Reduce Debt Increase Wealth

Plan to Reduce Debt

July 07, 2024 MIsterchuck Season 5 Episode 226
Plan to Reduce Debt
Reduce Debt Increase Wealth
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Reduce Debt Increase Wealth
Plan to Reduce Debt
Jul 07, 2024 Season 5 Episode 226
MIsterchuck

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Having a plan to reduce debt makes paying off debt much easier. Planing to reduce debt take commitment and determination to succeed.

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Having a plan to reduce debt makes paying off debt much easier. Planing to reduce debt take commitment and determination to succeed.

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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. plan to reduce debt, having a plan to reduce that makes paying off that much easier. Planning to read to reduce that takes commitment and determination to succeed. So let's review the little bit of paths, you got to identify the problem. And this particular case, the problem is you may have too much debt. But maybe you're not really sure about that. So over the process of trying to determine the problem, you should be thinking of ways to solve the problem. So let's say if you have too much debt, how are you going to reduce it? Let's assume that's the case. What was the problem was just spending too much were you unemployed and had to live off a credit card that was or an accident to something happen, you have to charge up your credit cards, it doesn't matter. If you just know yourself what the cause was, or is now we need to focus on solving the what's causing the problem and get rid of that. And then we need to take take care of the problem. By having a plan. I'm starting with identifying the problem, and then finding some type of solution. And that's where we're now we're in, we're going to find a solution for the problem. But this is step one of three steps. So the plan to reduce your debt is worry have gotten to today. But how are you going to do that? Maybe you been paying extra on some of your credit cards, but you don't ever seem to make any progress. And when you start to make some type of progress, something bad happens. And you have to use those credit cards again, because you don't have any savings, you do not have an emergency fund. So as part of solving your debt problem, we need to work along the way to solve some other problems. And the other problems may be you're just spending more than what you make, you don't have an emergency fund of any type. And you throw an extra money at some debt, but you never seem to make any progress. So let's take that as one big problem, and focus on a plan to solve all that. So here is what you should do for a debt reduction plan. Number one, is quit using your credit. When I say that I'm saying quit using your credit cards, I'm not saying quit using your debit card, we got to start paying for everything on a monthly basis with the money you earn. And that's gone to take care of spending more than what you make. Because you got to focus on your needs first, what's your needs, your housing, and everything related to that, your transportation and everything related to that food and everything related to that some close, I'm not saying you're going to skimp and save on this sand, we need to prioritize where your money is going. You got to take care of your needs first, then once that's done, then you got to take care of your too much debt problem. Then once we got that taken care of, then we can look at what your wants are. So we're gonna quit using credit. We're gonna pay cash for everything or the cash equivalent, which would be a debit card. And that's our step one. That may take you a while to achieve it might be two, three months before you're able to cut back enough to only live on what you make. And that's important. So, keep that in mind. It's not something you can do in a week or two, or a couple pay periods. That might take it two or three months it could be the hardest part I have the whole reducing your debt solution, that's number one, then number two is we're going to make the minimum payment on all your debt, quit putting that extra 5025 or $100, towards any of your debt, pay the minimum payment. And there's a reason for that. The reason is, it's gonna free up some cash, or you can help you one quit using credit, and to get that emergency fund established, because number three is create an emergency fund, and you got to start putting money into an emergency fund and start saving it up. Your first goal here for your emergency fund, is to get up to a minimum of $1,000, your emergency fund should always have a minimum of $1,000. They've done all bunch of surveys and they say 80% of the people United States couldn't afford an emergency if it was$400. So nobody has savings account. So you got to get that savings account established. I know your local bank, you're not gonna make any interest on it. So why don't you just leave it in your checking? Well, if you do that, you might spend it because what have you been doing in the past, take it out of your checking account, put it in your savings account, set it aside, because this is a important step of getting rid of that debt, he got a minimum of 1000. So while you're trying to keep your spending within what you make, you're also trying to increase your emergency fund, go to your bank, find out what the minimum is set up a checking account or savings account, if you don't have one, it should be with the same bank you have your checking account with. For now, we're just getting started. So that's the third thing you got to do. The fourth thing you got to do, once you met that minimum $1,000. You got to keep building it to a maximum of 4000. I like the 4000. And why are you doing that when it's like that don't make and when am I going to pay off my debt, I'll make them in a minimum payment, I'm not paying any extra I'll never get this debt paid off. Well, that's not true because very have a plan and we're working on that plan. And the plan is to build up your emergency fund to $4,000. While you're doing that your emergency fund it says bigger and bigger and bigger. If it takes you six months to get up to that $4,000, you've had that money set aside as an emergency, an emergency is something that's unforeseen event that happens, whether it's an accident or an injury, or illness or unemployment, it's something you had not plan on. So the more we have in that emergency fund, the better off you're gonna be to take care of that unexpected event that may happen without using your credit. That's the key here we're trying to quit using credit. So once we have that 4000 build up, remember, you got to keep a minimum of 1000 We got a maximum of 4000. We got all our monthly bills paid up, we're doing pretty good things are looking good. Okay. Now take the access to $3,000 and apply it to one of the debt you're trying to pay off. So let's assume you got three or four credit cards you've been trying to pay off. You've been paying the minimum payment for the last six months while you've been building up your emergency fund. Now you have this $3,000 Which one are you going to pay off first? That is an important question. If you have this is how I personally did it. If you have one credit card that maybe have a balance of 3000 or less or close to 3000 Or is your lowest balance, apply that money to that credit card first. The next time you get there, it may be paid off because you're gonna keep making the minimum payment might take you another four months or so. So that credit card could get paid off. That once is paid off. You don't On canceling you keep it, you're not gonna use it, but you're not gonna cancel it. Now, if the credit card company cancels it for you, because you have bad credit, there's nothing you can do about that. But the goal here is, you don't want to cancel the credit because that would hurt your credit score, because you have less available credit compared to your income, and it's gonna hurt your credit score and two down the road, they may make you an offer to transfer debt for a three or 4% or 5% transfer fee, and have an 1218 month time period of enters free to pay that off. And that's what we're going to use to our advantage to help reduce our debt. Once you've done that, you just start over, you start building up your savings or your emergency fund to get back up to a maximum of$4,000. You do that over and over and over. And as the beginning, it will be a long, slow process because you're fighting a couple things. You're not used to paying cash or pain living within your means. So that's the first thing we got to overcome, you're not used to not using credit cards, that's the second thing we have to overcome. He never had an emergency fund, or a savings account was any significant, say more than $500 in it, that can help you in case of an unforeseen event happened. So you have that to overcome. So the first three of those blocks, it's gonna take you a while, it may take you three months, six months or a year, it might be two years. But at the beginning, this pay down process is gonna be a long, slow tedious. That's why I say you have to be committed. And you have to be determined, if you got to succeed at paying off your debt, and you got to want to do it. And if you don't want to do it, it will probably never happen. So you have to plan to reduce your debt, you have to know where the problem is, he got identify the problem, and you need a plan, write it down. If you don't remember it, write it down and review it and post it on a bulletin board or put it in your office on the wall somewhere where you can see it. Look at it every day. Don't use credit, make the minimum payment, save it, build your emergency fund, keep a minimum, the maximum, repeat. Apply some to debt once you hit the maximum and repeat. It's not that difficult. Just knowing that you're wondering, Well, how am I God to know how much money I have available to transfer into my savings account. You don't want to transfer $1,000 in savings account and a week later transfer $1,000 out of it. He did want to put the money in there and leave it there. Now once you put it in a savings account, the bank has federal rules, he can only make six withdrawals a month. So you want to put in bare minimum, if it's$10, a pay start with $10 of pay or some small amount. And then if you can put that in there, and then stays there, then increase it to $20 at pay and then $30 A pay and then $40. And but once you get to a point where you have to suck some back out, that's where you stop a little bit less than that. So that you know you can comfortably put in $50 a pay every pay period and you got to consistently build up your savings. But we're going to add to that over time. Because over the next two episodes, I'm gonna explain to you how you can get your personal finances under control how you can see what's happening with and your personal finances. And you can have a control center to review and see the areas were you maybe spending too much or didn't plan enough for and didn't look out for thanks. So those are the The next two episodes, the next one's gonna be tracking. And then the one after that is control center, or how to make a simple budget. But you got to do your tracking first before you can do your budget. And that's going to be explained in the next couple episodes. So let's review this debt reduction plan, one, quit using credit to make the minimum payment on all your debt. That's every debt, that's even debt that you're not trying to pay off or your mortgage, your second mortgage your line of credit, that's we're not just talking about your credit card, we're talking about all the debt that you owe your car payments, make the minimum payment on everything. Now, you might have been making $25 Extra on a car payment to get a paid off earlier, or whatever the case quit doing that we more important to make the minimum payment and put that money into a savings account and build that emergency fund, the faster you can build it and get it up to the maximum amount, the sooner you can apply it to one of your debt. And then the sooner we can start over the process again. So then have the minimum in your mercies font of 1000. Build it up to the maximum of 4000, apply it to one of your debt, we're going to talk more about that in these other episodes, apply it to a debt, at least the one at the very first one to have the smallest balance, because we want to get one of them paid off. So sometime down the road, we can use it to our advantage, then after that, you're probably should be focused on the credit cards or the debt that has a highest rate of interest. Now, if you have payday loans and personal loans, things like that, you probably should focus on those things first, because they get out of hand much faster. And then the credit cards, believe it or not. So let's focus on which is the worst, the worst debt being the highest rate of interest with the most often payments. So let's keep focus, and you have your plan, write it down and post it on the wall. I'll be back in one moment with my final thoughts are the articles are referred to in my episodes, have a link in my show notes. If you're interested in checking out the software that I personally use to get my dead oh control, it's in my show notes under shop financial, you need to copy and paste the link. And it will take you to the website can any questions, you can just contact me through that particular website. If you value this podcast and I like to make a contribution, I have a contribution link in my show notes also, give whatever you feel is appropriate for the information I am providing. I thank everyone for listening to my podcast. Okay, just to know for those of you that looks in the shownotes, I have no links to any articles this week for this episode. So if you want an alternative method to reduce your debt, check out happy draft.org For slash live, he has some spreadsheets there that can help you with your debt problem. And he has some tutorials and some classes if that's what you need. So just an overview. And then I'll be wrapping it up. You've over the process of time figure it out that maybe you have some type of problem. Maybe you identify the problem as you have too much credit card debt. You need to go a little bit deeper than that. And why do you have too much credit card debt? What cause the problem to have too much credit card debt. That's the first problem you need to solve. And then what I'm gonna solve is what's your plan to get rid of that credit card debt, maybe all your debt? Maybe you decided you want to pay off all your debt because you're gonna retire in 10 years, you want to be debt free, because you're gonna have income that's 60% of what you're currently making. It could be even less than that. That was my primary reason it took me three years and four months and only had to pay off $135,000 And that was car payments. That was mortgage of line of credit on the house, too. With three credit cards, granted, they weren't a large amount, but I had them. And I knew that if I went into retirement, even with just the mortgage, I would be a struggle to live and pay my bills, because I had this loan, my mortgage on the house with then 40% of my income, maybe even higher, and we know, your mortgage should only be 30 35% of your total income. So I knew I was gonna have a problem, so I took care of it. And that's whatever your reason, whatever reasons you have, and if you don't think you need to pay off your debt, let's just think about it. How much money would you have, on a monthly basis? If he didn't make any debt problems? No mortgage, no car payments, no credit cards, no student loans, whatever it is, if he didn't have to pay all those loans back? How much money would you have? And what could you do with that money if you saved it up over a period of time, and you're able to put a bigger downpayment, whether it's buying a car, paying cash for a used car, or putting 50% down on a home, if you want to downsize your home, in a way you could pay off your mortgage of your current home, sell it, have 100% of the money, less commissions, of course to buy your replacement home, plus the extra money you could save, because he was able to stash them away over a period of two years or three years, how much could you save, and maybe your saving for retirement is not large enough, he can never have too much money. So you bet you can have not enough money. But you can never have too much money going into your retirement years, because you don't know what's gonna happen. But we do know your medical expenses are gonna go up, we know that maybe you have to have some type of system living and that's not cheap. We know whatever you want to do for 10 or 15 years after you retire, watch travel or start a business or part whatever the case would be, it's gonna take some money. So if we can get it under control today, and be better off or tomorrow, you'll be much better. So you got to quit using credit, make the minimum payment, start your emergency fund, have a minimum of 1000, build it to a maximum of 4000 Apply the difference to one of your debt, and repeat. But how do you know how much money when to transfer into your savings account? How much do are you gonna know? Where are you spending too much money or not spending? You know? How do you know what your current living costs are if you don't ever track and do a control center, control center being a budget. So that's what we're going to talk about. Tracking is an important part. It's your life blood lifeline to your personal finances. And your control center is just that it controls where all your money is going. And it helps you see where it's gone. So that you can identify potential problems and take care of it before you have a debt problem and get back to where you are today. We're trying to solve that and it's gonna be a multiple things. You got to be determined and you have to be committed if you want to reduce your debt and keep it reduced.