlyPayment

Score Rank

Dept. Store C.C. $800 $100 8 1

And Celebrate!

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Step 10 ­ Move On To Debt #2You made it through the first milestone. Congratulations! Turn to debt #2. Except for debt #2, pay

only the minimum monthly payment required for all other debts. For debt #2 pay the minimum

payment required PLUS the full amount you were paying on debt #1.

For example, on debt #2 you will pay the following each month:

∙ The minimum monthly payment required on debt #2.

∙ The minimum monthly payment you were paying on debt #1

∙ The additional $100 to $200 per month.

∙ At the end of each quarter, on the next month’s payment also pay using the money that has

accumulated in the debt elimination account

So now you are paying more than simply the monthly required payment and the extra $100 to

$200. With each debt you pay off you will be accelerating your payments on the next debt.

Continue each month until debt #2 is paid off. Then put a big strikethrough through debt #2 — and

celebrate!

Move onto debt #3. Pay the following towards debt #3:

∙ The minimum monthly payment required on debt #3.

∙ The total amount you were paying on debt #2, which included:

o The minimum monthly payment you were paying on debt #1

o The minimum monthly payment you were paying on debt #2

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o The additional $100 to $200 per month

∙ At the end of each quarter, on the next month’s payment also pay using the money that has

accumulated in the debt elimination account

Continue each month until debt #3 is paid off. Put a big strikethrough through debt #3. Continue

this process, always paying the minimum monthly payment due plus everything you were paying

towards the previously paid­off debt. And at the end of each quarter, on the next month’s payment

also pay using the money that has accumulated in the debt elimination account.

Name of Debt TotalBalance

Minimum MonthlyPayment

Score

Rank

Jewelry Installment Loan $400 $45 8.8 2

Home Store C.C. $1200 $120 10 3

When all of the debts in this example are paid off, starting with the $800 Jewelry Installment Plan

and ending with the $150,000 personal residence, that is the proof that this formula works.

By following this get­out­of­debt formula all the debts, excluding the residence, were paid off in just

over three and a half years. This is over $50,000 of debt. It then took less than four and a half

years to pay off the personal residence. So in just eight years this person is completely debt­free.

(The personal residence alone would have taken over 20 years if a traditional payment schedule

were followed.) And now that all the debt is paid off this person has $2,810 per month to put

towards investments.

That is the magic behind this formula. And the real beauty of it all… all it took was an extra $100

per month.

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Eventually your spreadsheet will look like this:

Name of Debt TotalBalance

Minimum MonthlyPayment

Score

Rank

Visa $2000 $100 20 6

Mastercard $2400 $150 16 5

Amex $1500 $120 12.5 4

School Loan $6000 $250 24 8

Car Loan #1 $12,000 $350 34.3 10

Car Loan #2 $20,000 $700 28.5 9

Personal Loan – Carol $4000 $175 22.8 7

Dept. Store C.C. $800 $100 8 1

Home Store C.C. $1200 $120 10 3

Jewelry Installment Loan $400 $45 8.8 2

Personal Residence $150,000 $900 166.6 11

If you stick with this formula you will be amazed at how quickly you can become debt free. Many

people report they are completely out of debt within five to seven years.

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Step 10 ­The Monthly Amount You Paid on Your

Final Debt – Invest It!This process does not stop once you’ve paid off all your debts. This is the point where you go from

being debt­free to becoming rich!

Take the total amount of money you were paying each month on that last debt you owed and paid

off, and invest it. Do this every month. It’s very likely that the monthly amount has grown quite a bit

since you started this process. Imagine having that much money every month to invest and to,

more importantly, contribute towards you becoming financially free – never having to worry about

money again. Living the life you choose… because money is not an issue!

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Few Bonus Tips

1. Remember this is a process. In order for this formula to work you have to stick to it every

month. If you say to yourself, “I’ll go off the plan just this month.” then chances are you’ll

begin a habit of not following the formula and your debts will not go away.

2. Do you have to be debt­free before you invest? No. This is your choice. I had quite a bit of

debt when I started investing AND I was also following this debt formula every single month.

This formula not only answers the question, “How do I get out of debt?” It also handles the

objection of, “I don’t have any money to invest.” Now, you can do both.

3. I highly recommend, if you are married or in a long­term relationship, that you go through

this process together. And the same applies to investing. Investing is an on­going

educational process. If you and your partner are learning together, growing together,

making money together, and most importantly, driving towards a common goal of freedom

together — that makes for an exciting life together.

4. Enjoy the process, keep your spirits up and your eyes on a brighter future.

5. Keep going. If you feel like quitting, talk things over with a friend, your mentor and your

bookkeeper. Remember, two minds are better than one. Talking it over with trusted friends

or professional financial people is a lot smarter than arguing with yourself or your partner.

By Serving One Another, We All Be FreeW W W . 1 P L U S 1 2 . C O M

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