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Wouldn’t you agree, more income is the answer?

So a friend of a friend came over the other night, pitching a pyramid scheme. He just told me he’d started a business. I figured (and kind of hoped) he wanted to sell me handyman services. Actually he wanted to get me out of debt.

“But I have no debt,” I said. He told me I needed to keep an open mind.

I remember the last time someone told me that. It was two Mormon missionaries. To be nice, my wife and I let him keep talking.

He kept asking me how much other people would admire me if I helped them financially. “But people have to be ready,” I said. “They can go to the library any day of the week and check out a book for free and get on their way to climbing out of debt. But how many people do it?”

He said he agrees with some of the things Dave Ramsey says. But he kept trying to sell me on the pyramid scheme. Even when I told him I already had a side business. (I didn’t tell him I’m thinking about two others, neither of which involve any pyramids.)

“Dave, what would you do with an extra $1,000 a month?”

“Max out the 401K, think about real estate,” I said.

That wasn’t the answer he usually gets.

Finally he pitched a mortgage scheme. “How many years before you pay off your mortgage?”

“Zero,” I said.

He looked at me like I was from another planet. And that was pretty much the end, because he finally realized he had nothing to sell me.

But the one line from his folksy, almost-slick presentation that rang with me was this: Wouldn’t you agree, more income is the answer?

Usually it’s not. Better management is the answer. If you just throw more money into your bank account and manage it poorly, that extra money isn’t going to help you get out of your hole much faster.

And what’s worse, pyramid schemes rarely live up to their financial promises. And they benefit the people above you more than you. From the slide he showed, for every thousand he made, his “trainer” would make nearly two thousand.

I don’t care how you spin it, that’s just not right.

Taking on side work helps when paying down debt. I sure did a lot of it. But I was making money for me, not for other people in a pyramid. Sometimes I paid fees, but we’re talking 10, maybe 15 percent. When I made $100, they made $15. Not $200. I got 85% of the fruits of my labor, not 33%.

But how much I made mattered less than what I did with what I had. I slashed my electric bill. I brown-bagged lunch. I wore secondhand clothes. I bought Chase & Sanborn coffee. (A big can costs $4.95, lasts a few months, and it isn’t very good.)

People sometimes told me life was too short to cut corners like that. But I’d do it again. I think life is to short to spend it paying interest.

I figured out that every extra $10 I could pay every month on the mortgage shaved a full month off the end. Ten lousy bucks. So I nickeled and dimed my way through, finding $1 here, $5 there, and $10 there.

Getting out of debt took several years. But more income alone wouldn’t have done it. My rule was this: I paid 10 percent, minimum, of my monthly income toward debt retirement. Plus at least 90% of any windfalls. By windfalls, I mean extra income from working weekends, tax refunds, bonuses, or overtime.

And if there was money left over in the bank account at the end of the month, I paid that in too. I’d hold back a bit of a buffer for emergencies, and send the rest in to whoever owned my mortgage at the time.

Note that we didn’t have to pay anyone or buy any financial products to get a plan to get out.

Read my other blog posts in this category. You can track the whole journey. I won’t charge you anything. Go to the library and read some books on personal finance. You can get a plan for free. And that’s good, because you’re much better off putting the money you’d pay for a plan toward actually paying down a debt.

But whatever you do, don’t sign anything!

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