I know you’ve heard it before – “Don’t sweat the small stuff .” This truism applies to every facet of our lives. We often make the mistake of over dramatizing issues in our personal relationships – between spouses, between partners, and between parents and children. Most of the time, it’s a situation where for one reason or another, we allow the moment or the event to take on greater significance than we should. In personal matters – this often gives rise to hurt feelings, family quarrels and anguish. From one event to the next, the mistake is commonly repeated until we learn or experience a greater trauma that causes us to snap back to reality. We say to ourselves,“Gee, I have to chill out and just be thankful for the boring, mundane days when there is nothing monumental and adverse going on in my life.” The lesson – don’t let the “small stuff ” govern your life.
I find this issue also arises frequently in the context of how people assess their financial situation and the options presented to them when it comes to strategies to shed debt and preserve future income. In this instance, what is the “small stuff ?” The “small stuff ” in the context of shedding debt and preserving future income is “your credit score.” Let me repeat – the “small stuff ” is your credit score. There are differing views. The banking industry wants you to believe that your credit score is “your most valued asset” – and that your world will crumble if your credit score tumbles. It is true that if you short sale a home, go through a foreclosure, file a bankruptcy, or settle your credit card debt for pennies on the dollar – your credit score will take a hit. The fallacy is – in the context of the gain you will realize by getting out from under debt and the outrageous never ending interest – the credit score is a short term decline that is insignificant in the context of the big picture.
I tell clients, over and over, “When you’re 75, would you rather have lived your last 30 years with a 790 credit score and have $40,000 in the bank to retire along with the paltry social security you will receive or would it be better if your credit score took a 75-100 point hit for about 1 ½ years, and at 75 you have $950,000 in saving to live off of with social security? The numbers are simple – if you pay off $100,000 of debt at $2,500 per month with interest at 26%, you will pay $235,000 over the 94 month period. Instead, if you could settle this debt for $30,000, by using the $2,500 per month you would pay the first year, and then invest $2,500 per month for each of the next 82 months, tax deferred at 6%, you will have $300,566. If you then allow this savings to accumulate for another 10 years, you will have $546,849. Better yet, if you continue to save $2,500 per month during the last 10 years, you will have $958,596. This is “big stuff .”
Being afraid to make the right move because of concern over your credit score, is worse than “sweating the small stuff ” – it’s letting the “small stuff ” steal your future. You still need to plan. For example, if you have a short term need for credit – such as buying a car – then buy the car before making your move. In all events, you should resist the effort to be brainwashed by an industry that earns billions advancing this myth. Simply look at the numbers – that’s the big stuff and plan your future.
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