Reduce Debt Increase Wealth

Debt Reduction or Management Plan

December 31, 2023 MIsterchuck
Reduce Debt Increase Wealth
Debt Reduction or Management Plan
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Show Notes Transcript

A plan is needed to reduce debt, what to include in every plan and the importance of each item. Following a plan make reducing debt much easier. As there are guidelines to follow and measure success. 

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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, debt reduction or a management plan. A plan is needed to reduce debt, what to include in every plan and the importance of each item. Following a plan makes reducing debt much easier as there's guidelines to follow and measure success. So if you're struggling to pay off debt, you need to plan to tackle your problem. The first thing would be to recognize you have a problem. If you're listening this episode, I'm assuming you already figured that part out. Are you tracking all your expenditures and your income that's going through your savings, checking all your credit cards, you should know exactly what's going on and everything in your financial life. There is no other way around it. If you're just sitting there blindly looking at your online checking account, see how much money is in there? That's helpful, but it's not gonna solve your debt problem. So you may know how much money you have today. But if you spend it today, do you know what bills are due tomorrow? Do you know what bills are due at the end of the week? How many bills are due before your next paycheck? And what's due around the same time or after you get your next paycheck? If you don't know answer those questions, that's probably the reason you have a debt problem. Because you're not aware of what's gone on in your personal financial life. It's more than money in and money out, you have to have a plan, you have to make plans of what you're gonna do with your money. When you receive it. where's it gonna go? How much extra Are you gonna have to spend on things you want and not necessarily need? How far in advance do you have to start saving up to make a large purchase, save for an automobile, even a used one to move apartment because you need a deposit for a security deposit? Before you can move in all these things takes a little bit of a plan you need to plan because if you move in into your first place, you probably don't have any furniture. Where are you gonna buy your furniture? Do you already have some furniture? Or how is your parents gonna loan you some give you some? What? You know, what's the plan. So everything you do in life, you have a plan says the same thing was reducing your debt. So if you're doing your tracking, and you got yourself a budget set up and you're using a spreadsheet, and you're updating it weekly, and you have a good idea what's going on, and your financial life. Now we can tackle the debt problem. Because in your budget, you have a list of all the debt you're paying. And because you have your needs, housing, transportation, food, savings, debt, that's not anywhere else. So how are we going to tackle this lump of debt that you're trying to get rid of? The first thing we need to do is focus on getting what to get rid of, and you need to get rid of the highest interest rate debt first, because it's costing you the most amount of money. And generally speaking, that's going to be credit card debt, personal loan debts, payday loan debt, those types of items, we want to get rid of them. So how are we going to go about all that, while you cut back on your spending, that's a start. You look for ways to save money and cut back on your needs things that you absolutely have to pay for your streamline lining your spending as much as possible so you can get your debt out control. Now you need to identify all your debt and and rank it somewhere. Put your credit card debt all together, put your personal loan debt with your credit card debt, put your mortgage, your line of credit, and that's a separate pile, put your car loans and then third pile. You see where I'm going here. We're identifying what it is and what's costing you Now we got to tackle, how are you going to get rid of it? Well, here's the plan, and I'm gonna give you my plan first, and then we're going to talk about it, the first thing you have to do is quit using credit, quit using your credit cards, quit borrowing money at step number one, that may be a tough thing for a lot of people to do, because you're relying on those credit cards to pay some monthly bills. And you're just digging yourself a little bit deeper into a hole. But you got to quit using them, you gotta set him aside, and you have to start paying cash for everything. When I say cash, cash or your debit card. Be careful when you use your debit card, specially when you make online purchases, because you don't want your checking account information getting out there or somebody can drain it is Be reasonable here, as much as possible, quit using credit, and eventually you'll get off of it. Because how you gonna pay off, if you keep putting new charges on it, The number two thing, make the minimum payment on all your debt, you're struggling now, you're living paycheck to paycheck, you if you're making extra payments on any of your debt, leaving you short, somewhere else, maybe then you're using credit cards to cover that difference, you got to make the minimum payment and quit using credit cards. Three, set up an emergency fund, it's a savings account that you put money in, that you're gonna identify in case of some pawn related event, some unplanned event happens, then you have some money set aside to help cover whatever the costs would be, whether it's medical, a car breakdown, appliance breakdown, whatever it is, we're trying to have money set aside. So we can go back to number one, quit using credit. So we have money to cover whatever happened without using credit. So you see how they're kind of all related. So we're quitting using credit, we're making a minimum payment to free up cash, and then that cash going to help us pay some other bills, and it's gone. So help us increase our savings, can you just keep doing that, and you build your savings or your emergency fund up to a set amount. And this was what you put in your plan, I'm gonna save up to $4,000, but the minimum is never gonna go below $1,000. So once you hit that $4,000, what's happening during that time, by you got your $1,000, you have your emergency fund, you keep building it up, you have 2000, you have 3000, your emergency fund is just getting bigger, bigger, bigger, you get the 4000, it's even bigger, if something would have happened in that time period, you'd have some money to cover it without using credit. And you're still making the minimum payments on all your credit cards, and all your debt. So once you get up to that amount, and you all your monthly bills are paid, and everything's under control, and you've cut your spending down, now you take the excess over 1000, which would be 3000. And you apply it to one of your debt, you want to focus on your credit cards or the high interest debt first, you can do it either the snowball method. And these methods are just the order in which you're paying off your debt. Snowball Method is yes, you pay off your lowest balance first, so you feel like you made some progress. And then you just keep paying off the lowest balance next, next the next until you get all paid off. That's not necessarily going to be helpful and reducing the amount of interest you're paying because you're paying off the smaller balances, which is got the lowest amount of interest associated with them. Or you can use the Avalanche method which is paying off the highest interest rate item first. It may take you longer, it may be slower, but you're gonna pay less interest. Why is that important? It's important because the less interest you pay, the more principal you're gonna pay. And the more principal you pay, the less you owe and the less you owe, the less interest you're gonna be charged. So it's all kind of related to each other. I advise the very first beginners first time pay off the smallest balance first and do not cancel that credit card, make sure it's a credit card, pay off the smallest balance first or pay it down close to off. And maybe within the next month or two, it'll be paid off. But do not close that card, keep it taken out of your wallet, well, you should take everything out of your wallet because you're no longer using them and set it aside. And we're going to use that down the road, maybe in six months or a year, or might use that card to your advantage to pay off some debt. And you just now start building up your savings again, until you have another 4000. And the whole time you're not using credit, you're making the minimum payment, and you're building up your savings. And this gonna repeat over and over and over. Also, you're tracking all your spending and all your income, you're doing a monthly budget, you're looking for ways to cut back on your spending, and reduce whatever, whether it's your cell phone service, your cable service, which you shouldn't have your streaming services, you got to limit these things because you're struggling to pay off your debt. So we got to make a choice to anyone have five streaming services and be paying out $150 A month or two streaming services and paying out $30 or $50 a month and saving 100. So you can pay off that debt a little bit faster. Same thing with cell phone service look for a better plan. Look for a cheaper plan that gives you all the same benefits of what you have on your current plan. That is a never ending process, you should be doing that on a yearly basis, year in and year out. always reviewing your insurance review how much why you get all those type of things. If you have a couple car loans, and they're brand new cars, and you're paying a whole gobs of money for car loans, consider getting rid of one of them. head off and buy a used car, if you can get by with only one car do that, when we're cutting back here, you want to reduce your spending. And if you can get rid of alone by selling the vehicle, and then buying in and having enough cash to buy another vehicle to get by on is not going to be forever trying to tackle a problem here. So let's get rid of part of the problem by selling some that's associated with a loan, if you can do that. The reason you do all this is because they one, you're not going to be able to pay off your credit cards, if you keep putting new charges on him. If you keep paying the extra $100 A month extra over the minimum balance, you're gonna be short in your checking account, and you still don't have a savings account, you don't have an emergency fund. So we're doing all this we're gonna read quit using the credit so that we keep the problem under control, too. We're making the minimum payments, so we're not shortness off on cash. And three, we're using some of that extra cash that we're no longer putting on debt at that time to have an emergency fund. So something bad happens in the future. We don't have to stop number one by using credit because of an emergency, we have some available money to help take care of whatever may have happened. So it's all related. And you just keep doing it over and over and over. Then what's the difference between a debt reduction and debt management, no different. It's exactly the same thing. You're managing your debt. Once you have all your credit cards paid off. Now you got to look at what's your next goal? Do you want to pay off your car loans, maybe you kept both of those car payments car because they were fairly new and you couldn't sell them for more than what you owed on them. So allow this tackle getting some of these car loans so that we can maybe get ahead above water. So if we would sell the car, we can actually pay off the loan. That would be the next goal. So you're setting goals, and we're coming up with a way to achieve it. And that's what a debt management plan or a debt reduction plan does for you. And each adds only three steps and it's now lead difficulty. The hardest part is sticking to it. And if you can stick to it, and watch your spending and keep your spending under control and cut Get back wherever you can set your thermostat higher if you're in a hot climate or lower in a cold climate, so you don't spend as much on utilities, you got to do whatever it takes to save as much money as possible so you can get your debt under control. I don't have any links in my show notes. But if you're interested in the software that I personally use to get my debt under control, there's a link in the show notes, shop financial, you can go there and check it out. If you wish. If you have any questions, you can contact me through that particular website. 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 in 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 debt increase And I'll send you the information about this online software that worked great for me. If you go out to you to be might see a whole bunch of people saying how fast you can get out of debt. Don't worry about it. Because everybody's different, everybody's incomes different, everybody's sacrifices are different, you have to cut back. And one of the first things you should be done when you quit pan, or using your credit, you got to identify the debt you have. I recommend everything just don't stop a credit cards, get all your debt out in front of you. And you need to know the name, the minimum payment, the due date. That's about it. In the interest rate, minimum payment, the name of the card, whatever the debt, yo, the minimum payment, the due date, and the rate of interest. You need to know those four things for all your debt, put your credit cards and one pile and make a list. Put your car loans and another pile and make a list. Put your home loans, your mortgages, your line of credit, and a third pile, make a list the name, minimum payment interest rate to date. And that's the first thing you really need to do, you need to have it in front of you, you need to confront your problem. And that's what you're doing there. And then we're going to use that information to put them in order by how we want to pay them off. We know they all have to have a minimum payment. And that's going to be done. And it's important that you make those minimum payments every month on time. So maybe it's a good idea if you have a hard time remembering if you have enough money available in your checking account. So go ahead and set up automatic payments for all that debt. For the minimum payment only. That's where your mortgage is everything. And that will help your credit score, he's still gonna do your debt reduction plan, you're gonna quit using your credit, credit, you're not going to use any more, unless you already had something in progress, like you're remodeling the home, your rehab, a line of credit setup, and you take in drawers to pay for it. But that's already been in place. It's not new, you just continuing on with it. That's an exception. Now we're going to focus on the minimum payment and make timely payments and that goes for everything that you pay on a monthly basis needs to be made timely. And once you get yourself to that point, you're pretty good. As far as starting to get things under control, you have a grasp on, you know what's going on. You know when things are becoming due. You're not just looking, how much money do I have my checking account today because I'm going to the grocery store. And if I have $300 in my checking account, I'm going to spend $300 to the grocery store. No you got Know you have $300, and you have $150 utility bill due in two days, they can only use $100 at the grocery store, and you're gonna leave a $50 balance in there. Once you get this going, and you start getting a better grasp on all this and you know when bills are due, and you should be looking at your monthly budget, you could end your monthly budget, put the due date on everything that day of the month everything's due, you can put it in the description, my mortgage is due on the fifth, my credit cards due on six, this credit cards due on the eighth, this one's due on the 12th My utilities due on the 10th. This one's due on the you know, that helps you get a visualization, write it on a counter, if you have to put it in a counter the due date of every bill. So you can just look at the counter. And you'll know when things are due, you can make up one master month, which don't even name the month and put all the due dates of everything that you pay on that counter hanging up in your office. He can look at it, you know today's date, you can look at it, you know, I got bills coming up in the next two, three days. I need to have some money. I wonder how much well what are they? Okay, I got utility bills and rent Okay, well, I need roughly about $1,200 How much is in my checking account 11. When do I get paid Friday up, I should be good. Those the type of things you need to be doing. And if you're not, you're not getting your personal finances under control. And you'll always be struggling with having some type of debt. Whether it's credit card debt alone, that you made late payments on, or making late payments on your rent or utilities and you get behind, you have to start paying thing every time because every time you pay something late, you gotta pay more because there's late fees, penalties and interest, whatever they're calling it, they're gonna be charging you more, which gives you less money to do things that you want to do with your own money. This is something he should be setting up for the rest of your life. paying off debt debt is just a temporary maybe one or two years, but he got to keep your spending under control the rest of your life, you might be able to be able to do more things you want to do. Maybe instead of having two streaming services, you three or four, but don't go overboard. Do everything in moderation and you're gonna be in fairly good shape. That's true in your health, and eating and exercise, whatever, everything in moderation, and you'll be in good shape, and you'll get your problems under control, and you'll have a good grasp on your personal finances and you'll be glad you did so