Bear Stearns: See Ya Later

IndyMac Bank: It was nice knowing you

And now, WCI Communities: Hasta La Vista, Baby.

Okay, that last one was cheesy, but you know it made you chuckle a little bit. It feels like a bank or major corporation is going belly up every day. The question is, Why? Why are so many major corporations struggling lately? Many of the companies going bankrupt have something to do with the decline in the subprime mortgage market and the housing market itself. However, this is not the root of the problem. The media will shove this down your throat. It’s the economy. It’s George Bush. It’s the war. Pick your scape goat.

The Real Reason

I’ll tell you the dirty little secret about why all of these companies are failing. The real reason they are failing is debt, massive amount of debt. Many of you continue to debate me about how debt is a tool. Debt will help you become wealthy, but no one ever gives me a good example of how debt has made them wealthy. All debt does is close doors in the case of IndyMac Bank and WCI Homes. The companies that do not survive the low points of the market, are the ones that have debt up to their eyeballs. They fail to pay their debts, and the only alternative is bankruptcy.

What We Can Learn

Consider a family of four who makes $50,000 a year with no debt other than a modest mortgage payment versus a family of four who makes $80,000 a year with $75,000 in consumer debt and a hefty mortgage payment. The family of four with no consumer debt will be hard pressed when gas prices go up, food prices go up, and they have a medical emergency. It will cause them discomfort, but not break their bank. The family with $75,000 in consumer debt that brings home more income will be more affected by rising gas prices and an unexpected medical expense, because their money is stretched farther than the other family. Debt brings more risk into your life. Even if you are maxing out your credit cards every month to get reward points and paying them off in full in 30 days, it’s a risky business. Playing with debt equals more risk in your life. It’s that simple. My family has a plan to become debt free in two years. Do you have a plan? Do you want a plan? Contact me if you need help putting together a plan to become debt free as soon as possible.