Wealth Strategies of the Rich

How to Become Wealthy by NOT Repaying Your Debt

Wealth. Does that sound like a foreign word to you? If you’re saddled with loads of consumer debt the way so many Americans are, it is probably a very unfamiliar word. Consumer debt is the greatest barrier to wealth. And when you’re suffocated by thousands of dollars of debt, it may seem impossible to get out.

There’s good news! It’s not impossible to eliminate your debt and move toward wealth. Most people simply don’t have a system for paying off their debt, and as a result they perpetuate bad habits and remain stuck in it. By using the proper debt management system, you can get out of debt quicker than you probably imagined with minimal change to your existing lifestyle.To top it off, there is a system you can use that will allow you to simultaneously create and feed the Wealth Cycle™, a cycle of wealth millionaires use to consistently and exponentially build their wealth. In other words, you can simultaneously become wealthy and repay your debt.

Skeptical? You bet. But, you’ll be surprised at how easy this is.

It’s a basic matter of good vs. bad

Before we get into the how-to, it’s important to differentiate between good and bad debt. That’s right – not all debt is a barrier to wealth. In fact, some debt actually adds to wealth. Here is question for you “Do you think millionaires don’t have debt?” The answer is, “Of course they do – sometimes millions of dollars of debt.” The reason their debt is of no concern, however, is because it’s what is known as “good debt.”

Good debt is any low interest borrowing you’ve done to finance a mortgage or student loans, with the interest deductible against your business operations. Good debt is good because it is actual helps you make more money (or, in the case of a student loan, it’s helping you learn so you can later earn.)

Bad debt is consumer debt. That’s debt for consumer items, such as high interest credit card debt that you acquired buying perishable items. This includes car loans and home equity lines of credit. To build true wealth, you need to abolish bad debt and – if you want to be a millionaire – strategically build good debt.

It’s not what you would expect

So what’s the best way to abolish consumer debt? Many financial advisors will tell you to scrimp, save and cut back on absolutely everything that makes life fun. They’ll tell you to create a very tight budget and then pay off your debt before you can even think about making investments of any type. Sounds a lot like a diet, one that will cause you to starve yourself and your children, depriving them of wealth.

The first thing bad about this advice is that when you deprive yourself of something, inevitably you’re going to “binge” at some later point. You’re basically setting yourself up for a spending spree, or the sabotaging of your savings. “A budget is like a diet,” says Loral. “And we all know that diets don’t work.”

The second thing wrong is the idea that you should not invest in anything until your debt is gone. Millionaires are always investing – that’s one of their secrets to making so much money. Investments act as essential fuel for the Wealth Cycle™, so they are a good thing. Additionally, if you are in debt, the passive income you’ll gain from your investments will allow you to more quickly pay off your debt (and that’s not even mentioning the tax write-offs investing provides).

What you’ll see is that if you focus on creating cash flow, you’ll never again have to worry about your expenses overwhelming your income.

The Dont’s

Before we get into a debt management system that works wonders for Loral’s clients, here are some things she recommends you don’t do:

Transfer your debt to a lower interest credit card Home equity loans Debt consolidation companies Bankruptcy

Transferring your debt to a lower interest rate credit card is what I refer to as “credit card calculus.” The problem with it is that most people, after making balance transfers, tend to lose no time to need and start running up their original high interest credit cards again. Also, keeping up with the end of low interest promotions can be a full time job in itself.

Home equity loans are another problem for most people in debt. Too often these people borrow more money after they refinance, incur more debt, and then refinance all over again. Consider too, that each time you refinance you pay thousands of dollars to purchase that loan.

Debt consolidation companies take all your debt and collapse it into one payment. However, what they don’t tell you is that the reason your payments are so low is because they are less than the interest payment. So you’re really not making any progress. The debt consolidation company often ends up benefiting more than you do!

Bankruptcy should not even be considered an option. I believe that almost any debt can be dealt with effectively using my five-step debt elimination plan.

So what does work?

To tackle consumer debt, Loral’s five-step debt strategy includes the following steps (explained in considerable detail in her book, The Millionaire Maker):

Create a debt elimination box Calculate a factoring number Make a priority payoff box Use a “jump start allocation” Make your debt payments

By using this system, your debt payments start to build as you pay of your creditors, all of whom have been listed in order of priority. Your capacity to pay off your debt accelerates quickly. It does require you to shave down unnecessary expenses, but not cut out everything you love. In short, it’s realistic - and mighty effective. You simply have to commit to it.

But wait, there’s more!

Earlier I mentioned that you can pay off your debt and at the same time actively build your wealth. Remember that Wealth Cycle™ mentioned earlier? This is where it comes in.

The Wealth Cycle™ used by millionaires consists of 12 steps:

Gap Analysis Financial Baseline Freedom Day Debt Management Entities Cash Machine Wealth Account Forecasting Assets Leadership Teamwork Conditioning

It’s okay if you don’t know what each step means right now. The main thing to understand is that the key to success in using the Wealth Cycle™ is knowing which steps to take, and in what order.

**Everyone’s financial situation will require its own order of sequencing. A wealth mentor can help you determine what’s right for you. For some people, the first step is to develop the proper legal entities for their business and investments so as to maximize tax strategies. For others it may mean first reallocating assets so you can bring in increased monthly income that enables you to start investing. This will in turn bring in passive income which will allow you to more quickly pay off your debt.

To use an example of when entity structuring might be used first, let’s say you have a graphic design business but it’s not incorporated. This means your debt includes a lot of expenses – cell phone, office supplies, postage, etc – that you paid for out of your personal account. If you make your design business an entity, let’s say a “Subchapter S Corporation”, then the portion of your debt that includes those items can now be transferred over as business expenses. Now you can write off that portion of your debt against your income, giving you more money at the end of the year!

The interesting thing about the Wealth Cycle is, as stated above, that you only focus on debt management after you develop a Cash Machine, The proper Entities, and engage in Forecasting.

Building wealth from a position of great debt takes courage, discipline, and positive energy. I realize this may seem a difficult scenario from which to create wealth, but my hundreds of successful clients prove that getting out of debt and building wealth is very doable. What it takes is a commitment to gaining awareness of your psychology, your finances, and a willingness to let go of old habits that no longer serve you. Then let the riches flow in!

For more information on uncommon wealth buidling strategies visit www.liveoutloud.com or read The Millionaire Maker by Loral Langemeier.

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