Charles McDonald: 0:04

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 and management plan. What is a debt reduction and management plan and how does it work? This is one plan that works for both debt reduction and management, and is something that should be memorized or place and a place to be viewed regularly. So at the beginning, here, I'm gonna give you the four things you need to do, and a debt reduction plan. But before I do that, I'm going to talk about last week's tracking, I forgot to cover it, maybe I forgot or just didn't think it was important. But if you're new to tracking, and you're using a new app, he needs to go back 30 days or the previous month, and enter all the transactions that happen in your checking account, your savings account and all your credit cards. As you do that, when you enter a transaction that is paid on a regular basis, set it up as a reoccurring transaction. That way, when you go forward, it will pop up before it's due. So you want to set it to pop up at least five to seven days before it's due. That way, you can look at it, you know that it's coming up, and that you're going to be having to pay it and you'll have the money available to make the payment. Just a little tip there. So let's get back to debt reduction plan and or a debt management plan. It's the same plan that works for both, whether you're trying to reduce your debt, or you're just trying to manage your debt, you do exactly the same things. Maybe you do a little bit less on the management side, because you don't have as much debt. Or maybe you don't have debt at all. But it's a good thing to have the same thing that you write down, do it in our word processor on your computer, printed out nice big bold letters 1234.

Unknown: 2:46

And you'll be sad,

Charles McDonald: 2:48

you got to memorize this, and you got to stay connected with this if you're trying to pay off credit card debt, or if you're trying to pay off any type of high interest debt, or maybe just debt in general. This is the plan you need to focus on

Unknown: 3:07

one credit using credit to

Charles McDonald: 3:13

make the minimum payment on all your loans, all your credit cards.

Unknown: 3:20

Three, either set

Charles McDonald: 3:22

up and start an emergency fund or increase your emergency fund for once you had to determine the amount of money that you have one to maintain in your emergency fund, then you build it, your savings account up above that number 234 1000, whatever you're comfortable with, because it's gonna be a hedge there with your emergency fund. And once your bills are all paid off, paid up at you know, on time, you have everything under control, you have 3000 4000 more than your limit for your emergency fund. Apply that to a chosen debt. We're gonna concentrate on credit card debt because it generally has the highest rate of interest. Now I have a link in my show notes to so phi.com Learn, connect, creating debt reduction plan and assists tips to build a debt reduction plan. You already have it because I just told you what your debt reduction plan. I'm gonna talk about some other things that you need to know with n your debt reduction plan. I'm not gonna go in detail on why we're doing what I'm doing. But in this note, they're saying prioritize and expenses. Now when they're saying that to referring to your loans, if you have a hunch loan and a mortgage. That's number one, if you had an automobile and alone on your automobile, and it's the only way you can get to work, that should be number two priority. So you always make your mortgage payment, you always make your car payment, because if you don't, he won't have a place to live, he have no way to get to work. Does that make sense? I hope it does. After that, and there's other things you can do, maybe trying to pay off credit cards, maybe have one credit card, it's kind of gotten out of control, and you want to pay it

Unknown: 5:35

off student loans i and

Charles McDonald: 5:40

there's they're going over other ways to reduce your debt, he can refinance your student loans in get a personal loan, a consolidation loan to pay off your credit card debt. But that's not getting rid of that, that's just rearranging your debt. And that's what they're talking about here. I'm not saying I say you need to prioritize everything, your mortgage is number one, your car loans are number two, your student loans should be number three, your credit card should be number four, on way you always make timely payments, because the only way you're going to reduce your debt is is making timely payments, the less fees you pay, the less interest you pay, the more principal you're gonna be paying. And the more principal you pay, the less debt you're gonna have, over time. Also, in the article, they have two methods is the Debt Avalanche Method, which is you categories all your debt by the interest rate, highest interest rate, first, lowest interest rate second, or you know, at the bottom, then you apply your payments to the highest interest rate first, and you pay that off, and then you work your way down. And then there's snowball method, which is you go by the balance, you take your lowest balance first and pay that off. And then the second lowest bounce, and on and on and on. Now, I don't do either one of those, but I kind of do a hyper, if you're just getting started, and you're trying to pay off your debt, say you got three credit cards, you have a personal loan, you have a mortgage and two car payments, or something along those lines, you're trying to get your high interest debt pay off first. So that that would be your credit cards and your personal loans. That's what you need to concentrate on. If you put them in order, by the rate of highest interest rate, and down first, and then pick out the one credit card has the lowest balance and put that one on top. So you want to pay off the lowest balance first. And then after that you're gonna pay off the highest rate of interest from then on. And why are we doing, that's got to be a credit card, and there's a reason I'm doing that, you want to get a credit card with a zero balance. Because down the road, they're gonna make you an offer, where you can transfer balances from other credit cards onto this credit cards, you pay a three to 5% fee to do that, and they're gonna give you 12 to 18 months of no interest. So you will be able to transfer a bounce off a high rate interest card onto this card, pay a flat fee, which is generally one or two months you recoup your money. And then you got a year to year and a half to pay it off with no interest. And that's gonna help you get out of debt faster. And once you get that paid off with no interest you take your time, he just figured out, okay, I can apply $75 A month 75 times whatever number of free months is that's what you pay every month. There's no hurry, because it's at zero interest, but you lower the high interest credit card down by that same amount a lot sooner. So you're paying less interest over time. That's why I do that that way. Now let's go back to and they talk about personal loans and all that kind of stuff. So what I want to do now is go back

Unknown: 9:48

to the beginning.

Charles McDonald: 9:50

Step number one, quit creating debt. Quit using your credit cards. Quit borrowing money. Whether it's a payday loan, or whatever the thing is, you can't reduce your debt if you keep increasing your debt, I hope that makes sense. So quit creating new debt. That's number one. And that's, that's not only in a debt reduction plan, that's your debt management plan. Because then their debt management plan, he might have three credit cards with a zero balance, that maybe you just bought a new home. And now you got this mortgage payment, that's four or $500, more than what your rent payment was, you think he can make it pay, but don't create new debt? Find out if you can handle it first. So quit using those credit cards on a management plan. On a management plan, we're looking before we borrow the money to determine if we can't afford that loan. That's a debt management plan. On a debt reduction plan, we're trying to figure out, how are we going to pay off this debt. And if we quit adding debt to it, we're going to be able to pay it off much easier and faster to make the minimum payment, and why am I saying that you make the minimum payment. And I never did this, until I finally figured it out. I would always take whatever one credit card I was trying to pay off. And every month, I will apply my extra money I had, which I really didn't have. And I would try to apply it to that credit card or that debt I was trying to get under control. And I would work on it for six months or a year, but I never build up my savings account. And then something would happen. And I would have to use the credit card to pay for whether a new tire on my car, or I had a replace refrigerator that quit work and I had to use that same credit card. So I I I didn't have an emergency fund to fall back on. So I step one, I had to use my credit or use debt in order to get through that crisis. That's why you have an emergency fund, and you need emergency fund how you're going to get it. If you take all your extra money and play it, apply it to some debt, you're not going to have the money and your emergency fund. I hope that makes a lot of sense. Now the emergency fund is there for you to use if something unusual out of the norm happens such as your car breaks down appliance in your home breaks like hot water heater or refrigerator needs replace something that's not normal and your monthly expenses. That's what your emergency fund is for. Most recently, I had a clog in my pipes and I had to have tear out the basement floor to get it all taken care of and it was expensive. I had the money in my emergency fund. I didn't have to borrow any I just paid them train transferred it from my savings account to my checking account and I paid him. Course I didn't like given up all that money. But I didn't have to borrow anything I stay out of debt. That's what your emergency fund is for. Now, you want to start out with a least $1,000 minimum, maybe a little bit higher nowadays, because their cost of everything keeps going up. But let's start out with$1,000 minimum. So if you're making, we're going through, and we're building up our savings account, because emergency fund is nothing but a savings account. And once you get more than your emergency fund amount, let's say $1,000 For now, and there is still in the same savings account, you're just a break in and out do it ledger on the side and have emergency fund and how much you have in there. And then if you have a Christmas fund, you can do the same thing there. You can transfer money and put money in there. And then your savings account, a general savings account.

Unknown: 14:28

Once that exceeds

Charles McDonald: 14:32

your emergency fund and maybe you have a Christmas savings fund. Once you have those fulfilled for that particular time period or the month, then anything additional is in your savings. Once you have your savings account built up, pass those dollar amounts. Let's say three to 4000 just for the sake of it. It could be two to 3000 then you take that money that's in your savings account, and access of your, say, your emergency fund and access of your Christmas fund, then you take that money out, put it in your checking account, and you pay one of your debts. So let's look at which debt, the first one would be the lowest bounce credit card you have. And if you say you have 3000, you have one credit card, do 1500, you pay that one off, you got a zero bounce, do not canceled the card, we're not using it, but do not cancel the card, you want to leave it open, if you cancel the card and close it, then you're gonna have less credit available, and it's gonna hurt your credit rating, unless they close it for you don't do it. And then the extra money the other $15, you want to apply it to a credit card with the highest rate of interest. And from then on, you're paying off your highest rate of interest cards first. And let's say you do that and you're going on down the road, and then six months later, you get in the mail from that credit card was a zero balance, you get an offer trig and transfer other balances to this car and get 18 months zero interest. And I'll cost you 5%. Well, you take your highest credit card interest rate, and you transfer over enough money into that zero credit card that you can pay off within that time period. So let's say your minimum payment is you want to make a minute in this is in your head is not what they're saying that to say your minimum payment you can afford $35. So you take$35 times 18 months, and that's what you transfer over. And that would be that'd be $630. Now, the very first month, you want to pay the interest that they charged you that 5% You want to pay that first. So it might be$45 or whatever, you pay that off plus your your regular payment. And then after that is$35 a month until he gets to zero, there's no hurry and paying off early. You just keep doing it. Now your highest rate, interest credit card has $630 less violence in it. Because you put that money over here, on a credit card with zero interest. You keep doing this over and over and over until you get all your credit cards, all your personal loans, your house line of credit. That's kind of the order you want to pay them off. You want to pay off this debt with the highest interest rates first, which is going to be credit cards, personal loans, payday loans should be number one, credit cards, personal loans, your equity line of credit on your home, because it's genuinely a variable rate. So it's changing. Interest rates are going up now. So it's gonna go up, get those paid off, and then look at your auto loans, pay off auto loans with the highest rate of interest and then your second auto loan. If you want to be debt free 100% You pay off your first mortgage last. If you have a first mortgage that you can afford to pay without hurting your budget, and he got less 3% or less interest, there's really no reason you should be paying it off early. Unless you're got a reason. Or maybe you're getting close to retirement and you want to go into retirement debt free. That was my reason. Maybe you want to start a business II don't want to have any personal debt hanging over you because you want to put all your money and to this business you're trying to start whatever the reason is, that is up to you whether or not you pay off that first mortgage, but we need to have a plan. One quit creating new debt, quit using credit. Number two, make the minimum payment number three, increase or build up or start an emergency fund. Maybe if you have spent money on Christmas, create a Christmas fun also and start building that up for next year. Because we want to maintain number one quit you Isn't credit. And if you're using credit cards to pay for your Christmas gifts, even if you pay them off in three or six months, you're still using credits, and you're not gonna be able to pay them down, if you keep adding to it. Number four, take the excess money in the amount above and beyond your emergency fund your Christmas fund that's in your savings account 234 1000 and apply it to whichever debt you're trying to pay off first. And then you just keep doing the same thing over and over and over. If you're on a debt management plan, you still need to have an emergency fund, three to six months worth of your expenses, is what you need to have an emergency fund. And why we're going to do if you get laid off or lose your job, what are you going to do if you get injured in an auto wreck and you can't go to work? What are you going to do if you just get sick and unable to work and have to go on disability, you'll have some money available to get by on for a period of time, and you'll be a lot less stressful for you. If you're doing debt management, you probably have your debt under control. Or at least you you think you do. And you're thinking about borrowing money for the purchase something,

Unknown: 21:37

maybe you want to purchase a boat, maybe a motorcycle, and you

Charles McDonald: 21:43

don't want to use your savings account to do that. And you're gonna get a decent rate of interest. But can you afford it? What's the monthly payment gonna be? Can you afford it in your budget? Do you have a budget, he should have a budget, he should know how much money you're putting in your savings account every month, or is this payment gonna take all that so you're not putting any more in there, or maybe half

Unknown: 22:12

of it. That's that management. Plan

Charles McDonald: 22:17

ahead before you buy a large ticket item. Or you have to buy money, know how much it's gonna cost you know what you're able to pay without scrimping without changing your lifestyle or cutting back your lifestyle. Just don't blindly go out and buy things and borrow money for things. If you're not sure when and how you'll be able to pay for it. 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 an 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 wealth@gmail.com. And I'll send you the information about this online software that worked great for me. Maybe you're wondering why you should pay off your debt. Well just think what you could do with the money you're spending on all these credit card payments and all your debt payments. What could you do with that money? Well, you could increase your savings account much faster. He could save more for retirement, you could say more for a downpayment on the next automobile you're gonna buy or he could say more fro your children's college education, or whatever you're gonna do with your money later in life is not all about what you're doing today is all about what you're going to do later in life when you retire. How much money you're going to have when you retire is definitely a direct result on how much debt you have or don't have and how well you made your debt is also important. So you don't get out of control and then have to focus on cutting back somewhere else so you can make all these credit card payments. So once again, number one, quit using credit. Number two, make the minimum payment. Number three, start or increase in an emergency fund. And if you spend a lot of money for Christmas, start or increase your Christmas fund, it's that simple. Then once you have a more than what you want in those two funds, and go well beyond it to 3000, then you because money can be used as long as it's in your savings account, if he hadn't paid off any debt, and if something bad will happen, you need tires for your cars, you'll have to do it so that you can stick number one, quit creating new debt, maybe yes, maybe it will take you a little bit longer to pay down that credit card, or whatever debt you're trying to pay down. But you're not increasing another debt. So you're overall much better off. So stick to the plan. Know the plan. Understand that the more debt you have, the tougher things are gonna be in your day to day life. And keeping everything under control is important. Next week, I'm going to talk about your control center. Some people call it a budget. But we got to stick to a budget or your control center to keep things under control. So you have an understanding of where your money is gone, how much it's going where and when. That's the importance of having your control center. And keep tracking all your expenditures. Keep tracking everything that goes through your savings account, your checking account, and all your credit cards. That is a must. While you're doing this debt reduction. You need to have everything and your personal financial life. If not under control. lease, you know what it is, you know how much you owe, you know the interest rate. And you have a plan on taking care of it. If you would go online and do a debt reduction plan. The only thing you're gonna find is Debt Counselors. Do it yourself first. If you can't do it yourself first, then use a counselor. I say that because even though they're helping you, you got to pay them a fee. They don't work for free. And if you're paying more fees, it's gonna take you longer to get out of debt or to get your debt under control.