Debt is the Enemy of a Residual Income

If you’re thinking about creating a passive residual income by selling information products online, you might want to try to understand the reasoning behind doing this. There are many valid arguments for why you want to make additional money, like wealth creation (you just want to be richer), major purchase in your future (you have your eye on a new home, boat or car), travel (you want to see all the world has before you leave it), etc. However getting out of debt may be the most rewarding and eases a burden that carries you from month to month. Debt can put a stranglehold on tons of plans and keep you from enjoying yourself.

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It doesn’t matter how you accumulated the debt that you may find yourself in, since everyone’s life is different and everyone’s situation shapes the choices that are taken. It could be as simple as just wanted something you just had to have and just couldn’t wait to get it. A credit card comes into your life and that next purchase is just an easy swipe away. Due date comes around and they offer the ability to pay a very small fraction of this debt which you might think is great. You now have the wanted item in your hand and you don’t have to miss out on much of anything else since making the minimum payment keeps bunches of dollars in your account. This is where the next step become critical for how hard you fall. You have a due date with minimum payment required and feel you can meet that payment and maybe just increase it a little more. You buy something else with your credit card and now you’re all in. By making just that minimum payment you have given the banks the ability to compound the amount due month after month. You could end up paying double or even triple for the item if you take this to the end.

Credit card debt can put a strangle hold on someone until they can’t breathe. The end of the payment cycle never seems to really get to the end because the credit line may be boosted to a new level. You see you’ve been making those payments, so you seem like a good risk. Banks are making 2, 3 and even 4 times the original amount of the item you initially purchased. A $500 television could end up costing you as much as $1500 if you just keep paying that minimum payment. Oh, and one other thing; if you miss a payment or are just late with it, the rate that you got when that brand new card showed up in the mail now can jump to an interest rate of over 25%. Making minimum payments can now make that television cost you $2000 or more. Not bad for the backs on your original cost of $500.

Next, might be to introduce a mortgage into the mix. You finally want to settle down and become a home owner. You usually don’t have the cash laying around to purchase a house and land running over $200,000. So now you are offered a mortgage by the bank where they will loan you the dollars to make this purchase and hold a note on your home, allowing you to live there and make monthly payments. They stretch this out usually in the 30 year range or about 360 payments. Initially you may do well with your payments and even find that the value of your house has increase where you now have equity built up. This is the amount your home is worth over the amount you owe. The banks come back and make a nice offer when this happens by saying they will redo the loan (refinance) and give you either cash back (your equity) or take some other debt(like that credit card), pay it off and give you a clean slate where all you have is a new mortgage payment.

This might not be a bad way to go but the future is never a guarantee. Things go wrong in everyone’s lives with no notice. An unexpected illness or even death can have repercussions on your finances. Maybe an accident either at work, home or on the road. Your home might cause someone to get hurt and this goes into litigation against all savings and future earnings. Things break in homes while just living there, like hot water heaters, washers and dryers, sinks, faucets, toilets, furnaces, etc. You get the picture, or you may need to do some preventive maintenance like seal a basement or shingle a roof, put new gutters on. None of these things were anticipated, they just happened. In order to deal with them you need to have cash available or go further into debt. This is just life dealing with you and the finite amount of finance you have available.

Creating an additional income can be fantastic if you understand the process of debt. If you don’t take the time to deal with this, usually additional money makes people purchase additional things. Creating passive residual income is really about running a business. You find something that people will value and create an information product that helps solve a problem. When this is purchased, you create another stream of income; however you are running a business and need to know that not all the money collected is yours. You need to pay taxes on your business, which in the United States means federal and maybe even state taxes. You need to reinvest in your business. That means that you need to use some of the earnings to maybe drive traffic, or purchase software, hosting or a number of items that will enhance or make things easier for your growth. Looking at the new found money that comes in from sales needs to be used wisely or you may just be trading one debt for a larger one.

Don’t go into your business blind about the money you owe now and might owe in the future. In the next article I will attack how to resolve the debt and start to create a wealth umbrella that can save you well into your future right through retirement.

About The Author

Thomas

A husband, father, brother, uncle and cousin to a great group. I'm an budding entrepreneur that has interest in making money that will sustain deep into retirement. At this point in my life I see no reason why I shouldn't get my piece of the pie.