A Twenty Something’s Guide: Debt & Other Things You Choose to Ignore

Jon Harrell |

Question: How Can You Avoid the Slippery Slope of Debt? See the Answer at the End of the Blog.

This is an excerpt form the book "A Twenty-Something’s Guide to Financial Freedom" (2015) - by Dr Henry H. Parker, Brett Machtig, & Josh Gronholz


“If you think nobody cares if you’re alive, try missing a couple of car payments.”

— Earl Wilson


Anna is a twenty-nine year old of Irish-American decent with an athletic build and great smile.  She works for a disability company selling policies door-to-door and has a part-time job working at the nearby mall. She feels as if she is working around the clock, and barely keeping her financial head above water.  Her goal is to be able to enjoy her two young and lively daughters.

A couple of years ago, Anna went through a divorce and now she has to work in a job that provides her financial security and flexibility so she can handle the role as a single mom.

Anna met the author in a suburb of Detroit, while he was giving a Wealth In A Decadeworkshop.  She attended the workshop and purchased the book.  A couple of months later, he received a letter from her explaining that she needed some help relating a financial plan to her situation.

“You might be able to help the other people in your workshop,” she said, “but my situation is different.  After my 401k contribution of 15 percent, I’m barely able to pay my bills, let alone save anything else.”

“The company had a plan that for every dollar I put into my 401k, they would match 50 cents BEFORE taxes” For $200 a month, she saved about $5,000 of her annual gross income of $36,000.

The author sent her a set of cards and a week later they played The Corporate Guide to Profit & Wealth over the telephone.

To begin, she selected the Yourself/Your Family scope card.

Scope: Yourself / Your Family

She wrote bullet points describing her reasons for playing the game:

  • Get out of credit card debt
  • Spend more time with her daughters
  • Retire while young enough to enjoy it

The problem card she selected was No(Small)Profit, Value or Savings card.  She knew she needed to make more in less time, as well as cut her monthly expenses.

She viewed the problem from the Unique Perspective of her children.  Her little girls wanted to see more of their mom and she knew it would require her to work smarter, not harder.

To solve the problem, she selected two solutions cards – Determine Ideal Future and Get Out of Debt cards.

The Determine Ideal Future card listed exercises that had her design the ideal lifestlye that she wanted ten years from now.  She wrote, “In ten years, I want to own my condo outright and not have to work.  Presently, my net take-home is $2,500 after taxes per month and if I could earn at least that, without having to work, I would be very happy.  If I owned my condo, my monthly expenses would drop to $1,850 per month.”

In order for that to happen in ten years, she would have to be consumer debt-free within five years.  Currently, she owed $32,000 and had been making monthly payments of $1,000.  When these bills and her mortgage get paid off, her monthly bills would be $850!  Suddenly the future seemed possible, but how could she retire those debts?


The author asked her to look a the Get Out – Debt card.  Her consumer debts consisted of four bills.  Every month she paid:

  • $350 for her car. She still owed about $10,000 at 10 percent interest.
  • $250 for minimum payments on five VISA bills she amassed while going through her divorce. When one card was maxed out, she got another.  Then another, and so on.  Within two years, she owed about $11,000 on five cards.  She cut up the cards about a year ago, but wasn’t making much progress in paying them off.  The author suggested to call the companies and negotiate a lower interest rate (she was paying 18 percent) and all but one agreed, lowering her average rate to 11 percent.
  • $150 went to pay down $10,000 in college loans at 6 percent.
  • $250 went to her oldest daughter’s dental bills. She still owed $1,000.

The exercise prompted her to put a stake in the ground; when one bill was paid off, she moved the monthly payment she was used to paying to the next bill.  The following is her debt reduction plan:

Amount               Interest      Min.    Stacking   Mos. to

Debt                  Owed                    Rate           Paym.   Paym.       Retire Bill

Dental Bill       $ 1,000             0.00%           $250     $250         4 mos.

Credit Cards   $11,000           11.00%           $250     $500          26 mos.

Car Loan         $10,000            10.00%         $350     $850           1 mo.

Ed. Loan         $10,000               6.00%        $150     $1,000         7 mos

$32,000                43%       $1,000     $1,000       38 mos.

No debt


S̶p̶e̶n̶d̶ Save

Estimated Time to Retire (ETR):

Anna agreed to put any major purchases on hold for a while.  As soon as the dental bill was paid off, Anna would pay the $250 to her VISA cards, for a total monthly payment of $500.  As soon as the five VISA cards were paid, she would pay $850 to her car loan.  As soon as her car was paid, she would pay $1,000 to her education loans.

In 38 months, when the educational loan was paid, she would increase her mortgage payment to $1,540.  Six years and two months from now she would be entirely out of debt, even without a wage increase! Now Anna was getting very excited! She could see the light at the end of the tunnel!

At a 10 percent rate of return, * if she saved the $1,650 for the remaining three years and ten months of her ten year plan, her savings account would grow to almost$50,000, even after replacing her car six years into her plan.  Her 401k would grow to $139,000, assuming a three percent wage increase and ten percent annual rate of return, in ten years.  In total, her savings and 401k would be worth $189,000. At a ten percent rate of return, that would give her more than she has to spend now, except that she WON’T HAVE TO WORK!

In order for the five year plan to work, over the next three years, she would have to keep her spending under control and work less, but smarter.  She agreed that she would limit any purchases to earnings above current levels while following her plan

For the three year goals to be achieved, she need to earn more now from her main job, and do it in less time.  She realized that after the cost of child care, she made VERY little in her part-time job, so she quit and spent the additional time with her girls.

Her insurance sales went up as she hit the pavement with a crystal clear vision of her bright future.  Not surprisingly, she made more money within her time constraints.

It has been almost 12 months since Anna set up her plan.  Even though she had some unexpected expenses, she is already six months ahead of schedule.  Go Anna!


Mountains of Debt

Anna is a textbook example of a prisoner of debt.  In 2000, 150,000 Americans under the age of 25 filed for bankruptcy, according to “Making the Case for Financial Literacy,” www.Jump$tartCoalition.org.  The total number of household bankruptcies in 2003 was $1.6 million, according to a National Public Radio announcement, January 29, 2003.  These numbers are so high, that Congress has passed tougher laws to protect creditors.  These laws went into effect toward the end of 2005.  “Bank credit card debt more than doubled from 1994 to 2001, reaching a high of $602.6 billion. In the same year, credit card delinquencies rose to 3.93% of all accounts in the second quarter, the highest since 1980.  In addition, 4.63% of homeowners were at least 30 days behind on mortgage payments, a nine-year high.  In 2000, those who sought help from credit counseling firms carried debt that, on average, accounted for 88% of their income,” according to USA Today, (October 12, 2001).  The interest paid on credit card debt was $50 billion in 2001.

Their chains are invisible, but millions of Americans are prisoners of debt.  Debt is a major factor in divorce.  Of the one million who divorce each year, 80% do so because of financial reasons, according to Jesse Jacksons book, It’s About the Money.

Debt also drives 25-30 year olds back home to their parents. In 2000, nearly four million of these “boomerang kids,” or 10.5% of 25-34 year olds were living with their parents, and many more were planning to. (AARP, Dec, 2001)  According toMonstertrak.com, December 2001, 60% of college students plan to move back home after graduation.


The Cycle of Debt, From the Teens to Death 

Just as there is a cycle of spending, so is there a cycle of debt. The cycle of spending one’s own money usually starts by the time we become teenagers and we really only have our parents’ spending habits to emulate. Many of them don’t have good habits either. Within a short time, spending escalates to overspending. This is the start of the cycle of debt.  By the time many college students graduate, the cycle will take the following form:


Student Loans

It’s wise to consolidate your student loans, and convert variable rates to a fixed rate federal consolidation.  It’s possible to get a rate as low as 3.5%, the lowest in the history of this federal program.  Below is an illustration given by the Student Loan Consolidation Center, 5005 Wateridge Vista Dr., Ste 150, San Diego, CA 92121:

Loan Amount     Repayment Term                             Monthly Pmt at 3.5%

$20,000                                         10 years                                               $198

$40,000                                         10 years                                               $396

$60,000                                         10 years                                               $593


  • Credit Card Debt: Usually at an interest rate of 18% to 21%.
  • Wedding Debt: Like Anna, millions of young people splurge on a wedding they can’t afford, and go into debt to pay for it. According to the Conde Nast Bridal Group, the average wedding in 2015 is $31,213.
  • Child-Debt: Within a year or two, the newlyweds have their first baby, not realizing what is in store. The average cost of raising a child born in 2013 up until age 18 for a middle-income family in the U.S. is approximately $245,340 (or $304,480, adjusted for projected inflation).  Soon the child is a teenager, and is a bigger drain on family income.  Then, just when the parents are making ends meet, it’s time for college.

Weary parents find life is flying by faster than they can meet its demands; bills keep mounting and children keep growing.  The older they get, the more expensive it becomes to take care of them.  Then, when it’s time to leave, they stay at home until age 30, living and eating free, assuming that housework is a mystical ritual, ordained by the gods for parents only.

In the movie, Mr. Holland’s Opus, Mr. Holland, a talented professional musician and composer, said that he took a job as a high school band director just to get by for a while and suddenly 20 years had passed. It’s the same with parents.  Time slips by, the children are grown, one’s hair is gray, one’s billfold is empty, and one’s debts are substantial.


A Loving Parent

Seth, like Mr. Holland, had no interest in money or material things, and became a perpetual graduate student.  When his girlfriend said she was pregnant, they decided to get married. Then three more children came quicker than Seth could have ever imagined.  Years passed in minutes, and Seth found himself the father of three girls in college.  To make ends meet, he worked 18 hour days—one full-time, and one part-time jobs. At age 68, he still works full-time, moonlights on weekends, and is still in debt.   Like Seth, 93% of senior citizens are not solvent, and their average income in retirement is f $31,742 for people age 65 and older in 2012, according to a recent AARP Public Policy Institute analysis of Census Bureau data.


A Summary Statement:


How to Avoid Three Great Debt Traps:

To avoid becoming another Seth, you must avoid overspending. Holidays in general, and Christmas in particular, are the times when most people go into debt.  Impulse spending is high during Christmas. Americans are generous people: most would rather go into debt, than cut back on Christmas spending.  To avoid this trap, there are several things you can do long before Christmas:

  1. In January, start putting money aside for Christmas, in savings, or in a Christmas club account.
  2. Shop all year round for Christmas presents. It takes discipline, but it can be done.  Some of the best buys can be found in January.
  3. Don’t use department store credit cards; their interest rates usually are higher—between 18% and 21%.
  4. Shop around for the lowest credit card interest rates—the best rates are—single digit.
  5. Set a budget for Christmas, and stick to it.

Credit cards are one of the surest ways to pile up debt.  Because they’re one of the most lucrative sources of profit for banks, their pursuit of this market is sometimes ruthless and obscene.  Not only do credit card companies hound college students with unparalleled solicitations, they scheme with some colleges who sell the names of their students.

 The best defense against credit card abuse it to cut up the cards when they come.  This is hard to do because they’re so convenient, and they appeal to the ego.  Also, marketers give them irresistible names and colors like silver, platinum, gold, and titanium. Brett Machtig has credit card cutting ceremonies when he speaks on college campuses.

While credit cards can be a trap, our society is so sophisticated that at least one credit card is needed.  The best way to use it is to buy only what you know you can pay off at the end of the month.

 The worst thing to do is to pay the minimum payment each month.  That will keep you paying forever, and the interest will eat you alive. For example,

  • Let’s assume you use your credit card to buy a $1000 piece of jewelry for Christmas. If your interest rate is 18%, as it is for most young people, your first statement will say that your minimum payment is $20   . If you pay off the $1000 at the minimum rate, it will take you 90 months (7 ½ years), and you’ll about $800 in interest, which means your $1000 purchase to cost you $1,800.
  • Suppose you used your credit card to buy a $500 television set as a Christmas present.  If you paid the minimum payment, it will take 66 months (5 ½ years), and you’ll pay an extra $159 in interest.

Unaware people spend their lives paying interest on loans.  Aware people receive interest on their investments. 

A wise card to have is the bank debit card. It looks like a credit card, and functions like one, except the money is drawn directly from your bank account. The debit card is an ideal replacement for your credit card, and is a godsend for those who write bad checks each month.  Debt is an American way of life.  It is also a monster.


The Ortalda Plan for Eliminating Debt

It takes a lot of discipline and time to pay off debts.  Even with help from a financial counseling agency, it can take seven years to get out of debt.

  1. Go after your most stressful debts first, then short-term debts, and high-interest rate debts. List yours, but don’t include home mortgage, low-interest loans, and most car loans.
  2. Add up those debts/loans.
  3. What average interest rate are you paying, 9%, 15%, 21%?
  4. To figure out how much you have on hand to pay off these debts, each year figure the minimum payment you make on each loan, plus interest.
  5. Divide the payments from question 4 above, by the total debt from question 2, and multiply by 1000.
  6. On the Debt Payoff Planner chart below, find the approximate number of months required to pay off your debt.
  7. Work with the chart and your budget, until you find a payment schedule you can live with.
  8. Increase your monthly payment to the amount you show in question 7. Pay off the highest rate loans first, and maintain at least minimum payments on all other loans, which doesn’t change the total months to pay off all debts.
  9. As you reduce your debts, turn the money you would have spent, back to yourself by putting it into your savings.
  10. List your debts and use the table to create a payoff schedule.
The Ortalda Plan for Eliminating Debt

Brett’s Plan for Paying off Debts

  1. Maximize your 401K program, which means putting about 15% of your income into the plan.
  2. Live on 85% of the take-home pay you have, after the 15% for your 401K has been deducted from your check.
  3. Because you’re living on 85% of your take home pay, you now have 15% to make additional payments to your debts.
  4. List your five top debts—those with highest interest rates, or the most stressful. Select the one you want to pay off first, and add the 15% of your income to the regular payment, while making the regular payments on your other debts.
  5. When this first of the five debts is paid, go the next one, adding 15% you saved from your paycheck to the regular payment, plus the amount you had been paying on the debt that is now paid off. (To illustrate, let’s assume that you’ve paid off the first of the five debts.  Now select the next of the remaining four that you want to pay off.  Let us say that your regular payment of this debt is $200, and that the payment of the old debt was $150 a month.  Add $150 you’re no longer paying to the $200 regular payment, amounting to $350   .  To this, add the 15% you save from each paycheck, let’s say $300.  Now your total payment is $200 + $150+$300= $650 to pay, instead of the normal payment of $200. Repeat this procedure for the remaining debts, remembering that you cannot save until you get out of debt.
  6. An additional source of funds to pay toward debts is your yearly raise or bonus. If possible, pay your debts with whatever you earn in raises. If it’s not possible, use at least half of your raise. Later, when debts are paid, you can put each raise into investments.  Don’t be casual; arrange an automatic transfer of the raise directly into a savings or investment account—it’s effortless and you won’t miss the money.


List Your Debts

It’s time to apply what you learned above to your present situation.  Below is a chart for you to list your debts.  Below that is a debt payoff planner that will help you set up a timetable for becoming debt free.


Debt      Amt. Owed     % Rate      Min. Pmt       Targeted Pmt/per $1000   Months to pay off

____       ______         _____          ______       _____       ______             _____

____       ______         _____         ______        _____       ______             _____

____       ______         _____         ______        _____       ______             _____

____       ______         _____         ______        _____       ______             _____

____       ______         _____         ______        _____       ______             _____

____       ______         _____         ______        _____       ______             _____


Debt Payoff Planner:

To pay off $1,000                              Pay Monthly      9%                          15%                        21%

in this many months                       $20                         63mos.                 79mos.                 120mos.

$25                         48                           56                             69

$30                         39                           43                             51

$35                         32                           36                             40

$40                         28                           30                              33

$45                         24                           26                           28

$50                         22                           23                           25

$60                         18                           19                           20

$70                         15                           16                           17

$80                         13                           14                           14


For example, if you owe $15,000 at 9% and you want to pay it off in two years, follow the 9% column down to 24 months: =$45 x 15(thousand)= $675/mo.


It’s Never Too Late

We began this article with the story of Anna, a bankrupt, boomerang kid whose life seemed hopeless when she moved back home with her mother.  However, sometimes hard times can have a positive effect.  Anna’s troubles caused her to become a responsible, hard-working, serious adult.  With her mother’s help, she returned to college and graduated with honors.  She went on to graduate school and completed a Master’s degree in one year.  She and her husband, who live 1000 miles from her mother, now have a combined income of $85,000.  They are paying off debts, and building a future for themselves.



Answer to the Question: How Can You Avoid the Slippery Slope of Debt?

The best way to answer the question is to break it down into these points:

  1. Even though huge debts are part of the American way of life, refuse to join the crowd.
  2. Refuse to go into debt for your wedding.
  3. Refuse to buy now, and pay later for things you can get along without.
  4. Keep just one credit card, and cut up the rest, being sure to pay off the balances each month.
  5. Work 20 hours a week while in college. This will enable you to lower or eliminate student loan debt.
  6. Use the Ortalda plan to pay off all debts within three years.
  7. Remember, it is never too late.


Information without action is just a waste. We have exercises available to go along with this article that can help kick off the planning process.




by: Dr Henry H. Parker, Brett Machtig, & Josh Gronholz


     # # #


We Can Help.

If you want a review of your situation, we will do it for free. The Capital Advisory Group Advisory Services is an asset manager that helps guide wealth accumulation and management. Our team helps executives, retirees, and business owners with financial planning, asset management, tax guidance, risk mitigation, and estate planning. We help clients create wealth by analyzing income, cash flow and taxes with the goal of each becoming great savers. We scrutinize what can derail the plan. Finally, we help clients grow into investors with realistic expectations, giving them strategies to reduce the impact of market downturns and helping them create plans to meet their future income and asset objectives.

As a Registered Investment Advisory (RIA) firm, we are held to the highest standard of financial service firms.  We are held to the “fiduciary” standard of care. The Center for Fiduciary Studies states that: “Advisors held to the fiduciary standard must employ reasonable care to avoid misleading clients and must provide full and fair disclosure of all material facts to your clients and prospective clients.”(1)

According to the SEC, “advisors held to the fiduciary standard have a fundamental obligation to act in the best interests of the clients and to provide investment advice in the clients’ best interests. Under the fiduciary standard, advisors owe clients undivided loyalty and utmost good faith.”(2)

We take our fiduciary standard very seriously at The Capital Advisory Group Advisory Services.  We search for ways to better our clients’ current and future financial situation.  We want the best for you and your family.

The Capital Advisory Group Advisory Services uses independent research to identify low-cost investment options, as high fees have an adverse impact on returns. We analyze fees and fund performance using programs like Fi360 to select better investment options and doing side-by-side peer comparisons improve results.(3) 


Our Approach

Our goal is to help avoid you expensive financial lessons and become your “Personalized Chief Financial Officer.” The philosophy we have is to take our three decades of client and personal financial experiences and apply workable solutions to help you better manage your financial needs. We are an independent group with no proprietary investment products or sales quotas.

We are a fee-for-service advisor.  We have found that just commission-based asset management can be an obstacle that may not always work in your best interests.

Our approach rewards us over time, where we have to earn our relationships every day. Our fees vary depending on portfolio size, type of assets, and asset management style. Because our fee-based compensation increases only if portfolios grow, our interests are aligned with yours. We focus on financial objectives and your future growth.


Our Investment Process

Before we develop a personal investment strategy, we take a hard look at where you are currently. We assess investment goals, available resources, desired rate of return, and risk tolerance. Our research allows us to customize a plan to help fit your individual needs and develop your unique “Investment Policy.”  Once the blueprint is in place, advisors provide personalized investment advice. We allocate assets in a way that is intended to enable you to obtain an expected return for a specific level of risk. We believe that asset allocation is responsible for more than 90 percent of the variations in investment portfolio performance – so choosing the right asset allocation for you is our top priority. Each of our models is actively managed and back-tested to help manage risk.

Along the way, we monitor your progress including client statements and reports that summarize investment activity and compare your current portfolio results to your goals. We make periodic adjustments to re-balance your portfolio, adjusting our strategies to fit your individual needs. Through-out, we maintain constant vigilance over market awareness with our investment committee. Thank you, and please give us your feedback. We can be reached at 952-831-8243.


About the Authors:

Brett Machtig has authored several books and is the founding partner of The Capital Advisory Group, a private asset management and retirement planning services firm located in Bloomington, MN. Their firm manages more than $400 million in assets for 83 institutions and about 850 families as of December 31, 2014. He has been helping affluent investors execute financial strategies, meet income objectives and realize life visions for more than 30 years. Approachable, genuine and down-to-earth, Brett holds himself to a high standard of accountability and seeks to achieve positive financial results on behalf of each client. In this article, Brett shares the effectiveness of each strategy and how to improve it. 

Josh Gronholz graduated Summa Cum Laude from the University of Minnesota’s Carlson School of Management and is a Registered Asssitant. He has worked in asset modeling with The Capital Advisory Group Advisory Services and has spent the bulk of his career modeling various investment scenarios and assisting individuals along their way to financial success and personal wealth.

Henry H. Parker Dr. Parker, a Ford Foundation Fellow, is presently a Cunningham Distinguished Professor at the University of Tennessee, Martin, where he taught and field-tested A Twenty-Something’s Guide to Financial Freedom for 10 years prior to its publication. He graduated magna cum laude from the University of St. Thomas. He received the M.A. from the U. of Minnesota, Minneapolis, and the Ph.D. from the U. of Illinois, Champaign-Urbana. HIs most recent publication is, Apollo vs. Dionysus, 2014. Dr. Parker has been featured on, “The Oprah Winfrey Show,” and his work has been included in The New York Times, USA Today, and People Magazine. He has been a speaker on the national lecture circuit for the New York-based agency, Program Corporation of America.  Henry H. Parer is not affiliated with The Capital Advisory Group Advisory Services or United Planners Financial Services.

We can be reached at bretmachtig.com or cagcos.com; 952-831-8243 or bmachtig@machtig.net or jgronholz@machtig.net.


(1) finra.org/web/groups/industry/@ip/@reg/@notice/documents/noticecomments/p118980.pdf as of 8/2014
(2) www.sec.gov/divisions/investment/advoverview.htm as of 8/2014
(3) www.fi360.com/products-services/tools-overview, as of 8/2014, Results not guaranteed.

The information contained does not constitute an offer to buy or sell securities and is provided for illustrative purposes only. The information comes from reliable sources, but no guarantees or warranties are given or implied to its accuracy or validity. The strategies listed do not necessarily reflect those of its publisher, MGI Publications or its authors. Information obtained from publicly available sources listed herein and footnoted where applicable. Securities offered through United Planners Financial Services of America, a Limited Partnership, 480-991-0225 member FINRA/SIPC, 7333 E Doubletree Ranch Rd, Scottsdale, AZ 85258. Advisory Services offered through The Capital Advisory Group, LLC 5270 W. 84th Street, Suite 310, Bloomington, MN 55437, 952-831-8243, an independent registered investment advisor, not affiliated with United Planners Financial Services of America. ADV, Part 2A as of 3/26/2015, available upon request. Many investments are offered by prospectus. You should consider the investment objective, risks, and charges and expenses carefully before investing. Your financial advisor can provide a prospectus, which you should read carefully before investing. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. Although a money market fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund. Diversification does not guarantee a profit or protect against loss. Please consult your attorney or qualified tax advisor regarding your situation. Asset allocation and rebalancing do not guarantee investment returns and do not eliminate the risk of loss.