Don’t Let The Dodd-Frank Rollback Suck You Back Into Debt

Whenever people choose to take on obscene amounts of lifestyle debt, banks are usually right there, eagerly serving as enablers. For example, before the financial meltdown of 2007-08, lenders supplied homebuyers with risky subprime mortgage loans. Even though some of the lenders weren’t banks themselves, their actions had the full support of large financial institutions, eager to profit off of people’s debt.

The aftermath of the crisis saw a movement to rein in the large banks, through legislation like Dodd-Frank. But the rollback of this legislation in May 2018 eased regulations that discourage risky investments giving certain banks the green light to return to their old ways.

The subprime mortgage crisis underscores a truth we’ve seen for a long time, regardless of the regulatory climate: Banks prey on the habits of the 96 percent who don’t know how to manage their money.

Being debt-free is hard

Unfortunately, banks understand people have bad habits around spending and paying off debts. That’s why so many offer incentives like 0% balance transfers that let people move their debts from one bank to another at no interest. They know that the overwhelming majority of people won’t let go of their bad habits after a debt transfer.

Of course, it doesn’t help when role models tell us that we have to take on lifestyle debt in order to get ahead. This promotion of “debt culture” has had an effect, as the debt problem has only increased since the beginning of the last recession. Americans’ debt hit a new high of $13 trillion last year, compared to $280 billion in 2008.

At, we rarely advise people to take on debt. In fact, we call bullshit on the idea that people need to take on lifestyle debt in order to get ahead.

Borrowing money (almost) always leads to misery

There’s almost never a good reason to take on debt. Even when you think you have a decisive plan in place to pay it off quickly. Because most people don’t know how to pay off debt, and more importantly, can run into trouble sticking to the plan. Taking on debt is a quick and easy way to start feeling Money Stress and misery.

One of our core beliefs is that Paying Yourself First, or setting aside money for your future self, is the first step on the path to Financial Freedom. But it’s hard to accelerate to Freedom when debt is eating away at your Pay Yourself First (PYF) amount.

If you have debt, ignore what the banks are marketing to you, forget that Congress has rolled back Dodd-Frank, and get rid of that debt as fast as possible. And we hate to be the bearers of bad news, but simply making the minimum payment every month just isn’t going to cut it.

This does NOT mean you should take your entire PYF amount each month and use it to pay off debt. You can still build wealth by giving about one-third of this amount to your future self.

Striking down debt

When it comes to striking down debt, we favor the snowball method. You can’t conquer debt all at once, but you can start by focusing two-thirds of your PYF amount, plus your minimum payment, on your smallest debt. Keep paying that amount each month until it’s gone. Then move on down the line to your next-largest debt, applying the same PYF amount, as well as the minimum payments for BOTH debts. This approach allows you to increase the amount you’re paying off over time and build confidence.

Remember, during the entire process, you’re still earning your way to Freedom by building wealth. But most importantly, you’re making sure your cash surplus can grow in the long run, unobstructed by debt.

As your debts get smaller, you’ll notice your Money Stress going away, too. Psychologists consistently associate high amounts of debt with anxiety and depression, feelings that hinder your ability to use money in a way that makes you happy.

Due to the stress it causes and the limits it places on growth, Financially Free people avoid taking on debt. But some people need to clear their debt hurdles in order to achieve true Freedom. Knowing the right way to pay off debt limits the influence banks have over our lives, regardless of the financial climate.


The views and opinions expressed are those of the guest author and do not necessarily reflect the views and opinions of

image credit: Bigstock/demerzel21

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