Hello, I'm your host, Mr. Chuck, a retired accountant turn truck driver, I reduce my debt in a relatively short period of time. That reduction to achieve financial freedom takes commitment, confidence, determination, when and how to debt consolidate, debt consolidation may be a good idea can get you the loan with the lower interest rate as your credit rating improving or getting worse since your last loan or new credit was issued. Getting a higher interest rate loan does not make any sense. So beware, before getting a loan consolidation. I have two articles in my show notes that I'm referring to. So you can get the link to read the whole article if you wish. The first ones from forbes.com pros and cons of debt consolidation between credit cards, student loans and auto loans, it may be difficult to keep track of payments, and balancing of outstanding debts. And I'm going to go over what you can do to solve that problem. consolidating these debts into a single loan may streamline your finances. But the strategy won't likely fix the underlining financial challenges. For that reason, it is important to understand the pros and cons of debt consolidations before committing to a new loan. What is debt consolidation? Debt consolidation is the process of paying off multiple debts with a new loan, or a balance transfer credit card, often at a lower interest rate. And that's important, if you're not getting a lower interest rate, you want to look at other ways to reduce your debt. The pros of debt consolidation, it's kind of streamline your finances have one the pay instead of multiple may expedite the pay off might, you might be able to get you out of debt faster, could lower interest rates, well, it will lower interest rates because he shouldn't do it at same or higher rate may reduce the monthly payment can improve credit score. And the cons is going to come with additional cost because you got closing costs on the loans could raise your interest rate, you may pay more in interest over time you risk missing payments, he don't solve the underlying financial issues. Why did you get in debt the first place, if it's a lot of credit card debt? Why did that happen? He need to solve that problem before you do any debt consolidation may encourage increase spending, those are all the bad parts of debt consolidation. If you have bad credit, you might want to work on improving your credit before you even start looking at doing a debt consolidation loan. And how you're going to do that, I want to talk about two scenarios. The first scenario, and I'm assuming that you have a little bit of debt, maybe one or two or three credit cards with fairly low balances 5,000 or less, maybe 7,000 or less. And you have a good credit score. If you don't really have a spending problem is something came up maybe your car broke down and you had to use the credit cards to fix it. Maybe something else came up, maybe you had a baby in the family and you had hospital bills, whatever happened and that fits a one time thing, then you may be a good candidate for doing a loan consolidation. Because you're if you got a good credit rating, it's fairly likely that you'll be able to get a personal loan at a lower rate of interest and be able to get those credit cards paid off, and then get that loan paid off in a shorter period of time. If that's the case, then you are a good candidate for a loan consolidation. If here are struggling to keep your credit score up, or if you're just getting the loan because you have too many of them to pay, and you have a hard time keeping track of it. That is not a good reason to do a loan consolidation. And my first tip is do your first goal of getting out of debt is you want to quit creating new debt. You're doing a loan consolidation. You're creating new debt because you're gonna have costs on that loan. So you borrow a little bit more than what you're going to pay off. That may be good. If you have a good credit score, it may not be so good if you have a bad credit score, and you don't want to do it unless you're going to get an overall lower rate of interest, why pay more for interest just to have the convenience of making one payment, that does not make any sense. So if the reason you are trying to get a loan consolidation or thinking about it, is because you got a lot of debt, here's what you need to do, you need to list out all your debt that you have, he can either write it down on a piece of paper, he can put it on a spreadsheet on your computer, or any other programming computer that you can like your word processor or whatever, and list out all your debt, you can even just keep your monthly statements and put them in order by the highest interest rate first, and just keep them in that order. So what you need to keep track of is the name of the who you owe. The due date, when it's due, the minimum payment, how much would the minimum payment be the rate of interest and the balance? Once you get that list out, if you're using a spreadsheet, you then you can sort it by highest bounce to lowest balance or lowest balanced the highest balance, you can then sub sorted by highest interest rate. So you could have your lowest balance first. And then with the highest interest rate, and then the next lowest balance with the next highest interest rate, on and on, he get the idea. And you can sort it out. And you keep track of it every month. And you know, because you have the due date, he know when it's due, you know, the minimum payment it's due, and you're gonna know which one how much the balance is, and how about when it's gonna get paid off. That's the idea. And that's only thing you have to do if you're overwhelmed, because you have a lot of debt, he just got to get organized. And he just got to keep track of it. If he just have a lot of student loan debts, and it's all very low interest rate, he don't want to do a loan consolidation and pay them all off. Because you got a lower rate of interest, you want to keep the low or rate of interest loans, you want to get rid of the high rate of interest. So remember, the goal to getting out of debt, your debt reduction plans should be one quit creating new debt to so that by getting a loan, you're new, you're not really doing that to start and maintain a an emergency fund. So when something bad would happen, you have the cash, the money, you can put in your checking account, and you'll be able to pay for it. At least most of it. Once you have your emergency fund, make the minimum payment on all your debt until that emergency fund is built up, then you continue building it up. And then when you have $3,000 or o maybe more over the amount y u need in your emergency fund, s y your emergency funds $500. A d once you have $2,500, then y u can use the $2,000 and pay o f the lowest balance first, or y u can use it to pay down the o e with the highest rate f interest. If you do the lowe t balance first. So you have a credit card with a zero balanc, that's a good thing. And y u want to keep that credit card t a zero balance. And then aft r that, you can start applying o the highest rate of intere t first and pay them down. And y u got to do this on a time y manner. You got to make a l these minimum payments time y every month. Why? Because th t will help you improve yo r credit score. And the better t e credit score that you have, t e lower rate of interest you c n get when you go out to borr w that s money, that personal lo n to pay off the rest of yo r credit cards, you're gradual y improving your credit rating o you can get a lower rate f interest. Also, the better yo r credit rating, the less you' e going to pay for auto insuranc, home insurance, your insuran e premiums can and will go do n over time. So don't forge, there's a two pronged atta k here that you're doing. And th t is in a nutshell what your de t reduction plan should be. T e next case scenario the fir t scenario was somebody who w s decent credit, that could go o t and get a lower rate of intere t on the loan. And they use th t to pay off their credit car. Because they're not, they don t have a spending problem. And e may be in a one time thing, a d they got their credit car s under control. And now they' e working on paying off th t personal loan, you never ev r want to use your line of cred t against your home, or do a ca h refinance and take a cash out n a new mortgage. Because f something bad in the future h d happened, you're adding to th t mortgage payment, and it's goi g to be more difficult for you o make a mortgage payment. A d then it could have, in the e d result, you may lose your hom, and then where are you going o live. You're better off havi g that credit on your back for a while until you can get pa d off. And the next scenario I m going to talk about is somebo y with really super bad credit a d what you can do to get work yo r way to being able to get a favorable debt consolidati n loans. My second articles fr m the nerdwallet.com, de t consolidation loans with tho e with bad credit. So what is b d credit? Bad Credit would be f you have a credit score of le s than 630. So if your cred t credit score is around 600, 5 5 you're gonna have bad credit. o how do you fix that? Well, o e of the in the articles a e saying improve your debt o income ratio. So you c n increase your income. And that s going to definitely help wh n you can also reduce your deb. If you have a bunch of sma l loans or credit cards with l w balances, that for some reas n you're not paying off, work n getting a small balance, cred t cards pay down, increase yo r income and pay off those sma l loan amounts. And your cred t score will improve over time, t doesn't happen overnigh, they'll happen over a period f few month So he's still are working towards trying to get a loan consolidation, because you're overwhelmed with all your credit cards. This scenario I'm going to be talking about is somebody has seven or eight or more credit cards with a balance of 8000 to 12,000. And each one of those, so you got quite a bit of debt. And all those credit cards have high rates of interest, because you have a bad credit score. So what can you do? Well, I'm going to repeat what I already said, you have to have a debt reduction plan. What needs to be in that plan is what are you going to do and to what is your current debt, he got to know what's going on and your debt life or your financial life before you can get it under control. So what caused you to build up those credit cards a high balance? Was it a one time event, maybe you were unemployed for six months, nine months or a year, maybe you had medical issues, maybe there's something else maybe you had car problems, whatever it was, you created a lot of debt, or if it just spending because you were had to credit and use well bought stuff that you don't really need. That's a habit, he have to stop doing it because he didn't see what word got you. It got you in debt with a bad or low credit score. So you need to work on improving it. The number one thing in your debt reduction plan is quit creating new debt. Number two is identifying what your debt is and what it's made up of. Again, you need to make a list rather you write it down on a piece of paper, do it in a spreadsheet, or do it in a word processor. It doesn't know the name of the card that you that you owe the balance on that item, the due date when the you and your payment is due the amount of the minimum payment and the rate of interest. When you can sort that out by highest interest rate first, and then highest balance second. That way you're gonna concentrate on paying off the high interest rate balance. Now just a note, if you have one or two credit cards to has a balance that you can get paid off in three months or less, a lower balance. Pay those off first, and then one those have a zero balance keep them at a zero balance because In the future, we're going to use that to your advantage. And then once those have a zero balance, now you want to concentrate on paying down the credit cards, or the loans that got the highest rate of interest. So we got to identify what it is you owe. And then you have to have a plan on which one you're going to pay off first, which one you're going to pay down, second, pay off third, etc. So that's why you make a list of them, so that you can identify that and you can then if you're doing it on a computer, and you got a spreadsheet or some way to sort that out and put them in a different order, that's what I highly recommend, then you got to make the minimum payment on all of them on a timely manner. Why, because that's gonna help your credit score over time. If you're making late payments, that's going to kill you. Now, you can also look at your credit reports, to see if there's something on there that doesn't belong to you. Maybe you made timely payments in the past, but they're saying you're late, he can contest that. Or there's something on there that doesn't belong to you. And you can contest that. So you can then look at your credit score, and then over time, that's gonna help. And the last thing you could do is add a cosigner, I do not recommend doing that he got yourself in this problem and debt all by yourself, he got to get yourself out of debt all by yourself. So don't rely on a cosigner or family member to bail you out. Unless you absolutely have to, it might be tough to find one willing to take that risk to be a cosigner because then they'll become liable if you make a late payment, it's going to affect their credit score, if you don't make any payments, then they're going to have to make the payments for you. So they may not be too willing to do those things. That's, that's important. So once you identify them, and now how are you going to pay them off? Well, as I said before, if you have a car or two, with a fairly small balance, you can get them paid off quicker, you want to do that, then I recommend that you pay off credit cards or your loans with the highest interest rate. And that order until you pay them off one by one. This is a fairly slow process, it will take you a long time to be four years you see anything building up or any major improvements. But it's like Donna mode, it starts out slow in the beginning, then as you go through and build it builds and builds and goes faster and faster and faster. And before you know it in three to five years, he should be out of debt, he should have those credit cards and all that and you should have your life under control. And you got to remember, you need an emergency fund as part of your debt reduction plan. Why? Because then you have the cash to prevent. Number one from happening, creating new debt, you don't want to create new debt, you want to pay your debt off. And you can only do that if you quit using debt as much as possible. So having an emergency fund to cover those expenses that pop up that you didn't plan for, or were unaware of that will help the cause. And the final thing that you probably should be doing is a budget on your total finances. Have a budget, you got to know the how much money's coming in how much money is going out every month, month in and month out. You're not going to get you're dead on control. If you're if your utility bills fluctuate. If they're super high in the winter time or in the summertime, if you're living in a warm climate, then he need to account for that. If they have periods of time where they're low. He might be thinking you're getting a head on paying down that debt but it's just a temporary couple months. Because your utility bills happen to be low for a couple months, and then it's gonna bite you in the butt. It's gonna sneak back up on you. So if you have a budget, and you know what's coming in and what's going out, you'll be better off and crease your debt to income ratio. The more income you have, the better off you're gonna be. or the or the other scenario, the less than that you have, the better off, you're gonna be, I'll be back in one moment was my final thoughts. If you listen to this podcast, reduce that increase well, on an Apple device, scroll through all the episodes towards the bottom. And you can slecht write a review and leave your comments, and you can rate this podcast. I appreciate all feedback. And I thank you for your time in doing so you're probably thinking I'm crazy. And that to have a debt reduction plan is really not necessary because you think he can do it without one, I'm going to tell you a little story about my life, I spent 20 plus years struggling to pay off credit card debt, I would get paid down to zero. And then a few months later, I had a balance again, again, I would make additional payments every month. And then as soon as I made that additional payment of as something else would pop up in my life. That was something was due that I forgot about, because I didn't have a budget. So I was struggling to make those payments. So I was living paycheck to paycheck, I was never making any progress. And when I did make progress, I still didn't have a savings account, I really didn't have an emergency fund. So when my car broke down, then again, I had to use my credit cards and I was behind again, then I was trying to make extra payments that tried to get it under control. And that was an ongoing cycle for 20 plus years. Finally, I realized from reading all the information I had plus my experience of being an accountant, I decided I need to get serious about this, I need to set up myself a budget, I need to know what's coming in every month and what's going out. So I can plan ahead. And I need to know in how far out in the future three, six months of what's gonna come do. My car payments are due twice a year, my homeowners insurance do once a year, my real estate taxes are due twice a year. So I had to make sure I had enough money to cover those when they came due. Or I would be getting into debt again. And I would never get out of debt. And I was always behind. So I set up a budget, I set up myself a debt reduction plan, I made steps to increase my savings account and know what happened. And three years, eight months, I paid off $130,000 of debt. Not only did I get out my credit card debt, I paid off my auto loans. I paid off my line of credit, and I paid off my first mortgage. And now I'm 100% debt free. And how do I do it? One, I had a financial plan. I set my goals and what my future would be what I was trying to do. And once I realized that I'm my gonna be retiring in a few years, that there's no way I could have all this debt and still live off my retirement income. No matter what I did, I would be coming up short. And I didn't want to be living my retirement, struggling month to month trying to pay my bills, mostly my debt, because my income would be down to about half. So by paying down my debt, I've definitely made my future look brighter. And I'm much happier for it. I'm much farther ahead on saving up money for my retirement. And I have no debt. And how they do that. One, I had a debt reduction plan. I'd list down all my debt, I put them in order. And I made a conscious effort to make the minimum payment, build up my savings account my emergency fund. And when I had two or $3,000 Extra in a savings account, I would apply it to one of those debts. It was slow going in the beginning button three years, eight months is not a very long time. So while it was slow for the first year and a half, maybe two years, and then it started gradually speeding up. And by the time I was in my last eight months, I was down to my line of credit and my first mortgage and it only took eight months to pay off my first mortgage. Granted, I've been working on it for 20 some years. Granted, I did refinance my mortgage multiple times. And I suffered for it. I cut back on all My spending, and I focus on making enough money to pay off that big mortgage payment. And it worked. And when I got to a point where my mortgage balance was low, I was able to refinance it at a lower rate for a shorter period of time, 10 years. And it didn't take me 10 years to pay it off. It only took me about six years. You're saying, Well, you know, you had that low rate of interest, you just wasting your money. My goal was to be debt free. before I retired, I reached my goal. Two years before I retired, it does work. So keeping track of your debt, knowing what your incoming income is, and your outgoing bills gone are on a monthly basis would generally help you plan ahead, so that when you make that big extra payment on that credit card debt, you're not going to be surprised that something else is going to come do you're going to be ready for it because you have the money in your savings account. You're going to be able to pay it and you no longer are dependent on using debt to pay your bills. become financially independent, takes commitment, determination, confidence. You got to be confident you can get it done. You got to be determined. You got to stay the course. And no matter what. Over time, it will speed up and you'll be much happier in life because you have no debt