Charles McDonald: 0:04

Hello, I'm your host Mr. Chuck, I am 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. slow progress, and may seem like no progress is being made on reducing debt. But at this stage it is a slow process. Once quitting using credit, identify items to cancel May through those tough choices. It's a waiting game for cash to increase. It starts out very slow, so do not give up stay focused on what the objective reducing debt. Understanding how the debt got out of control is important and to getting out of debt. I have a link in my show notes about a debt spiral from investopedia.com. The debt spiral, how the debt spiral begins. For many people. That slide into debt begins with student loans. An estimated 43 million Americans have student loan debt with an average balance of just under $40,000. Fortunately, student loans may be a necessity to pay for undergraduate or graduate degrees as tuition costs rise year over year, because paying for college or technical training and cash is unfeasible. For most people, education loans are the only choice. The downside is that taken out a loan immediately compromise your personal balance sheet. While you're in school. You're at Klum accumulating debt at a time when you probably don't have enough income even make a single loan payment. You may also be encouraged other types of debts in Your 20s Credit card for example, can have or cover the daily cost of living while you're still in school or even afterwards as you begin your career. While your loans are a cure accruing interest, credit cards ending up by charging significant higher interest rate than those of school loans sinking you even deeper into debt. When you finish school debt spending is further reimbursed if you live in an area where you need a car to hunt for a job or commute to work. The result is a visit to the auto dealer where you find yourself confronted by a salesman who cheerfully asked what size monthly payment are you looking for. By the time you leave the dealership another debt had been added to your burden. I home mortgage may come next soon the percent of income dedicated to make monthly payments become overwhelming. To reduce the burning you take out a no loan in form of a debt consolidation through bundling together why high interest rate debt and refinancing them at a low interest rate sounds like a smart idea. The reality is that most people end up even deeper in debt within this a few years. As soon as their monthly payments decline, the rate of spending increases. After a few rounds of debt consolidation later, many people find that so much of their income is going to pay outside debt that they can no longer stay current with other expenses. Eventually, this could result in a damage credit score, which leads to the ability to borrow at a low interest rates, high interest rate loans and credit card payments further restrict cash flow, and even lead to bankruptcy. Though bankruptcy may provide means to reset one's finances and start over that often merely acts in a manner similar than that of debt consolidation, making the beginning of another debt spiral.

Unknown: 4:08

Now how you can get out of that

Charles McDonald: 4:11

you how you break that cycle of debt. If you're ready to escape the debt spiral, the first step is to stop borrowing money. That's what I've been saying. The first rule and my refinance my debt reduction plan is to quit using credit. Now many of you if you listen to my last two episodes, he may still be in the process of trying to quit using credit. He gotta stay focus. He got to stay with it because this is the only way you're gonna get yourself out of debt. This debt spiral and that one I just read on the car Recall, had people doing debt consolidation loans, that is a number one no, no, because what is a debt consolidation loan, you're creating more debt, you're using more credit. And in reality, it may be a five year loan. But you may be with some determination, you stay focused, you can get those credit cards paid off much faster to and within a two year period, or maybe even less, that's a lot less than five years. And once you do a debt consolidation loan, she got these credit cards that are paid off. If the bank where you got your consolidation loan, didn't require you to cancel those credit cards, which hurts your credit score, you may start using them again, and you're just getting fathered deeper back into debt. It's a cycle. So how you gonna get out of that cycle? Well, the first number one rule. And always remember, number one rule, quit using credit,

Unknown: 6:09

quit borrowing money, period, no matter what you think, just stop borrowing

Charles McDonald: 6:19

money. So whatever you think you're gonna do, if you're gonna do a debt consolidation loan, no, if you're gonna do a debt settlement, no, because you're gonna have to pay somebody to do that for you. And once you pay those fees, they may or may not be successful in getting your debt settled. And then you still end up owing a bunch of money and you just out money. So don't do that balance transfer to another credit card. Unless you have a plan, you want to avoid doing that. My plan is to pay one off way too has a zero bounce for a while, when they offer you a balance transfer onto that card where you transfer a higher interest rate loans or credit card balances onto that card, the only transfer enough on there that you'll be able to pay off in that time period, you're getting the zero interest, because you're gonna pay a fee to transfer the money over three to 5%, that should be recouped within two to three months of reduced interest that you're paying on the high interest card on the amount that you transfer over. And then you pay that off within that time period. You don't let it ride out. If you let it ride out, you're not doing yourself any favors. You're in he didn't he just delayed the process of getting deeper in debt. So don't do that. pay it off. That is my only exception. On your retirement plans. Do not borrow money from your 401 K or your I are a because if you would leave the employer or get fired or whatever, on a 401k. Once you quit or leave, you have to pay that loan back. And you're probably not going to have the money to do it. So what's going to happen? You're going to borrow money to do it. And we're trying to quit using credit. So whatever you do you want to try to look at the long term. And if the long term answer is to borrow more money, or use more credit, you don't do it. So how you break well, first step is to stop borrowing money. Credit cards are often the lead culprit in creating consumer debt. So that means putting the plastic away, pay in cash, write a check, or use a no fee debit card and make your purchases. This way you will see how much you're spending. And when the money runs out, you won't able won't be able to spend more. Very important. That is why you create yourself a budget. That is why tracking all your spending and all your income is the lifeline of your personal finances. And then creating the budget is your control center where it helps you see what's going on. So he controls what you're gonna do next. So if you're still on a process of you got to make those tough choices. If you want to get the out of debt and pay off those credit cards, maybe student loans, maybe a car payment or two, maybe your line of credit on your home and then your mortgage. You got to do all the steps And one of the steps early on that you have to do is to reduce your spending. This is a mental thing. It may be the reason why you got yourself in so deep of debt to start with, you have a spending problem. So you got to look at where your money is going and get rid of make the tough choices, what can I live without, if you want to pay off your debt, the quickest way is to minimize all your spending down as much as possible. You pay for your needs first, housing, transportation, food, I've put clothing off for at least a year. And why say housing is everything related to the house. So it's your mortgage payment, your insurance, your utilities, all your internet, prescription provider, and all your streaming of your TVs? Because it's all connected to your house, you can't use it anywhere else most of the time. What can you get rid of to reduce that down to the bare minimum? And then what can you reduce on what you're spending on? Can you get different plans, like on your cell phone plan to get the same service by lesser cost, the change providers may be your current providers have a new plan out there that because your plan is three or four years old, it's time to look, same way with your homeowners insurance, you and your auto insurance. The step two of the debt reduction plan is make the minimum payment, that's free money and you want to free up money. So you can build your emergency fund. Because the main purpose of having an emergency fund is to help you quit using credit. It's all related. It all goes together. Then as you build up your emergency fund, and you get the minimum of $1,000 and you keep building, he should also be putting in the minimum amount into your retirement plan. So if your employer is doing a 5% match, you should put in 5%. If your employer is doing a 3% match, you should do in 3%. Don't stop that, and do not borrow from any retirement plan. Because I can get you in trouble down the road. I'm trying to help you focus on what's going on. And what you need to do. It may seem like you're not making any progress now. But in reality you are. If you've stopped using credit, and you're paying cash for everything, you've making some progress, if you identify things that you can live without and do away with and you cancel those items, maybe you're still doing that, it should only take you about a week to do all this may be the first month, month and a half to get completely off the credit cards. But it's only gonna take you a week or so to identify those things that you're spending money on that you don't need that you can do away with and cancel, then it may be a 30 day cycle, before they're not charged again, then that money is left in your checking account. So you'll have a little bit more money the next month. I hope that kind of makes sense to you. Because it's important. The more money that you have in a checking account, after you have all your bills pay, the faster you're gonna build up your emergency fund the back faster, you're going to build up be on the minimum bounce of $1,000. And the faster you'll be able to apply the excess over the minimum amount to some of your debt. If you're a person that needs to have rewards often, or if you need to pay off something to have the effect that you're making some progress, then you need to focus on the snowball method, pay off the lowest balance first, then the next lowest and then the next lowest. Don't worry about the interest rate. I know my plan pays off the lowest bounce first. And then after that you apply the money to the highest interest rate card first. But if you're somebody that needs to see progress on a regular basis, and you have a card with a$2,000 balance, you have a card with a $3,000 balance you have a card was a $6,000 amounts, pay off the lowest one first pay off the next one and pay off the next one. And before you know it, you'll have three cards paid off. At that point if you still have credit cards, then start looking at the higher interest rate, and then start knocking that one down. Because the less interest you pay, the more principal you'll pay, and the faster you'll get them paid off. I know that makes sense to me, but maybe not to everybody. So if you're the type of person that needs to see some progress on a regular basis, lowest balance first and on through to get everything paid off. Once you get to credit cards, we're focusing, the first thing we're focusing on is your high interest rate loan. So it'd be credit cards, and maybe payday loans, things like that, get those under control first. After that, and then you want to start focus on student loans, we want to focus on any personal loans we may have. And that would be student loans, and things like that. After you get that under control, then focus on your automobile loans, then your line of credit on your home, and then eventually your first mortgage. Got to stay focused. And then this beginning steps, if there's any way you can increase your income, you need to consider doing that. Is there any way you can have things in your possession that has a loan attached to it, that you could consider selling? If you have, say, a motorcycle or a boat? That's part of your debt problem? Can you sell that item for more than what you owe on it? And if so you should sell it, pay it off, and get that loan off your books, get that loan out your hair, and that'll free up more money to pay off your other debt faster. That would be a very good step to consider. Is there a car maybe you have three cars and two car loans? Can you get rid of one of those cars, pay off the loan when you sell it and have a little bit cash left? Now you have two cars, one with a loan and one without a loan. And he just reduced some of your debt. And that car loan is going to free up money again, to apply to your other debt. So look at those type of items. Look at anything that you can sell that you no longer need, or use on a regular basis and sell it have a garage sale in the spring, or in the summertime sometime, try to sell stuff. If you can't sell it, then donate it to Goodwill Salvation Army where you can get yourself a tax deduction for it. We're trying to take advantage of every opportunity that we have to reduce our spending. 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 in 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 reduce debt increase wealth@gmail.com. And I'll send you the information about this online software that worked great for me. Well, this may be the slowest part of the whole process. It's the most important part. You got to stay focused. You got to stay committed to your goals of reducing your debt. And you got to remember rule number one, quit using credit. Whatever you do, whatever you consider doing, that's important. Don't do loan consolidations. Don't go to a debt counselor. So they eat and get a loan debt settlement. And somebody has promise you they can get out of debt fast. They are lying because they're just trying to sell their services to you Whether or not they're successful, doesn't matter to them, their goal is to get a fee from you. And the more fees you pay, that's the same as using credit. If you pay somebody a fee to help you get out of debt, that's money that could have been put aside to put against your debt. Keep on paying at least the minimum and to your retirement plans. And no, don't ever stop. Do not borrow money from your retirement plans, because that could cause you to create more debt down the road. You never know what's gonna happen. You know, this is more mental, mental, then math. You have to have the mindset that you're gonna get out of debt, you have to know that someday down the road, you'll be debt free, you'll have a year's mergency fund, a year's worth of your spending or more, you'll have plenty of money invested, you'll be setting aside money for whatever you need, you'll be paying cash for almost everything. Again, your mortgage on your home, is a necessity. And buying a brand new car alone may be necessary. But don't buy new cars buy used cars, because they're much cheaper, and you'll save a lot of money. The more money you can say, the less money you have to borrow, the longer you're going to be quicker, you'll be out of debt. If you can, in any way change jobs, or get a second job to make more money, that's going to help this situation out. Especially in the beginning, you can accelerate your payments towards your debt, if you have a higher income. To do that. The debt spiral happens to about everybody. It happened to me when I got out of college, I didn't have much I was driving my brother's car that he loaned me, I had to buy a new car, I had student loans I had to start paying against within the first six months, it was a recession going on, there wasn't very many good jobs out there. Even for college grads, I wasn't making a whole lot of money. And but I had to live with somebody and have a roommate to cover my living expenses. If you can get yourself in a situation where you can have a roommate help you with some of your living expenses, that will help you get your debt under control. Get rid of the items you don't need or use anymore. Whether you have a garage sale or sell it on eBay or Craigslist, or whatever you want to do. start selling stuff you don't need and generate yourself some extra cash, put it in your savings account and build up that emergency fund. And then build it up past the required minimum which to start mount should be $1,000 main reason for the emergency fund is so that you can help you quit using debt if something bad happens, which eventually something bad will happen, especially when you're struggling to pay all your bills. So you need to reduce your bills down. If you're struggling to pay all your bills, then maybe you're spending too much money. And what's the reason may be because you have too much debt. So you got too much debt, and you're trying to pay off old debt, things that you bought in the past, but yet have to pay for? Well, now's the time you got to look at the present, do away with things that you're paying for free up more money to apply to your your debt on a later date. You got to free up money, increase your savings, increase your emergency fund, and then apply money later on to your debt. You got to pay the minimum amount, the minimum payment and make sure that all your payments are made on time, the minimum amount because we're trying to afford to avoid paying fees to the bank, or the credit cards. We want to pay let no fees, we want to pay a lot less interest. And we can get that debt under control much faster. This is a tough situation. And if you've known that you've had a spending problem, you got to address your spending problems. If you go shopping just for the fun of it and buy things you don't necessarily mean need. You got to quit doing that. Shopping is not entertainment should only be going to the store to buy the things you need. And no more. Because you have a debt problem. It's a mental, don't worry about the math, the math will take care of itself, do what works for you. If you want to see progress on a regular basis, pay off the lowest balance first, and then the next lowest balanced and the next lowest balance. If you want to try to get out from those high interest rate credit cards first, then the first one is the lowest balance first. And then after that, pay off the highest interest for next, and so on. And that will help you reduce the amount of interest you're paying. It's all up to you. And if you don't take steps, and recognize that this is a problem, and take steps to solve the problem, you're always gonna be in debt. And you'll never make anything that you want to do very often. So let's get started, quit using credit, make the minimum payment, do an emergency fund of a minimum of$1,000. Build it up past 1000, maybe to 3000. Take the mount over the $1,000, your minimum which is that 1000 and apply it to some of your debt. repeat over and over until your debt goes away. I paid off 135,000 in about eight, three years and eight months. So it can be done. If you can look for other opportunities to make money, or even change jobs or change careers. So you can make more money that's going to speed up the process. Get rid of the items that have debt attached to them if you can. If you can't, well, you just got to keep at it and pay them until they're paid off. That's all I have to say but stay focus and don't give up and you'll

Unknown: 27:10

be glad you did. So