Reduce Debt Increase Wealth

Getting Started Reducing Debt

October 30, 2022 MIsterchuck Season 3 Episode 137
Reduce Debt Increase Wealth
Getting Started Reducing Debt
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Show Notes Transcript

Debt can be overwhelmingly difficult to reduce. What is the first steps in getting debt under control. First to identify what cause this problem then to try to eliminate the problem. 

 Article Links: By Courtney-Rose Dantus By Julie Jaggernath

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Charles McDonald:

Hello, I'm your host, Mr. Chuck, a 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. Getting started reducing debt, debt can be overwhelming difficult to reduce, what is the first steps in getting debt under control. First to identify what caused this problem then tried to eliminate the problem. The number one problem for most people is you're spending way too much, you don't have the money to pay for it. So you put it on credit cards. Another common problem is maybe you got laid off or a something bad happened in your life and you didn't have the money available to pay for it. So you put it on credit cards, or you borrowed money to pay for it, no matter what happened, you now have a debt problem. And then once you Denta Fie, you have a debt problem, and you eliminate the cause of that problem. That's step number one, when you can eliminate that cop cause of the debt problem, then you're heading towards a brighter future, you're heading towards getting your debt under control, and you're getting that manage back to where it should be. My debt reduction program has built in safeguards of anything bad would happen your life, you'd have some money, if not on all the money to pay for that without having to use credit cards or to borrow money. And my show notes, I have three articles that I'm going to refer to that before you get started. You need to know more about how to get out of debt, and common ways to do it. And one of the first articles and there is how to reduce your debt by Consumer Financial Protection Bureau. And there's a link in my show notes, getting out debt as possible when you know what you owe and what you can do to repay it. If you're ready to begin paying down your debt, start with these three steps step one. Understanding debt reduction strategies there are two basic strategies can help you reduce debt, the high interest rate method and the snowball method. The high interest rate method is also known as the Avalanche method. And we're at the high interest rate method is Pro to focus on your debt like credit cards and student loans with the highest rate of interest. The goal is to pay off the highest interest rate debt as quickly as possible. Because it's costing you the most well it may not feel like you're making progress. This method will help you eliminate your Casias debts first, which can save you money in the long term. The snowball method focuses on your smallest debt. The goal is to get rid as soon as possible. You keep on making minimum payments on all your debts and you put any extra funds you have towards paying off the smallest debt. This will help you pay it off sooner. Once you've paid off the smaller debts and full dedicate Let freedom money to the next smallest debt. This way you create a snowball of payments as you eliminate each debt. Unlike higher interest rate methods, you'll see progress quickly as you pay off smaller debts. However, you may end up paying more in long run as you won't be focusing on the larger or more costly debt. Step two is to create a debt reduction plan and put together a strategy that's right for you and this law article. There's a link to our worksheet. I hadn't looked at it, but any worksheet you can use is a good thing. To use the worksheet you need copies of your bills and interest payment information. If you're motivated by saving the most money while paying off your debt, the highest interest rate method might be the right choice for you. However, you're motivated by seeing progress quickly. Then you may want to consider a snowball method. Choose the strategy is best for your situation and put it in action. And that's the key is you just got to do something. And then step three is organizing monthly bills, understand what you owe and when will help you manage your debt. You can use a bill calendar to keep all your information in one place as you tackle your debt. Use the bill calendar to see all your bills and plan when they are due. Keeping track of your monthly expenses can help put you one step closer to reaching your goals. Take control of your finances. Well see these items are good for you to use. It's not the way I do it. But this is a starting point. And I'm gonna go over my plan towards the end or the middle. Another article from my money coach is five steps to get out of debt when they make some good suggestions here. Small payments add up to pay off credit card debts. One of the best ways to deal with debt is breaking large balances down into management payments based on a realistic budget. Charging 5000 on the credit card takes mere moments to pay off 5000 is no small task. However, saying the goal, the payoff $150 A month is much more realistic starting point. Some people might break it down even farther. So it's a weekly goal. They look for ways each week to save about $35. So they can meet their goals, small changes can really add up over time and pay off on a really big credit card bill to Is this alright, accelerate your payments to pay off debt faster. And if you have a credit card, I know that payment is due once a month. But if you can pay some of it on every pay period, you're gonna pay off faster, even though it's not due. And maybe you make the first payment. And maybe then no the payments, not do it then when it's due normally, but keep on making all the payments. And my debt reduction plan I'm going to talk about is gonna help you do all this. Keep your money safe from yourself and avoid spending what's holding you back. You know, you got to track your expenses. That's the lifeline to your personal finances is tracking your expenses. And then you got to create a spending plan. That's also known as a budget. And I call a budget. A control center is where you control everything. Or you can keep track of everything and know what's going on and when it's due and how much you paid and maybe where you're overspending and you can look at those items and cut back. Sometimes you may be overspending one month compared to the previous month, then there may be a good reason for it maybe is something you had to do. Or maybe you had a bill that's due quarterly so you didn't pay it the previous month. That was due in the current month. Small changes that have some make them work for you. Another article is from the money coats that 12 of the most effective ways to get out of debt, pay more than the minimum, I disagree with that. spend less than you spend less than you plan to spend. I agree with that. Pay off your most expensive debt first, buy a quality used car rather than a new one. Consider becoming a one car household, reduce your grocery bill, get a second job, pay down your debt, aggressively. track your spending and identify areas to cut back, get a consolidation loan, that's the last resort. refinance your mortgage mortgage rates are going up now. So refinancing may not be a good idea if you have a low rate and speak with a credit counselor. Now, I don't think you have to create a spending plan, again, a budget. So that's the articles. Now I'm gonna go over why I do it. Once you identify why you have a debt problem, and once you can nip that in the bud and quit doing it. The first step is to quit using credit cards quit creating a new debt. And this is probably one of the hardest steps to do. Because you're so used to using credit cards to pay for things, maybe even some of your monthly bills, you're gonna have to stop doing that. And maybe you use in all the money you get from your paycheck to pay towards those credit cards. So that's why I say make the minimum payment on all your loans. Do not make any extra payments at this time. And then the second thing you need to do is once you get used to paying all your bills with your paycheck or with your income that's coming in, and no longer using credit cards, you got a good handle on everything's, you need an emergency fund, an emergency fund is nothing more than a savings account, or you park your money in a, you're not going to earn a whole lot of interest nowadays on a savings account. So it's a place for you to put your money in, and you're going to accumulate your money. And it's gonna be there in case an emergency happens. And emergency is something that doesn't happen on a regular basis. It's something is unusual. And something that you need to pay for, such as you blow a tire on your automobile, you need two new tires, or maybe you have children, maybe one of them breaks your arm breaks their arm, and you have the copay for the doctor. So you need the money to pay for these things. So once you have a minimum amount set up and say for your emergency fund, and you should be starting at at least$1,000, then you accumulate it keep accumulate, your extra money was not really an extra, but you keep accumulating your money, until you build that same to count your emergency fund up to about $3,000. The whole time you're building that up, it's available for you to use in case there's a unusual event, or an emergency that happens that you need to pay for. The idea here is that you're quit using your credit cards, and you're quit borrowing money. So the more you have, the better off you're gonna be. Once you get up to 3000, and we got a minimum of 1000 that $2,000 in there. Once all your bills are paid, or you know, you can pay all your bills for the month, then take that$2,000 and apply it to one of your debts. It's you can go two ways. But this is what I recommend, get your lowest bounce credit card first and try to pay it off or pay it as close to zero as possible. And once the lowest balance one is paid down, do not cancel the credit card. But keep it and keep it open. Because if you cancel it, that's gonna reduce your available credit and it's gonna hurt your credit score. Then after you've achieved that goal, you accumulate more money in your emergency fund, you get back up to 3000 again, and now you want to apply that to the highest interest rate, credit card first, your highest interest rate loan, it could be a student loan, I don't know. But generally a credit card is going to be the highest rate, or maybe some type of personal loan or payday loan or something, get those paid off


next, and apply it to that. And then

Charles McDonald:

you keep doing the same thing over and over and over until you get your credit cards paid off. Then once all your credit cards are paid off, then you start looking at other debt that you owe. Maybe you have two car loans, you keep doing the same thing over and over, and you pay off a car loan, maybe both car loans, maybe you have a line of credit on the home, you'd get that paid down. And the very last thing you're gonna pay off would be your mortgage, the first mortgage on your home, because nowadays you should have a fairly low rate, anything under 5% is a low rate. That'd be the last thing you want to pay off. So you want to quit using credit, you want to set up a savings account. You want to make a minimum payment on all your debt until you accumulate enough money to make a big lump sum payment. Because as long as as money is in its savings account, you can use it in case there's an emergency. So you're kind of doing taking care of two problems in one, one item. It's easy to do. You can keep track of it. That you know sounds good and easy, but I don't know. I have five credit cards I got three car loans. I got a line of credit, I got a mortgage. How do I keep track of all this? Well, first thing you do is keep the statements keep all your statements and put them in order. You're gonna categorize them. You're gonna put your mortgage statement, your line of credit, you can put that in one pile, you can put your car loans and another pile and you put all your credit card debts and then nowpow And you got to sort them by the highest interest rate on them to the lowest interest rate because the one at work from the top to the bottom, take the one off the top, get it paid off. And then at the very start, you find a credit card or the loan that has a smaller balance that you can pay off first. And why am I saying doing that? I say to do that, because it's gonna, it could take your two, three or six months just to get quit using credit cards to get back on just using your pay, check your income, to pay your monthly bills, and it might take you a while. So then you want to have all this stuff in order, so that you can either put it in a spreadsheet, so you can track it, put it because I have a budget spreadsheet that you can put it in, and you can track it. And it just makes life simpler. How do you do it? How do you know when your bills are due? How do you know when all your monthly bills are due? Well, that's the lifeblood of your personal finances. And it's called tracking. Tracking is nothing but a a program an application, some software, you can run on your computer, that you put in everything that goes into your checking account and out of your checking account. Every time you charge a payment or make a payment on a credit card, you're tracking it, every time you use your credit card, you're tracking it. So you know how much you're spending at all times. You know, the outstanding balance on all your credit cards at all times. The software I use is called count about. It's all one word count about that calm. It's like $9.99 a year, don't pay any extra fees to use the basic one, enter everything manually. Don't download it from your from your bank account, enter it manually, that way you will know what's going on, and your finances as the lifeblood of your personal finances. And that control center is your budget or your spending plan. A budget is nothing Yeah, I'd like that spending plan. I like it, call it a control center. Because you know, by tracking and you're using some software, you can create some reports, print them out. Now you got the numbers handy. To do your budget, the easiest way to get started on doing a budget is track for at least 30 days, do a report and then do a spreadsheet. The first column, gonna call it budget, that's your numbers that you actually spent the first 30 days actual, is the second 30 days or the second month you're doing it. The third column is difference, a minus b equals c, f c if b is less than a or doing good as B is more than a or doing bad. Pretty simple. So you want to see the difference as being a negative number that means you spending less, I can't make it any easier than that. I'll be back in one moment with 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 reduce debt, increased wealth is all together no spaces. If you'd like to ask your question, quick question in the subject. If you'd like to request my monthly budget, put bet spreadsheet in the subject matter if you want to leave a response of any kind is put a comment in the subject matter. I will get back to you as soon as possible. Being in debt can be overwhelming. You feel like you're working for the bank or mortgage companies. You're not making any progress in life. You think you are maybe you thought you were when you were spending your money or whatever happened that caused you to get all this credit card debt. But in the long run, you're not getting you get to a point where you're not moving forward. You're not saving money. Your goal should be saving money and eventually investing money so that when you get older in life, or some there or you start a family and start having children, you have some money available to pay for things that you're going to need because your income may not keep up with your lifestyle. So how How do you get started? The first step is once you identified the problem, and you eliminate the problem, and you quit using credit cards, and you're paying all your monthly bills with your paycheck, when I'm saying monthly bills, I mean your rent or your mortgage, all your utilities, your food, your gasoline for the car, your car payment, your mortgage payment, stuff like that, things that are due every month that you have to pay, in order to live the half your lifestyle, no matter what it is, then you should have money set aside into a savings account, and an emergency fund for that unexpected item that pops up in your life. And once you have that, then getting your debt under control becomes much easier. But how do you get to that point? Well, the first thing is you got to track your spending, you need to use a program, you need to put in all the data, and don't you go to your checking account online and say, Well, I can see everything I spent my money on. That ain't gonna work. Maybe your bank account can do you some reports, maybe they can, mine don't. If it does, it's not the way I like it, it's gonna be hard for you to do anything. That's why I use an online program. To do it, and I manually enter it every week, every pay day, I put in my paycheck how much it is because it's different every week. And all the bills, I paid all the money I spent, including the one credit card I use that I pay off every month. Now one of the ways you can get around of doing a lot of detail, is have a second checking account that you set up, that you put in some money for that pay period. I do $75 A week. Whenever I use that debit card, I don't have to keep track of nothing. Because I know when that credit goes under $75, I can't spend no more, I'm done. I know I've spent all the money that I have budgeted to spend it. And I didn't have to keep track of all that did that track one thing, the $75 a week at one hour on my main checking account into that checking account. And that's all I do. I don't even do it online, I don't enter nothing, cuz I know. So when you find out, maybe you can set it up for$300. And then you can use it for groceries or maybe get a hair cut. I don't use it for gasoline for the car that comes out of my main checking account. And just for food, entertainment, maybe in little miscellaneous stuff as what I use it for, and that reduces the amount of detail I have to keep track of. That's a little hot tip there you can use. But if you don't do tracking, you're not gonna be able to create reports, to do your control center to do a budget, so that you can now look at last month this month. Or once you've been doing it for six months, the numbers for your budget that you put in the budget column or your spending plan should be pretty much the same month in and month out, it shouldn't change a whole lot. So the only numbers you're updating are is the actual and you can go in what I do is go in and create a report from the beginning of the month to that particular date I'm working on by category. And I put the numbers in my my budget. And then the next time I do and I beginning in the month. This says that next date maybe is the second week or the third week of the month. And it's updating and give me totals and I just updating the totals and has given me the difference. And as I do that I can see hmm, my housing went way over what happened. I can go in my tracking and look at what happened in housing that why did it go way over? Oh, my homeowner's insurance is due once a year and I paid it or I had a major repair plumbing problem, and I fixed it. But now I know what happened. So I'm not worried about it. So I don't change my budget amount because I know this is a one time event that only happens every once in a while maybe once a year for The insurance maybe once every five years for the repair or less, that keeps your life easy. And it doesn't take a long time to update this program, and to do your budget. And your budget should be broken down to housing, transportation, living debt, that that's different than housing and transportation, which would be your credit card and student loan debt or whatever personal loans you may aim at that keeps it simple. So you got what, three, four categories, and it's not that difficult. And you can keep track of what's going on in your life. What's going on in your personal finance wife is important. That's the only way you can keep your goal and meet your goals, whether it's to reduce your debt, save money for next year's vacation, say money for the second car or your whatever you're saving money for. You can keep track of it. And you'll know, okay, I want to put $200 a month in my savings account and never touch it again. And I'm doing it. I'm doing $400 a month, and I'm doing that. And I know I don't ever have to pull back out again unless I want to. So keeping track and having control is the key to managing your debt and reducing your debt. And if you do all these things, you'll be glad you did so