Reduce Debt Increase Wealth

Debt Reduction Service

August 01, 2021 MisterChuck Season 2 Episode 72
Reduce Debt Increase Wealth
Debt Reduction Service
Show Notes Transcript

A plan is needed to reduce debt. No matter how much is owed or the number of credit cards or loans. A plan will help organize all debt and determine the order of payment.

 1.Create Budget
2.List All Debt
3.Stop Creating New Debt
4.Put money into Emergency Fund (Saving Account)
Article Links:
https://www.investopedia.com/best-debt-reduction-software-4844305 By HOLLY JOHNSON

https://dfi.wa.gov/documents/financial-education/budgeting/debt-reduction-plan.pdf

Charles McDonald:

Hello, I'm your host, Mr. Chuck. I'm a retired accountant turn truck driver, I have reduced my debt to zero in a short matter of time, debt reduction to achieve financial freedom takes commitment, confidence, determination, debt reduction services? Do you need the use them? Or can you do it by yourself? There are two types of debt reduction services. One is a settlement services, which you go to you pay a pretty good fee, usually a percent of the debt that they reduce, so you're not really saving any money. They didn't know goshi, eight terms for you to get low interest rate, and maybe you pay off a whole lot less the time you pay that off and you pay their fees, are you really saving any money? I don't know, I've never used one. The other type of debt reduction service is a consolidation service, where they give you a new loan to pay off all your say credit card debt, at a lower rate of interest over a set number of years based on what you can afford to pay on a monthly basis. That's not really reducing your debt, it's on the many times extending your debt, yes, you get a lower rate of interest. But that's not too hard. When you talk about credit cards, credit cards as interest rates, somewhere between 15% to 22%, or higher, depending on your credit score. Or the other option is do it yourself, many times you can do it yourself. If you go to either of those services, one, you're gonna have to pay their fees. And two, you're gonna have to do the same thing anyway, you have to organize all your debt and know, what are they going to help you with. So you got to accumulate your payments, or your information on all your credit cards, get all your monthly statements together for each credit card, get all your loan information together for each loan, your auto loans, any personal loans, your mortgage, your line of credit on your home, all that you have to organize all that if you do it yourself or if you use a service, how's the service gonna know what you owe, if you don't tell them pretty basic. And my show notes, I have a worksheet, a PDF worksheet, I have a link to it, financial education, budgeting, debt reduction plan dot PDF, I got a link in there, go to my show notes and get the link. It's a PDF, it tells you what to do and how to do it, you have one page for each debt, you have a huge as shows your rate of interest, your balance your payments, the whole nine yards, and also in the description up above tells you how to organize them, you're most likely going to need more than one page per creditor or credit card, because you're not going to be able to pay them off in three or four payments, like the statement has. But this is basically set up to help you organize your debt. So if you start out doing that, you get your debt under control, you get the see what your debt really is, and get a better understanding how that off or how good off you may be concerning getting your debt under control. I have another link in there that is a app or software that you can use that help get your debt under control. Most of them you have to pay they have a free trial period, most likely because it says they got free version. But the version is usually a trial period 30 or 60 days or something around like that. And then you got to pay for it. Beware of that don't sign up to for a free trial for something and use all that time and effort to put the information in and then quit using it 60 or 30 days later. That'd be a waste of your time. I recommend writing it down. The PDF link can help you get organized and everything. You need to know the name of the creditor, the unpaid balance, the rate of interest and the payment date. When's it due? Once you have that together, then can organize them and some way but the first thing you got to do if you're really serious about getting on a debt reduction plan, I assume that you Did a personal financial plan, you set your goals and maybe one of your goals was to pay off your credit cards, then you'd list your debt. Maybe you're already have it organized, maybe you know that you got three credit cards, two car loans, a personal loan, a first mortgage and a line of credit, maybe you know what your debt is, it's just a matter of getting a little bit more information together on your debt reduction plan. Because the more information you know, the more you have it together, the easier it becomes, once you get that together, you get a fairly good picture of what you're into, or how bad off your debt situation really is, then the next step is, quit creating new debt, stop using your credit cards and stop borrowing more money. You're just burying yourself deeper and deeper and deeper. And if you're not making payments, you know, second step is to make the minimum payment when it's due, make your payments on time, every month, and make sure it's the minimum payment. Why are you only making the minimum payment? How are you going to either get your debt paid down? If you just keep making the minimum payment answer to that question is, you're gonna set up a emergency fund, an emergency fund savings account, where you put a mount of money in at least $500 but $1,000 would be better. And you build that up first, why you use your emergency fund in case something happens, you blow a tire, you need to buy a tire for your car, then you have the money savings, and you transfer it to your checking, and you pay for it, you're not creating new debt for that emergency. Then when that happens, then you rebuild up that emergency fund, get it back up to the $500 or $1,000. I prefer $1,000 or more. And you keep doing that. So that you can just live off the money that you're making. You're not using credit cards, and you have the money to pay for the things you need. Plus to pay off your loans and debt, the minimum payment, anything that you're not spending, you're putting into the savings account. How much do you put in your savings account? Well, that's where you need a budget, a budget take and keeping track of your income that's common. And every month, I would do it on a monthly basis to get started. So if you're getting paid weekly, show the total of all your net pay. If your paycheck is different week to week, if it's never the same, go back over the last 30 days, add them up, divide it by four, that's an average that get you close. And as the paychecks come in, you keep updating it until you have the correct amount in there that you got that month. Then you list all your payments. I start with housing. I put in housing, up utilities, maintenance, upkeep, and then go to transportation, be gasoline, oil, change a maintenance on your car, then go to food would be groceries, restaurants eating out, etc. Go to entertainment, and be going to movies, anything you do for entertainment, then list that all your monthly payments, list that in how much you pay every month, list that down. And then after that insurance Do you have any insurance payments are due, in addition to what may be paying your homeowners insurance through your mortgage, do not include that insurance. Again, it's already accounted for. Let's say car insurance might be due that particular month. Maybe you pay your car insurance on a monthly basis. I don't know. I pay my semi annual twice a year. Once you got that done, you take your income you subtract out all your everything you got to pay and if it comes to a negative number, you're in trouble. You're spending more money than you're making. You need to trim back on something. trim back on entertainment trim back on some utilities. Set your thermostat if it's summer time you run the AC set it at a higher levels, so the AC runs less, if it's wintertime in your heating, set it at a lower level, so that you're heating a little bit less, every little bit will help, it all adds up over time. So if you can cut back a half a percent, here and there, it's gonna all add up. I know, it sounds stupid and ridiculous, but you got to do it. If you're serious about your debt reduction, these are the things you got to do. So once you got that done, if you got a negative amount in your budget, after you got it set up, then you need to start trimming back wherever you can. To get that to a positive number. Once you have a positive number, that's the amount of money that goes into your savings account. So that your income for the month less your expenses for the month comes out, say $500, still remaining $500 to savings comes to zero. So you're making your savings a part of your budget, and reality. And that's how you can determine how much you put into your savings. And then transfer that money from your checking account into your savings account at least once a month. If you have a good idea, and everything is fairly stable month, a month, you have to do this every month and keep updating it. Because as you trim back things, maybe you have cable TV, maybe you got five different streaming services, you can maybe cut out some of that, cut out the cable TV and use all streaming services, maybe reduce your streaming services to one or two, the ones you watch the most, maybe you have children. So you have a streaming service that you children watch. And that's going to change over time as they get older. So you got to keep up on this. So as you go through and you cut out things, then you need to go through the second round. And look how to reduce things. Maybe you have a cell phone service that you're maybe can cut back there, by getting a new plan. I always called my current provider first and see if they had a better plan for my situation. If not, then you go to their competitors and see what you can find a better plan. A lot of times, these plans are short term, maybe six months, maybe a year, and you save $20 a month 20 times 12 is $240, it all adds up and that's extra money you can put into your savings account, that's extra money, you can build up your emergency fund, which and then in reality, you're going to be reducing the debt a little bit faster. Because you have less pain than these monthly expenses, which then can go into your savings, which is step one, build your emergency fund, you gotta quit creating new debt quit using credit cards. Now when I say quit using credit cards, I don't mean to cancel them. I don't mean to cut them up, just take them out of your wallet and quit using, say one of them when you get it to a zero balance for your extreme mergency. If you go go. And something really big happens really expensive. Because what I'm referring to happens, if you don't have enough money that $1,000 in your savings account is not enough to cover it. Well use that $1,000 first, and then you have that one credit card with a zero balance that you use, and then you pay it off that comes first in line you pay off as soon as possible. I recommend that at least for one, you just getting started that first credit card is you select the one that has the lowest balance. That way you'll have a credit card with a zero balance. You want to get that to happen as soon as possible. So when do you start, if you don't have any emergencies, that's great. You build it up, you have $1,000 You're doing good. You keep doing the same thing. And you build it up until you have $2,000 $3,000 in there, though, the bigger the amount that you build it, the bigger the emergency fund you have for that period of time. If you can get it up to $3,000 as something bad would happen. And you have $2 800 in there. You have more oney to use for your emergency. nce you hit the $3,000 and it' looking like you got no Bi expenses coming up, you have n real estate tax or taxes o anything come and do what yo need more than what your incom is for the month, then you tak that excess, that $2,000 tha you have extra, and your saving accounts that really extra, an you're gonna apply it to you lowest balance credit car first, when that gets to zero if you still have money left apply it to your highes interest rate, credit card, o loan. Second, the app after tha you got a credit card with zero bounce, you're gonna b paying off all your credit card on all your loans on based o what has the highest rate o interest, and you're gonna pa the highest rate of interest of first, and then you got to pa the next one off and you wor your way down. Your lowest rat of interest loan or debt is th last thing you are going to pa off So in a nutshell, you gotta stop creating, you need a budget. Because you need a budget, you need to know how much is going out. And how much money you got, you can put into your savings account, you need to make a list of all your debt and put it in order by the highest rate of interest on top, the lowest rate of interest on bottom. Find the one with the lowest balance do put that one on top. Quit using your credit cards, stop creating new debt and get that savings account set up and start putting money in there. I'll be back in one moment with my final thoughts. If you listen to this podcast using an apple podcast app, please rate and review this podcast. If you don't know how to rate and review within the apple podcast app, do a search even if you're already at reduced that increased wealth, you do a search. When the search is done, you click on reduce that increased wealth, he then scroll down through the episodes and towards the bottom, you'll see write a review, you can rate the stars. If you click on write a review, you can write your comments and then click on the number of stars you wish to select. Paying for a debt consolidation service or a debt cancellation service should be used only at the last resort. The last resort before going and doing a bankruptcy. You can't do a bankruptcy unless you've worked with a counselor of some sort of credit counselor. So if you're looking at bankruptcy, you need to use a credit counselor, he got a credit counselor, they're gonna be either a debt cancellation service to help you reduce your debt or a debt consolidation service, both of them going to charge you a fee. And the fees are going to add up can be very expensive. And of course, legal fees are not cheap either. So if you do it yourself, because you're gonna have to make a list of all your debt anyway to give it to your counselor. Why not put it in order, why not you try to do it on your own. Write yourself a budget, find out how much money that you really have month to month, and you do a budget every month. Now you can use a lot of the same numbers every month, and just update something because a lot of things, you're going to pay the same amount month in and month out. But when you update your monthly budget, you want to take out the things that are reduced the items where you got a new plan, or reduce your costs and take out the ones where you got them cancelled. And keep doing that every month. So you might want to make a worksheet if you're good with a spreadsheet on the computer, set that up January through December, down the left side. He can roll it over. He can copy and paste life is easy, or you can manually do it. But do one every month, month in and month out. year in and year out. It never stops. You got to keep doing that as your debt is being reduced. You're going to be taken out a payment which will increase the amount of money that you can Put into your emergency fund or savings account. This is a domino effect, it's gonna start slow. It may take you six months, or even a year to get that first credit card paid off. And then it might take you six months, four months to get to second, then it might be three months, then it might be two months, then maybe if you're really lucky, every two months, you're paying off a credit card, you're paying down a bigger, bigger chunk of your debt. And at the end, there'll be at the very end, and you have no more debt to pay. You'll be amazed at how much money that you really earn an app. And you keep doing a budget. Keep track. the more money you make, the more important it is for you to keep track of your spending. As a Oh, I make plenty of money, I can afford that. And you get yourself back in trouble. Again, I recommend that you keep your checking account, keep track of keep track of what's going through your checking account. either keep a check, register manually, or use a computer program I use count about $9.95 a year. It's cheap. It works good. Keep it up to date, you can track your checking, you can track savings, multiple savings, you can track credit cards, multiple credit cards, and you know what you're spending he got how much you owe on those credit cards, you can look on one screen and see it all count about cheap. If you want to get a link for a 15 day free trial, go to my reduced debt increase wealth com website. Click on the like button, the heart and I'll take you to that free trial page.