Have debt problems this episode talks thru all the steps to getting debt under control. Beginning with identifying the problem and the steps to take to tackle this problem.Support the show
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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 problem overview, have debt problems, this episode talks through all the steps to getting debt under control, beginning with identifying the problems and the steps to tackle the problem. The first step is to realize you have too much debt that your debt is out of control. Whether it's because you have two mortgages on your home and a line of credit, rather, maybe because you got three car loans, or maybe because you have multiple credit cards that you cannot pay off every month. Whether it's charged up to the limit or not, it does not matter. Well, how do you realize this? And when do you start to take control. As soon as you realize you have a problem. Maybe it's because you don't have any living paycheck to paycheck, maybe because once you make all your payments on all your loans, and all your utilities, your car payments, put gas in the car and buy groceries, you don't have any money leftover, you don't know where it's going. If you don't know where your money is going, you probably have a debt problem. So one way to figure this out is add up all your credit card and personal loan debt payments that you make every month. How much is that? Is that more than 25 to 30% of your take home pay? If yes, you probably have a debt problem. Think what you could do with that money every month, if you weren't making these loan payments, what could you do, you can increase your savings of where you have a larger emergency fund, you could pay down other debt, you have maybe a car, pay off a car loan, or maybe pay off one of your line of credits or your one of your mortgages. It definitely will help you get better along in your finances quicker, the less debt you have. Now, how did you get yourself and this much debt, there's only two ways this happens, you spend more than the money you make. So your if your take home is $1,000 a week. That means you're spending more than$1,000 a week on something and you're using credit to make up that difference. Maybe it's only a few $100 a week, maybe it's only $50 a week that you're going over. But over time, it got you in some problems. The second way you get into this problem is you don't have any emergency savings. If you don't have a savings account, you don't have an emergency fund, where you set money aside to cover those unforeseen unexpected expenses that could pop up such as a car breaking down, or appliance in your home going out whatever the current accident and doctor bills. So you didn't have enough savings to cover. So you had to use your credit. And in order to pay for those unforeseen expenses. Those are the two ways you get in trouble. So what do you need to do? Maybe you're feeling overwhelmed. You have three or four credit cards charged up to the max, you can barely make the monthly minimum payments, and you're not making any progress. What can you do? Maybe you're paying a little bit extra but it doesn't seem to hope. So what do you need to do a number one you need to set some goals for yourself. He got to give yourself something to shoot for. He got a light at the end of the tunnel. You have to identify what that light is. Maybe it's just paying off all your credit cards. Maybe it's pan off Have all your personal loans, or your high interest loans, which would be credit cards, personal loans, payday loans, on shop loans, buy here, pay here, car dealers, where you're buying a car from a Buy Here Pay Here lot, a charge a lot of interest, you may not know that. But that interest they're charging you is more than what you could get if you just got a car loan. So what are your goals, the list set your goals that I want to pay off my credit cards or all my personal loans and get that under control. And then we can set some goals later on down the road. Once we chief that, if you don't set goals, you don't know what you're shooting for you how are you going to achieve anything, you've got to set something so you have something to work towards fairly simple concept. Once you got that done, you need to identify what your debt really is, maybe you know you have a problem, but you don't know how bad it really is. You need to look at your all your data. And you need to get that all down in one place where you do it in a spreadsheet, or you're writing down on a piece of paper and who you owe, how much you owe interest rate, minimum payment. And when it's due. Once you got that down, you can then organize it by the debt you're trying to get rid of, in this case, credit card debt, or all your high interest debt. So when I say high interest debt, I'm talking about credit cards, payday loans, those type of things. At this point, just keep making the minimum payment on your student loans. We're not trying to pay off student loans, we're not trying to pay off your car payments, and we're not trying to pay off any of your mortgage. We're just trying to get high interest debt under control and get rid of it. This is gonna take the longest period of time. How are you gonna do that? Well, you need a debt reduction plan. So we identified were a problem was we were overspending, set some goals, pay off our credit cards and high interest credit loans. How are we gonna do that? One, first, step number one, quit using credit. That is the hardest step, because you got so used to using credit to make up the difference for your income, he got to quit doing that, it may take you a while, it may be a slow process. If you're using a credit card to pay a monthly reoccurring Bill, you need to take those off your credit card and pay them through your checking account. If you don't have enough money to pay for it every month and cash, do you really need that item? Do you really need that subscription, whatever that is you're paying for, you need to pay for it in cash, or a debit card from your checking account every month, and quit using the credit, get those off your credit card. That's step one. Step two is if you're struggling to quit using credit at identifying those small charges you're doing, and just make a goal of not charging anything less than $10. And over 30 days or so you quit doing that, then you say on my charge and anything from $20 to zero. So up to $20 you get rid of those cards, then it's $50 Then it's $100 and then it's $500. And eventually, your credit card is not going to be used very often only for those large ticket items. And we're gonna solve that problem down the road as we go because we have a plan for that. So once you get quit using your credit, then at the same time you're gonna start making the minimum payment on all your loans. Do not pay any extra and the reason for that is you're gonna take that money that you are applying to a credit card or paying Extra time alone, and you're gonna start building a savings account or a emergency fund. And we need that emergency fund to be a minimum of $1,000. So once we get that going, this is all happening at the same time. So we need to make the minimum payments, we're gonna reduce the amount of credit we're using every month, we're making the minimum payments, and any extra money that we would have applied to a credit card or some other debt, we're putting in a savings account. And we're trying to build that savings account, ie our emergency fund, up to a minimum of $1,000. As time goes on, this will become easier and easier. Once we achieve that$1,000, we keep doing the same thing, quit using credit, make the minimum payment, and apply any extra money into your savings account until we build it up to three to 4000. Above that $1,000 Minimum emergency funds. And while we're doing this, say we're up to $3,000. Now we have an emergency fund up to $3,000. If something would happen at this point, you have$3,000. So the next thing you got to do is when there's an unforeseen expense crisis that may happen, you use the money in your savings account, to pay for as much as possible. And then anything above what you have, you're gonna use a credit card so that you can get it paid off. So let's say you have the new tires, and the tires are $1,800, you have 1500, in your emergency fund, he used the 1500, you gotta leave $1 or $20 in your savings account, to keep it open. So you use as much as you can, then the difference around$320, let's say 1500 to 1800 320 bucks, because you're leaving$20 in your savings account is put on a credit card. So instead of charging $1,800, you only charge $320. Therefore, you're keeping your debt under control. And we're working on getting it reduced. So by increasing that last is the less to reduce later on. Hope that makes sense. Once you do this, and you have 330 $500 over the $1,000. So that would be 4500 Total in your savings account, you take out the $3,500 and you apply it to one of your debt you're trying to pay off. Now you can pay off the one with the highest interest rate. Or you can pay off the one with the lowest balance. If you want to feel like you're making some progress, pay off the one with the lowest balance. And then after the first one, you do not close it, if it's a credit card, you leave it open. Then after that you apply your money to the debt with the highest rate of interest. The reason you don't close the credit card is one it's going to hurt your credit rating, because your credit to income ratio will go down, because you'll have less credit. And too, you'll lose out on the chance of using it when you get an offer. Because a few months down the road, that credit card company's gonna send you in the mail and offer transfer your debt from other credit cards to us. And it's a three to a 5% transfer fee. And we'll give you 18 months 12 months of zero interest on that transfer. So you can use that to your advantage. You can take the high credit car, transfer two or 3000 onto this card. You got 18 months to pay it off. Let's say you make equal payments for 18 months you get to zero and that other card is greatly reduced because you took a big chunk off of it. And again you still doing the same thing with you're building up your savings and then applying it and you can really knock down that interest high interest card balance once faster by doing that. So you use it to your advantage. You keep doing this over and over until you reach your goal of paying off your credit cards. Once you get that done, you might want to build up your savings to have a minimum of 3000, you're always going to be increasing your emergency fund. Because as life goes on, things get more expensive, you have maybe more children, a higher risk of injury to more of them at the same time. Who knows, but you keep building it up. Once you get your high interest debt pay down, then you start focusing on maybe a car loan, or maybe your line of credit, or maybe one of your mortgages that's almost under control, that I highly recommend you work on that loan said with the highest rate of interest first, and pay them down. Cars is a good example. Because the life of a car is much shorter than the life of your home, and it goes down in value instead of up in value. So you want to try to pay off the debt on your automobiles next, then your home of last, you may think that you don't want to pay off all your debt, maybe that could be the case, maybe not. If you're gonna be in your home for five years or less, you know, you're gonna be transfer or move somewhere, maybe you don't want to pay it off or even pay it down. Every situation is different at depends to you. I was focused on getting all my debt paid off my credit cards, my car loans, and my home mortgage, because I was looking to retire. And the closer to retirement I got, the more I realized my retirement income wasn't going to be enough to pay for all this debt that I had. So it took me three years and eight months, I believe I paid off$130,000 a debt. That was car loans, credit cards and line of credit on my home, first mortgage, we all can do it. It's a matter of getting things under control. That's what you do. That's your debt reduction plan. But how do you go about keeping track of it? Well, that's where tracking comes into play. You have to keep track of everything going into and out of your checking account, your savings account and all your credit cards that you're using. That will show you how much money you're spending from month to month, you will be able to identify the things that you don't need anymore, and be able to cancel those subscriptions you're not using cancel the things that are not doing any benefit to you, and get rid of them and quit paying for stuff that you're not using. A good example of that sees anti virus programs. I had one i demon know about. I just got rid of I thought I cancelled it years ago. But yeah, it was still pending out there. It was still hanging on and I took off my credit card and I deleted it. And I got rid of it and a family got cancelled. So it's not gonna be charged. Again, my checking account ever again. $80 a year or $90 a year, that was his money going to waste I was even using that program anymore. Things like that. Maybe it's going to a gym membership. Maybe you join us the gym in the winter, but not during the summer because you go outside, maybe you can do away with that gym membership, cancel it, and then reinstate it when you go back in the fall. Whatever the case is, we're looking for things we're paying for. We no longer need, get rid of, and save that money and put it toward paying off our debt, put it to build up our emergency fund. Because the more we can identify the things we don't need and are spending money on. That's more money and it's faster, we can build up our emergency fund, and that's gonna be faster and pay off the debt. This process is slow, especially at the beginning. But as you start paying off the debt, it starts speeding up. And the less debt you have, the faster it becomes at the ferry and you'll be surprised within a month or two. You will pay off six months of that mortgage fairy quick. And before you know it, you don't have any more debt. Stay focus and you got to stay committed. in it and tracking helps you do that. So what is tracking? Tracking is nothing but a program, an app that you can use on your computer to keep track of your check, register, your credit cards, everything your money goes to money in money out. That's what tracking does. It helps you identify those expenses you have, because in the program, they had countered categories, it's already set up for you, it's already easy to use. And you can do a little bit of modification to most of them to make it. So it's really easy. If you enter the transactions on a weekly basis, it only takes a few minutes every week. And it gets faster and faster as you go. Because they become memorized transactions, and they just pop up, you just change the date, you start typing the category name, and the who you're gonna pay, it pops up, make sure the date right put, make sure the dollar amounts, right, the category and everything's already there for you, you hit Enter, you're done. Move on to the next one, it doesn't take long once you get it under control and learn how to use it. And the final step is your control center is the budget, you already have it, you just got to take it from your tracking program, printout a report by category and create your budget, I have talked about all these things in length, and then keep everything up to date monitor where everything's going to and over the first 12 months, you should be able to identify all those things that you're wasting your money on, and get rid of them. And then it's a matter of reviewing your services that you're paying for specially cell phone, specially cable TV, streaming services, and try to cut back on cell phone service, you might find another service, we get exactly the same thing for 10 or $20 less a month, every penny counts. If you can save $10 A month as $120 a year, that's that much more, you're gonna be able to apply to some debt you're trying to pay off. Don't overlook and take for granted, that's a small item, it doesn't gonna matter. Because it all adds up over time. The sooner you can get this under control, the sooner you can get your emergency fund built up, the sooner you can start saving for retirement or saving for whatever goals you have, the better off you're gonna be. Every penny counts, never forget that. I'll be back in one moment with my final thoughts. If you're interested in learning about an online software that helped myself get out of debt, it does tracking, budgeting, and keeps track of all your assets and all your debt and even tells you how much and when to transfer money into your savings account and how much and when to transfer money to your debt and which debts to pay off and order. First. It's not cheap. It's a one time payment. But it will definitely be an investment something and yourself and an investment in your personal financial life. If you're interested, send me an email at reduced that increase firstname.lastname@example.org and I'll send you the information about this online software that worked great for me. This a quick review on a debt solution for those of you as a debt problem. One identify what's causing your debt problem. Are you overspending spending more money than what you make? Or two Did you have an unforeseen event and with no emergency fund or savings account to help you cover that unforeseen emergency event? Set your goals? What are you goals? Are your goals trying to pay off your credit cards? Or do you have other goals? Doesn't much matter? achieve any goals the less debt you have the faster and easier it is to reach? Have a debt reduction plan. Quit using credit. make the minimum payment all your debt, increase your emergency fund or start an emergency fund if you don't have one? How Have at least a minimum of $1,000 in your emergency fund, and then gradually increase it as your debt is declining. Continue to build your emergency fund until you have excess amount in there of three to $4,000. And then apply the access over your minimum of 1000 and your emergency fund to pay down your debt. Repeat this process over and over until your goals are met. And then set new goals and continue to do this. This can be achieved by tracking, keeping track of all your income and all your expenses everything you're paying on a regular basis by having a tracking app on your computer, and then have a control center of budget. Set up a budget so you know what's going on. And this doesn't happen to you again. In the future. You can keep control of your finances by tracking and having your control center or a budget. I hope this is helpful. And stay tuned for more useful information and the next coming episodes