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This Week's Quote:
“There are but two ways of paying debt: Increase of industry in raising income, increase of thrift in laying out”~ Thomas Carlyle


From time to time, some clients who are referred to us come into the office with the requisite financial goals and investable assets, but with excessive debt. In some cases, the debt has become a difficult and emotional issue.

By itself, debt is a financial tool with benefits when used judiciously. In the extreme however, excessive debt can bury hopes and dreams faster than almost anything else, leaving broken lives in its wake.

Over many years we’ve developed a simple four step process to reduce or eliminate debt and in the process restore confidence to achieve one’s goals.

Step 1: Take inventory and vow to create no more debt
We use a simple Excel spreadsheet to list all debts; the amount owed, interest rate, and payment. Our client must agree not to create one more penny in debt—none. Together with our client, we then immediately evaluate the “usual suspects” for opportunities to enhance the debt reduction plan: contact institutions to lower interest rates, look for zero interest transfer options, low interest home equity loans, family loans, 401(k) plan loans and more. Our client chooses the sensible options available and implements them right away.

Step 2: Find the money to (at least) double the lowest debt payment until that debt is completely paid.
Next we assess spending by looking at one month’s expenditures in the checkbook and credit card statements. We are looking to eliminate expenditures (e.g. nights out, Starbucks, unnecessary purchases, etc.) such that it becomes possible to at least double, triple, quadruple, or more the amount of the smallest monthly debt payment. In some cases, increasing the number of exemptions for tax withholding makes sense. The bottom line is that we’ve yet to see a case where this strategy won’t work. Once done, the substantial increase in monthly payments significantly accelerates debt payoff—every time.

Step 3: Once the first debt is eliminated, add the adjusted total payment to the monthly payment of the next debt until that debt is completely paid. Repeat this step for each successive debt up to and including the mortgage, if desired.
The math of accelerating payment streams is impressive. In most situations, consumer debt can be retired in 30-60 months, even sooner if lower interest options are available. Mortgage debt takes a bit longer, if desired.

Step 4: Save something, anything, but save.
Concurrent with the other steps, savings must be a priority. 401(k) plans which might be available for one or both spouses are often the best place to start, since they routinely involve employer matching and are more difficult to access monies from on a whim. Explore additional savings options as needed, but our experience is that savings must be part of a successful plan. Something amazing happens as clients see progress in increasing savings balances coupled with reducing debt. Remarkably, they usually begin to spend less and save more.

While there are a myriad of options involved in attacking debt, the fundamentals are remarkably simple and the result of getting out of an excessive debt burden is often a huge increase in peace of mind—not to mention the increase in the potential for financial success.**


Market Week: August 13, 2012

The Markets

It was the fifth straight positive week for the S&P 500, which hit a level not seen since the beginning of May and managed to remain not far from its year-to-date closing high of 1419. Meanwhile, buyers of U.S. Treasuries backed off a bit, sending yields higher.


Last Week's Headlines

• Slower Chinese manufacturing growth led to speculation that there might be additional efforts to stimulate the economy there. Though factory production was up 9.2% in July, it was a far cry from the 14% growth seen at the same time last year, and exports were down 11.3% from June. Meanwhile, China's National Bureau of Statistics showed that inflation continued to slow, falling to an annualized 1.9% increase compared to last July's 6.5%.
• The U.S. Department of Agriculture cut its estimate of the nation's corn crop by 17% because of the widespread drought across the country. That would make this fall's harvest the worst in nearly two decades. The lower output is expected to push up the price of corn, which is used not only in many processed foods but also as feed for poultry and livestock, by almost 40% to as much as $8.90 a bushel.
• Stronger exports of consumer goods, cars and car parts, and industrial supplies and materials helped cut the U.S. trade deficit by almost 11% in June, to its lowest level since December 2010, according to the Bureau of Economic Analysis. The deficit went from $48 billion to $42.9 billion and also was down $7.4 billion from the previous June. Exports were up $1.7 billion for the month, while imports fell $3.5 billion.
• The Mortgage Bankers Association said 11.6% of all mortgages in the United States were either in foreclosure or behind by at least one payment in Q2. That's an increase from Q1's 11.3%, but better than the 12.5% of a year earlier. Meanwhile, new foreclosures rose 0.96% from last quarter; in many cases, proceedings had been halted by widespread problems with faulty mortgage processing.
• Business output rose but hours worked by the labor force barely budged during the year's second quarter, according to the Bureau of Labor Statistics. As a result, U.S. labor productivity increased at an annual rate of 1.6%. Output was up 2% while the number of hours worked to produce it increased only 0.4%.
• The U.S. Justice Department said a year-long investigation of Goldman Sachs' dealings in mortgage-backed securities did not produce enough evidence to warrant criminal charges in connection with the 2008 financial crisis.
• Consumer credit was up 5% during the second quarter and up 3% in June alone, according to the Federal Reserve Board. Revolving credit, such as credit cards, fell half a percent during the quarter, while nonrevolving debt, such as student loans, was up 7.8%.


Eye on the Week Ahead

Retail sales and earnings reports from several major retailers highlight this week's economic data, while inflation figures are expected to show little change.
Key dates and data releases: wholesale inflation, retail sales, business inventories (8/14); consumer inflation, industrial production, international capital flows (8/15); housing starts, leading economic indicators, options expiration (8/17).

Data sources: Includes data provided by Brounes & Associates. All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.


Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2012