One teacher's philosophy: Pay off those credit cards


January 12, 1998|By Bill Atkinson

BILL KEATING has an investment that can't miss.

It's tax-free, guaranteed, and returns more than 18 percent annually.

It's not a stock or a mutual fund or a bond. It is simply paying off credit card bills and other loans that can drain the life out of a weekly paycheck.

"It is a phenomenal investment," said Keating, a 57-year-old get-out-of-debt specialist, who holds an MBA from the University of Chicago. "Nowhere can you get an investment that is 18 to 20 percent guaranteed and has no tax consequences. If you invest in yourself, there is no risk and no tax consequence."

Keating develops software for Social and Health Services Ltd., a Rockville-based company that runs the national clearinghouse for alcohol and drug information. But several years ago, he began teaching a course at Montgomery College on how to get out of debt. He also consults, and has developed a computer software program that shows people how to banish debt from their lives.

Keating has been teaching for four years and his biggest battle is to make people understand that they are squandering their money on monthly interest payments.

It is money that they could put toward retirement or financing a college education.

He argues that credit card companies entice consumers with flashy advertisements and then hook them with low monthly payments that mainly go toward paying the interest.

Those who come to him with high credit card balances are told that adding even $1 to a monthly payment can help them to get out of debt faster.

Take this example: A credit card debt of $2,162 takes 15 years to pay off with minimum monthly payments of $36. Assuming the interest rate is 18.84 percent, the customer will have paid a total of $6,615 by the time the debt is retired.

Add an extra $1 to the payment, and the debt is paid off two years faster and is reduced by nearly $700.

"People just don't understand the compounding power of money," Keating said. "It shows no bias. Rocket scientists don't even appreciate it."

People begin to understand the power of money when debts mount and creditors start calling, Keating said.

Since he began teaching, Keating has met numerous people who earn from $30,000 to more than $150,000 a year, and are heavily in debt.

Diana Sumner, 52, came to Keating about a year ago $40,000 in debt.

She had credit card bills, a car payment and rent. About $1,500 a month went to bills, and she was still coming up short $400. Her poor spending habits had prevented her from starting to save for retirement.

After Keating reviewed her finances, he told her that her total debt was $70,000 because she had failed to project the interest she would have to pay.

"She cried," Keating said. "I told her what her options were, to declare bankruptcy, or try and raise the money."

She decided to raise the money. She sold jewelry and an exercise bike and she persuaded a close friend to make up her $400 a month shortfall.

She also reduced her rent when her mother moved into her apartment.

In addition, she called creditors and persuaded them to reduce the monthly interest rates on her credit cards. One waived the interest altogether.

Instead of making minimum payments of 2 percent on her credit cards, Diana fixed them at 4 percent of the balance to pay them off faster.

"I still have a long way to go," Sumner said. "I consider it a work in progress."

Keating is understanding and good natured, but he insists that people who seek his help make the tough choices.

A couple in their early 40s came to him with $100,000 in debts. He put them on a strict monthly budget.

Out went the cellular phone, the beeper and weekly lunches at restaurants. He persuaded the husband to ask his father for $6,000 so bills could be paid immediately.

"All their money now is going to bills; they were leveraged to the hilt," Keating said.

Another client argued that she wanted to keep her cellular phone for protection in case she was attacked while walking to her car at night.

"I said, 'Sweetheart, you are not going to have any time to dial a number if someone attacks you. Give me another answer,' " Keating said.

Keating believes in using every last dime to get rid of debt.

"People ask me, 'What if I have an emergency' and need money, Keating said. "My response is: 'When was the last time you had one?' "

Keating became interested in finances in 1984 while selling insurance, mutual funds and individual retirement accounts for Primerica Financial Services Corp. He liked to teach clients about investing, but he became discouraged because few took to heart his spiel about saving money.

"I would see these very nice automobiles in the driveway, and I couldn't understand why people wouldn't invest with me," Keating said. "They were broke."

Keating was a sinner, too.

"I made all the mistakes I talk about," he said. "I have been broke three times."

He was $22,000 in debt in 1989 after a divorce, and he couldn't pay the rent on his apartment. He remembers the day when his Cadillac was repossessed. "That was terrible for me," he said. "The Cadillac was my symbol to the world that I was OK."

Keating reformed.

"If I can't pay cash for it, I can't have it," he said.

Keating, who has since remarried and has a child, drives a secondhand 1988 Alfa Romero. He paid $5,000 in cash for it.

He paid about $9,000 in cash to furnish his new townhouse in Rockville, and he saves 14 percent of his salary each year.

He has one credit card, and he seldom carries a balance.

"Most people are spending $800 to $2,000 a month to retire debt," Keating said.

"Think about what being debt-free would mean to you. There is almost no plan you could not fund, be it an emergency fund, a kid's education or a retirement plan."

Pub Date: 1/12/98

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