Reduce Debt Increase Wealth

Debt Management Plan

October 09, 2022 MIsterchuck Season 3 Episode 134
Reduce Debt Increase Wealth
Debt Management Plan
Show Notes Transcript

Debt management is a must for everyone, to keep credit cards under control. Debt reduction is a must in this time of inflation to stay on track with goals. Before getting started on debt going to talk more about control center and how to use with debt management.

 Article Links

https://www.incharge.org/debt-relief/debt-management/debt-management-program-template-debt-relief/ By Tom Jackson

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Charles McDonald:

Hello, I'm your host, Mr. Chuck, I retired accountant turned truck driver, I reduce my debt in a relatively short period of time, debt reduction, to achieve financial freedom takes commitment, confidence determination. That management plan, debt management is a must for everybody to keep credit cards under control, that reduction is a must, in this time of inflation to stay on track with goals, before getting starting on debt, going to talk about control center and how to use with debt management. For those of you hasn't listened to my past episode, control center I'm referring to is a budget, I'm just gonna refer to his control center from now on, because that's what it really is. And for most people, that management, if he would Google that online, it would be some type of a counseling service, whether for profit or nonprofit, that will help you get your debt under control for a fee. If you use a service, then you're gonna be take much longer to get your debt under control. But for me, that management is not that service. But it's you're doing it yourself through your control center. Also use your tracking software. In the past, I talked about the crate, a category report, and then maybe you can copy and paste it into a spreadsheet. I tried doing that, and it really didn't work. I don't have a printer. That's why I said that. I would recommend that you print out the category report. And then go into a spreadsheet and set up your categories for your control center. In the same order that that report is listed. That's just to get started. And then after a couple months, regroup them by housing, transportation, food, clothing, entertainment, and what other other categories that are important to you. You want to do your needs first, and then your wants. Second, one of the categories should be credit card debt. And that's the debt you're going to try to keep manage through your control center. So how much would you put in for your budget, you would put in the amount of money. If you treat your credit card like cash, how much can you afford to pay in cash to keep it at a zero balance? Maybe it's $300 a month, maybe it's $300 a month for two credit cards, whatever your case would be, but as long as you can pay it to zero, and you're not paying any interest or fees to the credit cards, then you're managing your debt, when you get out of control is when you're got more debt than you can handle that you cannot no longer pay it off to zero every month or even two months, let's say now you're starting to get into a debt reduction problem. So you need to have a debt reduction plan. And we're gonna talk about that a little bit later on. In my show notes. I have a do do it yourself debt management program a template for debt relief. For those who are interested he can get the link in my show notes. And we're gonna do that first Are you a do it yourself person when it comes to broken windows or leaky faucet? How about credit repairs, as fixing your finance can be as much of a D I Y project guys tackling windows and faucet problems. One of the most popular and effective ways to deal with credit card bills, medical bills and other unsecured debt is to contact a nonprofit credit counseling agency and apply for a secured debt management program. And that's what we're trying to avoid here. But if you're a do it yourself kind of person and want to tackle it on your own a DIY management plan may be right for you unsecured loans generally have a higher interest rate and involving credit, it becomes a cycle that seems like it will never end. But you can end it with some hard work and a proven strategy. This page will walk you through how to manage your debt, providing a template for a do it yourself debt management strategy. So that's basically what we're gonna do that they want you to create a spreadsheet, determine a debt, man, come up with some type of strategy on how you're going to tackle it, negotiate lower interest rate with your creditors, limit expenses mean quit spending, and track your process and monitor your credit report. So that's what the DIY, if you want to go in and read the rest of it, feel free to do so. But I'm gonna talk about a debt management plan that you're gonna do yourself. Like I said earlier, it's the amount of money that you can afford to pay your credit cards off every month. Now, this is for those persons who do not have a problem with spending. This is for somebody who has the idea on how to properly use a credit card. And reality in if you really want to think about it. A credit card is a short term loan, and they're fed see if you pay it off every month, as the interest free fee free short term loan, about 20 days for most of the credit cards. If for some reason you buy something that costs more than what you're able to pay off, if you can pay it off in a second month, you're okay, you're gonna pay a little bit of interest, make sure you make your payments on time to avoid any additional fees. If you're wondering how credit cards make money, they're making money from the merchant. When you purchase whatever it is you're purchasing online, or through a retail store, they're going to charge that merchant up to three to 5% fee of your purchase amount. So they're making money on both ends are making money from the merchant. And they're going to try to make money off for you, when you make late payments, they're going to charge you a late payment fee. If you go over your balance, so you know overdrawn fee, interest on a monthly basis that it's really going to get higher and higher, as inflation keeps on growing, that we're in this cycle right now. So that's about it about a debt management, you use your control center, and you make a category and call it credit card debt or personal loan debt or just general debt that is not related to anything else is not a mortgage on your home, because I would be on there housing is not alone on your car, because I'd be under transportation. It's just generalized debt. And now you're probably wondering, when the only thing that you're gonna be applying to that is your payment to that particular credit card, or that particular loan. When you use the credit card, and you charge something, that's when you categories that charge of what you're buying, say you went out and you bought some new shoes or some clothes, for vacation, some casual clothes. So you would then category that under clothing for your category when you enter it and your tracking system. That when you go to pay the credit card, you're just paying a credit card so that the payment to the credit card is his credit card debt is how I categorize that so that you know what's going on and I break it out. Well, I'm only have one credit card. So it's simple. But if you have multiple credit cards, you need to list all your credit cards, all the balances the whole nine yards so that you know where you stand, and my spreadsheet that I created for a budget. I include the opening balance, payments, charges, ending balance, the rate of interest, and even the date it's due so I can make timely payments. Put all that information in your control center, and you can see it at a glance and it's easy. You won't forget to make a payment or you won't make a late payments. Now what is a debt reduction plan? Well that is a plan that you come up with to get your credit card and other unsecured loans. under control, that's where you start, you want to focus on your highest rate of interest debt first, which are generally personal loans, payday loans, and credit cards, the first thing you do is quit creating new debt, quit using those credit cards, I'm not saying to cancel them, or cut them up. But if that's what you have to do, then that's what you have to do, but do not, you're not going to cancel them because they have a bounce. If you pay off the balance, do not cancel the card. Maybe you want to quit a using them, and start using cash or your debit card and live within your means. And that's where your control center comes in. Because it's gonna list your budget or your your budget amount is gonna be how much was your income last month, and then your actual is gonna be how much is your income this month, and then the difference did your income go up or down. Occasionally, if you get the same pay every pay, and you get some months, you're gonna have more pay periods, and then other months. So it could be a little bit higher or lower. So that's where, if your pay is different from week to week, then you need to come up and figure out an average over a period of time, I did it for a six months period of time cut figure that hit most of the cycles, I added it all up i divided by the number of pays, and I came up with an average. Now over time, I was able to, to net in to pretty close to what my average pay is. Now some weeks, I'm way over some weeks on launder some weeks on Ryan on pretty close to it. But that's what you need to do, he needed to do that with all your expenses. Now your loans are gonna be the same because once you quit using your credit cards, the second thing is you only make the minimum payment. And I'm going to explain later why you're drawn to do that. You only make the minimum payment and quit paying any extra on him at this point. Because you're struggling to get your debt under control, or you're trying to get your debt under control, whether it's a struggle or not depends on your situation. But just make the minimum payment on time. If you've been paying him late, or maybe you skip a month from one credit card, because you don't have enough money to pay it, he got to make the minimum payment on all your debt timeline. The third thing you're gonna do is set up emergency fund. An emergency fund is nothing but a savings account where you set aside money, and you want a minimum balance in that savings count of at least $1,000. If you're just getting started, you don't have a savings account, go to the bank where you have your checking account, put in $50, or whatever they required to open up a savings account, and you start putting money in there. And that's where your control center is gonna help you if you know what your income is less expenses that you're gonna pay, and you want through that over a period of a couple months, and you got your spending under control, now you're getting, you're not spending all the money you make, then you need to put money in to that savings account. And the first $500 and then $1,000 is gonna be the minimum balance in that savings account. I know the bank interest is very low, you're not gonna make anything on it. But that's not the intention of this. The intention of this is to help you quit creating new debt. So if something would happen, that's an emergency. I'm not talking about, you're coming up short and you need to go to grocery store I'm talking about you need new tires on your car, you blew a tire on your car, or your car broke down, or your refrigerator broke down or something needs repair to replace. That's the emergency, not every day living type of expenses. So once you get your emergency fund built up, you keep building it up until you have about two or $3,000 in there. Once you have the $3,000 in your savings account member, it never goes below 1000 All that time where you're building it up, it's your emergency funds have anything bad would happen as an emergency, you had had more money in there to pay for it without using credit. So once we get there, and you know, your upcoming bills are under control, that you have enough money in your checking account, to pay all the upcoming bills coming up, you got no big bills coming up. And that's important to know, your future bills. So by tracking and setting up your reoccurring payments, so the tracking software I use is called count about. And once you go through there and get 30 days done, then go back through your transactions and you can everything you pay every month, you can set it up as a reoccurring payment monthly. And then if you have some payments there do quarterly, once you pay those, she can set that up as quarterly. So now you can look and see. And then from this pay period to the next pay period, what bills I have do, oh, I have these things do, yes, I have enough money to cover that, I can use my extra money in my savings account that $2,000 And I cannot apply it to my debt. Which debt Do you pay off first, to start with, if you're brand new, you want to pay off whichever debt or credit card has the lowest balance, you want to try to get rid of one of them as quickly as possible. And that's by not making any extra payments, but just applying this extra money do you have set aside in your emergency fund or your savings account. That way you feel like you accomplished something that you're making an advancement that you reward yourself. After that you want to apply the money to the debt or credit card that has the highest rate of interest. Because the more interest you pay, the longer it's going to take to pay it off, it's just gonna take a long time. So if you can start knocking down those balances on that highest rate, first, you're gonna pay less interest, which means you're gonna apply more money to your principal, when you make the minimum payment, the balance is gonna shrink faster, and you're gonna get out of debt faster. And the less interest you pay overall, the better off you're on a beat. And you just keep doing that over and over and over. And while you're doing that, you're refining your budget, your control center, you're looking at everything you're spending money on. Like your utilities, you know, you pay those every month, is it the same amount every month was pretty well set, because that's what I did, I want to enter each utility and set up a budget amount with the utility company. So now I get the same bill every month, and once a year they adjusted. So now my budgeting I control center is got a set number that always comes to zero every month. You do that for all your bills. Now the do the same thing with your grocery bills, your gasoline, everything, you figure out some type of average, the more weeks you go through the more from the EU's, you add them up, divide it come up with an average number, apply that to your budget. Over time, from month to month, you'll be within five to $20 of spending the same amount. Now we have inflation going on. So the prices of groceries your gasoline go up from week to week. So you want to increase your average 20 or $30 higher than what is that your average figured out so that you will be closer to the actual when you go to when you pay it and that current take our money. Now the control center have been talking about the budget column, or the column number two, your first column is your categories. Your second column is what we're calling the budget, or the control number is called the control number. It's the average of what you've been spending over time, or it's the exact amount of your loan payments is the exact amount of saying utility Some things never change is the exact amount. The third column is actual What are your spending in the current month? So you'd go to your tracking software, and you do a report by category. every pay period, you update your tracking every pay period, you put in everything you spend money on. And you'd do yourself a report your printed off. And that's, you know, from the first of the month until that particular pay day, then the second pay day you do it again from the first one month to the second pay day. And that's your totals for the current month, which is the actual, and you go in, you update it. And then you can see what your differences, you can see where maybe you overspent or maybe where your control figure is maybe a little bit too low, or maybe a little bit too high. And you can adjust those things. And your goal is to get your current month, matching your control numbers, your control months, your control averages, so that you know how much money's coming in, how much money is going to go out how much money you have leftover that you can put into that savings account and build up that emergency fund. And you now you can look at the detail. What am I spending money on? Why is my subscription so high? Is there something in there that I no longer need, I'm no longer using go ahead and cancel, you need to figure out ways to save money. Because if you're struggling to pay down debt, you need to save as much money, reduce your spending wherever possible. So they you can save it and build up their emergency fund faster. Now this system is slow at the beginning, it's gonna Egon V like a turtle, it's gonna be really super slow and might take three or four months before you can get off using those credit cards before you quit using them, then it might be three or four months after that before you even have the minimum of $1,000 in your savings account, then it might be another two or three months after that before you have enough money to apply a lump sum to one of those credit card debts or one of your debts to get it under control. But over time, as you get the first debt paid off, you get to second debt with a high rate of interest, pay down the half pay down to a quarter you get it paid off, you're getting more and more money available because your minimum payments are going away. So maybe your minimum payment on that first credit card was $20 a month. And then maybe on that high interest credit card it was $150 a month. So now you have $170 A month extra or that you're not spending or using and you're putting it into your savings account. And you do that was the next one. And you do that over and over and over. And it took me three years. Eight months, I paid off three or four credit cards, I paid off three car loans, I paid off the line of credit, and I paid off my first mortgage, roughly 135,000. And I make roughly between 55 to 65,000 a year. And I pay now off and three years, eight months. And this is exactly how I did that. I'd be back in one moment was my final thoughts. If you want to contact me to request my spreadsheet for the budget, or leave a comment or ask a question, you can send it using my email, reduce debt, increase well@gmail.com. reduce debt, increased wealth is all together no spaces. If you'd like to ask a question, quick question in the subject. If you'd like to request my monthly budget, put that spreadsheet in the subject matter if you want to leave a response of any kind is put a comment in the subject manner. I will get back to you as soon as possible. For those of you that think you don't have a credit card problem, and you can pay it off every month. I'm happy for you. But you still need to have a debt management plan. You still need to use your control center, you still need to track tracking is the engine of your personal finances. And the budgeting or the control center is where you can control it. If you know you have two or three credit cards that you use, maybe use one a month and you rotate them around while it's fine If you pay them off every month, that's great. You don't pay any fees, that's great. But you still need to set up something in your control center, so that you have money available and set aside to make those payments when the payment becomes due. If not, you're going to find yourself struggling to pay off debt, credit card debt, personal loan debt, whatever it is, you got to be struggling. And you don't want to overextend yourself by borrowing too much money for your housing or your automobile. A debt reduction plan is for those of you who have a lot of debt, and you're struggling to get it under control. Remember, quit using your debt, quit creating new debt, make the minimum payment, get an emergency fund savings account set up and put the money in there, maintain at least $1,000 until your debts under control. Build it up and pay it down, apply it to the smallest balance first, and after that pay off the highest rate of interest. And then on and on. Before you know it, you'll be under control. And once you get your debt paid off, you keep doing the same thing. You keep tracking your spending in your income, you keep your control center going, you keep it up to date, every pay period. And then keep tweaking your control dollar amounts to keep it up to date and on do because with inflation is going to be ever changing. It's can be a challenging at first. But once you get into it, maybe two or three months, it becomes easier and easier. It will become second nature, you won't even think about it other than you got to remember to do it. That's why I do it every pay period. No matter what. I've been debt free for well over a year, I still do that pays to go in my tracking software and put in my transactions. I still reconcile that to the bank. I still do all that I still have a budget amount. And I know what's coming due in the near future in the next two weeks, month. So I know how much money I can transfer into my savings account and not have to worry about coming up short in my checking account. So get your control center set up. Get your tracking set up. Well it should be this. Get your tracking setup. Get your control center set up. Fine tune your numbers, keep them up to date, and you'll be glad you did so