Hello, I'm your host, Mr. Chuck, a retired accountant turn 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, how to get started in reducing debt no matter what type of debt, you may have credit cards, student loans line of credit, personal loans, and payday loans, getting out of debt can be difficult to get started. And that can be done without any outside help, if you know how and what to do. This is my third in a series. The first one was tracking the second one's budgeting and now this one is debt reduction. And why am I doing it in that order? Well, first of all tracking is you got to know where your money is coming from and where your money is going. Hopefully, if you've done that, over, say, a week or two, you have a better understanding what your spending it. Like, maybe you've already taken steps to reduce some of your spending, maybe you've already canceled some things you're no longer using, but we're still paying for then you created a budget. The reason you have a budget is so you can compare your current month to a number set. And I've always used the previous month, because we're not here to change your lifestyle. We're just here to help you with your personal finances. And a way you can do it is put it in stone, have a budget, track your actual spending. And if it's going up or down for whatever reason, only you be able to determine that you can then have your spending under control, getting your spending under control, take some strength and commitment. And by looking at where you're spending, your money is going to help you. And looking at your bank statement for your checking and savings account and all your credit card statements, you're gonna realize why you're struggling to pay off debt, because you're really spending more than maybe what your income would be. So you're using credit every month, and that gear keep getting farther and farther into debt. So the first step is quit using credit. Quit using those credit cards, quit borrowing money, just quit using credit all together. And now it's going to be difficult, especially if you're using your credit cards to pay for some monthly bills. You're gonna have to start doing your monthly bills, the things that you need to be paid every month out of your current income. If you're unable to do that, then what's the reason for that? There's only two things that affect your debt problem. Your income is too low, your spending is too high. Can you increase your income, it's much easier to reduce your spending. And that's pretty much it in a nutshell. In my show notes I have a link to an article talking about debt reduction software. debt reduction software can come in many forms. Some tools include simple features like debt reduction calculators, where others sync with your bank accounts and pay your debts on your behalf. Why are these programs so dramatically different? At the end of the day, some consumers want more help paying off debt than others and not everyone wants to pay for access to software. Just keep in mind that the ultimate goal of debt reduction software is helping you pay down debt faster or more efficiently. The strategies to help you get there are can vary among software programs and you should explore all your options to see which programs offer a path out of debt that makes sense with your goals. Whether the expected cost of debt reduction software, debt reduction software is often free in some even pay programs offering a free version you can try pay plans costs $30 or more per year. Some are like 10 to$15 per month is this debt reduction software worth it while paying for debt reduction software may feel counterintuitive, these programs be well worth it if they help you save money on interest, get out of debt faster, or both programs also makes sense for people who have tried to get out of debt on their own, but found they need a third party to help them create a plan they can stick to. And my plan is fairly simple. It's four items, that if you do over and over and over, you're gonna get your debt under control, and then you're going to get some of it paid off, and you're gonna get more of a paid off, that all comes down to income, not enough or spending too much. So my focus has always been on here must be spending too much if you're struggling to pay off credit cards. Or if you're borrowing morning, money using payday loans, which has a higher rate of interest, it's a simple concept, the less interest you pay, the more principal is going to be paid off every month, to more principal that gets paid off, the less debt you're gonna have. So quit using credit, that's gonna be the hardest thing for you to achieve at the beginning, then make the minimum payment on all your credit cards, only make the minimum payment on all your debt that will help you achieve your goal of quit creating using credit, quit creating new debt. I call this a debt reduction plan. You can also call it a debt management plan. We're not managing the debt. Before we get it, we're having to manage her debt after we get it. But in reality, if he was smart about this, he had been managing your debt before you applied for the loan before you got your first credit card. Before you got your mortgage before you got your car loans, you wouldn't have known what your budget was even unknown how much you could afford comfortably. And stay within your budget and live a good life. You will know that in advance before borrowing the money. But now you are struggling. So we got to get things under control. Number three is start if you don't have an emergency fund, what is an emergency fund, it's a savings account at your local bank, where you have your checking account that makes it the easiest thing. So that when you get all your needs paid off, and you have the minimum amount you want in your checking account, whether it's $300, or $600 is no matter how much it is. But once you get an excess of that and you have all your needs, then the money can be transferred to your savings account. You don't want to transfer money down on the transfer $500 a month, and then do it. And then the following week has to transfer back into your checking account because you have bills do make sure that all your needs are met, that you have enough money in your checking account to pay all the bills going forward for from one paycheck to the next paycheck. Easiest way to do it. Can you keep doing that, and your emergency fund should be a minimum of $500. So once you get it up to $500, you just keep doing the same thing over and over until you have approximately 2500 to $3,000 and the emergency fund. While you're building this up, you're just increasing your emergency fund. If something bad would happen, if you had wrecked your car, you need $1,000 Because that's your deductible. In order to get the car fixed, you would have that$1,000 And you wouldn't have to use credit. Going back to number one, quit using credit. So your emergency fund is gonna help you quit using credit. Then you want to apply that money sis say $2,500 to a credit card or to a debt, preferably with the highest rate of interest. So if you're looking at three credit cards and maybe a payday loan, focus on that payday loan, get it paid off and quit. Getting payday loans paid off, walk away, forget, they even exist. If you have a couple of credit cards, and maybe you don't have a payday loan, but maybe have some student loans, pet, whatever has the highest rate of interest first. But what I've always said, if you're just getting started, and this is their first time, and you're trying to get some success going, pick the loan, or the credit card that has the lowest balance, and pay that one off first, no matter if it's got the highest rate of interest, or the lowest rate of interest, pay off whatever has the lowest balance, that way you can succeed, you can have some success, and you can feel good that you're making progress. After you've done that, then the next time you do it, you want to pay off the loan or credit card that has the highest rate of interest. That's why in my budget app, my spreadsheet that I use, I list, the due date, the opening balance, new charges, payments, closing balance rate of interest, I want to know which one has the interest, and I sort them by the highest rate of interest to the lowest rate of interest. Because I'm gonna pay that off in that order, no matter if my highest rate of interest has the highest balance, I'm gonna start applying it to it. And why because I swore I'm paying the most interest to sooner I can get debt paid down to less interest I'll be paying, the less interest I pay to more principal gets paid off, the more principal gets paid off, the less debt I have. It's a stairwell, per se. And you're working your way down. Think as your credit as way up, I and you're walking down the steps. And as you come down the steps, your debt balances are reducing. And you just keep doing this over and over and over. So why did I start with tracking first, and then the budgeting, because in order to do this, you need to know how much money you have, how much you're currently spending, that you have some type of budget that you have your needs under control, before you start reducing this debt, we're not giving up everything we do and enjoy in life, we're just trying to get our credit cards paid off, and then keep them that way. Now once you pay off a credit card, do not cancel it. Because if you cancel the credit card, that's gonna reduce your available credit, and it's gonna hurt your credit score. So just quit using your credit cards, get it paid off at a zero balance. As long as you have a balance on there, they're not going to cancel it, as long as you're making timely payments are not going to cancel. Yeah. But once you get a zero balance, maybe every two months, put a 20 or $25 charge on it. Maybe just fill up your gas in your car and charge it on that credit card, and then pay it off the next payday, pay it off right away. So you've got it back down to a zero balance. If you do that every few months, we're not going to close it on you are not going to cancel it, you're going to look like a good creditor, they might even increase your available credit if you're really lucky. So we're gonna now talk about what's the best debt payoff method I already talked about it, you want to pay off your one with the lowest balance first and then after that one is paid down and off, then attack your highest interest first. So that is a combination of both of these methods. And the first method is the debt snowball and the Debt Avalanche. The snowball asks you to pay off your smallest debt first while making minimum payments on the rest. The Debt Avalanche asks you to pay off your highest interest rate first, while making minimum payments on the rest. The Debt Avalanche usually considered the mathematically correct option since it lets you say more in interest by paying off highest interest rate. Debt first but many people like this not snowball to to the psychological satisfication they get pan off small debt first. That's why I con combined it in first when you just Getting Started, he may be little stressed out, he may be down, he may not think you'll be able to ever get out of it, that you think in that you're working for everybody else, but for yourself. So by getting that first one paid off, you're making progress and you're gonna start feeling good, you're gonna start thinking, I can do this, I have my finances under control, finally, and I can get my debt paid off. And then why are we doing the minimum, while doing the minimum payment, like I said before, it's gonna help you quit using credit. Because if you're Wyant extra money to your credit cards every month, then you're gonna be maybe short on some cash, and maybe something's gonna come up, maybe you have to go to grocery store for an event, and spend low more on groceries than you normally would. And you're gonna charge it, whatever it is, we want to avoid using credit. That is one of the keys. So the keys to all this is quit using credit, like the minimum payment on all your debt, have an emergency fund and increase it, your first goal should be having $500. And then keep building it up until you have 2500 or 3000. Now, leave$500 in there and imply the access to a debt, that of your choice. Over time, as you get a credit card paid off, and you're making some progress, you want to increase your emergency fund, maybe to $750. And then a few months later, maybe $1,000. And then a few months later, maybe$1,250. And gradually over time, keep increasing your emergency fund, and do that as your debt is coming down. That way, you are still getting your debt reduction under control. And look at your budget. That has a lot to do with how quickly you can pay off debt. If you see an item that you're thinking you're too much for an easiest example would be cable TV. Perhaps you have children, and you have Disney Channel and you got Cartoon Channel and you're paying 175 $225 a month for cable TV. Look at streaming, can you stream those same channels basically have the same thing, use that internet connection that you're paying for it to the maximum. And by streaming, you will do that. And if you can stream cheaper, definitely do it. If you can take that $200 A month cable bill and make it zero and have streaming and maybe pay $100 a month, that's$100 more a month that you have to apply to debt to put in your emergency fund, that's $1,200 more a year, you're gonna build up your emergency fund, that's that much more money, you're gonna have to pay off your debt. And you're not, didn't really do away with any services that you currently have. You just optimize it to the cheapest, less expensive way of getting those services. Same thing with cell phone, you can change plans every once in a while. A toolkit more benefit more services, namely unlimited data, unlimited talk and text, and maybe pay a lesser fee for the same services. Again, and then by keeping an eye on your thermostat at home in the winter time, turn it down in the summertime, turn it up and try to reduce the overall usage of utilities. Be careful with you use each a water, don't waste anything. And you'll save money and may only be $10 a year. It may be $5 a month, but you're saving more money. And the more you save, the faster your emergency fund is going to build up. The faster that that builds up, the more money you're going to have to apply towards your debt. I'll be back in one moment with my final thoughts. If you're listening to this podcast on an app, please go to rate and review and rate and review reduce debt increase wealth.com If you notice Somebody that can benefit from listening to this podcast, please referring to reduce debt increase wealth.com, you can find me on any app that they may already have. Or on Facebook, if you wish to listen to this podcast on Facebook. Perhaps you're thinking, I don't need to do all that tracking, I don't need to set up a budget, I can just pay $100 A month towards my debt. And I'll have it all paid off, maybe in 18 months. But what are you forgetting? You don't know the reality of what's going on in your finances. If you don't track your finances, you don't know what your spending is like? How do you know, you're going to have $100 every month to apply towards that credit card debt, or that debt you're trying to pay off. You don't, maybe you pay your car insurance quarterly. So there's three, four months a year, you can't pay that $400, because you're not going to have the money. You need to plan ahead for everything. If you have bills that are due twice a year, like I do, my real estate taxes are due twice a year, January and June, I don't know how much it is. And then money is available in my checking account to pay it when they come to my auto all my insurance is due in March and September, September being the worst of the two months, because it's my homeowner's, and they pay that once a year in my on my motorcycle, and I pay that once a year and then half my car insurance. So you're going to have things six, kind of pop up this gun to throw your simple plan, call them off. And even if he made $100 a month, are you including the minimum payment. If not, you're only apply in less than that to your principal, because you got to be paying the interest, they always apply the interest first, and then the remaining is applied to the principal. So now always make the minimum payment, and then any extra on top of that, so maybe $150 a month, and you miss a month that's gonna add to it. So that 18 months can easily become two years, 24 months or more. So let's do this with a plan. And the plan would be quit using credit. And if you don't stop using credit, how's it ever gonna get paid off, it's not make the minimum payment on all your debt, have an emergency fund in case emergency comes up, whether it's a car repair, or a hot water heater in your home, or a hospital visit for one year children, you'll have moved some of the money, it doesn't have to be all of it, but you have some of the money to buy towards that expense that emergency fund. So you don't have to use credit to pay for it. And over time, you're going to have enough in your emergency fund to cover almost everything. As your debt goes down, your emergency fund should go up. And the reality of it, you should have at least six months worth of expenses that you pay and your emergency fund in case you lose your job, you get sick, something happens. But they were the case would be you have it set aside to pay for your needs first. And as your debt comes down, that's gonna allow you to get insurance to help cover some of this stuff. And the course insurance is gonna cost money. But if it's something that you use is gonna be well worth it. Like disability income for short term, if you get injured in a car wreck and you're off work for six months, it kicks in and you'll get a some money for the first six months. That's short term disability. And then you have long term disability, if you're off work for more than six months, and then insurance would kick in and provide you with additional income to cover some of your needs over for this time until you can get back to work and on your feet. And you start doing that as your debt comes again, under control. That's the whole thing with personal finances. You plan for the worst, but hope for the best. So in a nutshell, quit using credit that's gonna be your number one hardest thing to do, then make the minimum payment on all your debt that's gonna help you quit using credit, get money into a savings account or emergency fund, and start building that up. This at the beginning, if you have no savings, that's gonna take a while, and maybe three to six months before you even have $500 in there. But as you were tracking your spending, you got the budget, you're looking at what's going on, you're getting some of your spending under control, and you're reducing your spending, then your savings is kind of starting creasing a little bit faster, that's gonna take a while this is something that doesn't happen overnight. And then once you get more than what you need in your emergency fund, we're starting $500. So once we get $3,000, you have$2,500, you applied to one of your debt, whichever one you want to pay off first. And you did do this over and over and over, you will always gonna keep on tracking all your spending from your checking savings, credit cards, you're gonna do that the rest of your life, it's not time consuming. Once you get started, you get the first 30 days and you're able to create that report. So now you can set up a budget. And now you can do the reports to keep on track with your budget, or just see where you may be getting off your budget, and figure out the reasons for that. It's only gonna take you a few minutes, 510 minutes a week, if you do a weekly, little bit longer depends how much spending you do through your checking and credit cards, and how many transactions you got to put in. If you keep your receipts every time you spend money, then you'd be able to just enter it from those receipts. And that could be a lot faster. It's not all that difficult. The hardest part is staying on track. And the hardest part is the quick using the credit. Now if you have a big expense that you need, say your car has 300,000 miles on it, you need a newer car, and you need to borrow money to replace your current car. That would be okay. That he can do that. Well I'm talking about quit using credit. Quit using your credit card to buy things you don't need. Quit using your credit cards to pay for your monthly needs. Monthly needs would be housing, transportation, food, entertainment, clothes. I say entertainment with food because you might go out to dine once a week and splurge. You got to treat yourself for your small successes. You got to not be constantly not spending money just because you're trying to get out of debt. You got to continue to live your life. But you just need be aware of where your money is going and how much money you have coming in. That's all it's all about.