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 maximize debt reduction, for those trying to reduce that this is how to maximize the process. reducing debt is a heart and timely process. But it can be speeded up by doing some extra things, making the tough choices doing without for a couple of years, will pay off in the long term. But before I get into that, what's the benefits of having reduced debt are one of the benefits it improves your debt to income ratio. So what is the debt to income ratio? So in addition to your credit score, your debt to income ratio is important part of your overall financial health. Calculate and your debt to income ratio may help you determine how comfortable you are with your current debt. And also decide whether applying for credit is the right choice for you. Now, this is important if you're considering a debt consolidation loan, to pay off some of those high yield credit cards to know what your debt to income ratio really is. And how do you figure it so we're going to cover that first. So why is the debt income important? Lenders use the debt to income ratio as a way to measure your ability to manage the payments you make each month and to repay the money you borrow. So what's the formula? Well, it's calculated by dividing your total reoccurring monthly debt by your gross monthly income, that's monthly income before taxes or other deductions. So it's before they reduce the taxes, and is before any child support or health insurance or retirement plan deductions are made. So it's the top number or the gross number. So what payments are included in this calculation. Any payment that you make, that was credit or that was money borrowed, is included in this calculation, plus your real estate taxes and your homeowners insurance. So an example would be mortgage payments, car payments, student loan payments, credit card payments, timeshare payments, personal loan payments, child support, alimony. And do not forget any loan that you co signed for, for a somebody, a friend or a child, all those payments, that you borrowed money. Plus real estate taxes and homeowners insurance, if you have your own home are included as the monthly payment amount is what would be included. So for real estate taxes, you take your yearly divided by 12. Same thing for your homeowners insurance, take the yearly divided by 12. Then add that to all your monthly expenses. And then that is divided by your gross monthly income. That'll give you an idea how you stand. If that comes to 25%. You're doing really good. If that comes to 50% you're struggling, most likely, what payments should not be included. Well, that would be utilities, gas, electric, telephone, car insurance, cell phone, cable bills, groceries. So it's these are things that you're buying that you did not borrow money for. That's the easiest way. If you borrowed money and you're paying it back is all those payments, plus your credit cards plus child support plus alimony plus real estate and homeowners. That's all you got to remember. What are the sources of income, everything that you make wages, salary tips and bonuses pension so skirty If you receive child support and alimony, any other additional rental income would all be included and calculating your gross income for the month. And that's important because this like your credit score, your debt to income ratio is used by lenders to determine if you're going to qualify for a loan. For example, if all your current loans you have plus your tax real estate taxes, plus your homeowners insurance, divided by your gross monthly income, comes out the list this 45%, you're gonna have a hard time borrowing money from most lenders, you're most likely struggling to pay your bills on time every month. So you may already have a credit score, that's not as good as it could be, you have a debt to income ratio that's fairly high. So you're gonna have our time borrow money. So if you're looking to consolidate your loans, credit card loans, bills, all into one loan, he may have a difficult time doing that. So you need to focus on Let's pay awesome this credit card debt first, and go from there. So the last balloons you have, the better off you're gonna be, generally speaking, unless you have one really large loan takes up most of your income to make a payment. So that's the benefit of reducing your debt. Now, how are you gonna go about reducing your debt. So what I talked about weekend and week out, you have to track all your spending and all your income, you have to have a control center or a budget, as other people call it. You need to check your bills, when you get your credit card statements. You need to check your statements to make sure nothing's on there that not supposed to be on there. And that what you spent your money on what you charge is added is correct amount is on your bills. And you gotta check that every month. If you find something on there that you didn't buy, or you can't remember by and check with your spouse. And if you don't remember buying it, check with the vendor, maybe this store will be on there. Say it's Macy's, or JC Penney's, go to the stores and ask them what that was for? What was that? What's that dollar amount what the person using your credit for, say, purchase. And if there's nothing that you did dispute it and get it taken off, you don't need to be paying for other people's purchases. Three important on my debt reduction plan, this is number one, stop taking on more debt, quit using credit, quit using your credit cards, pay cash for everything, pay all your monthly bills on time when they're due. pay cash for your gasoline, and your groceries and anything else that you're spending money on. And quit using those credit cards. Because how you're going to pay them down. If you keep charging new items on it every month, you're never gonna catch up. So if you stop using the credit cards, and you make the minimum payment, the second thing on my debt reduction plan, quit using your credit, make the minimum payment on all your loans, create an emergency fund, build your emergency fund, at least to$1,000. And once you exceed that, build it up. So you have two to $3,000 in there and then anything over $1,000, it might take you three or four months. In the beginning, it will take you longer because one, you have to stop using those credit cards. And that's going to be a tough thing to do at start. Then once you achieve that you got to start building up your emergency fund. And the reason you have an emergency fund says so that you can quit using credit. If something would come up a $400 bill that was not planned for you have the money to pay for it and you don't have to use credit to do it. That's the idea here. And the reason why you build it up past the minimum amount is because you want to give yourself more time, a longer period of time where you have a larger buffer in case something bad would happen. So if you let it build up to $3,000, you have$2,000 over your minimum you take to $2,000 you apply it to one of your credit cards. Pay your bills on time is employed Orton, here, they're saying make pay more than a minimum payment. Yes, I agree with that. But you don't do it until you have your emergency fund built up past the amount, the minimum amount, consider the Debt Snowball Method, the Debt Snowball Method is pay off the lowest balance first, on all your loans, credit cards and loans. And not consider the rate of interest, the Debt Avalanche Method is paying off the highest interest items first, and then working your way down to the next highest interest. The Avalanche Method will could take you longer to achieve success in the beginning. But it's gonna save you more money in the long term, because you're gonna end up paying less interest. So if you pay less interest, you're gonna apply more to the principal and your debts gonna get paid down a little bit faster. But at the beginning, is gonna take longer, before you see yourself making any success. Build an emergency fund, we've already talked about it, look into debt consolidation, already talked about it, if you know your debt to income ratio, and it's only say 30% A year and you have two or three credit cards that you want to pay off. But you don't want to go through the process of paying each one off separately, you want to borrow the money, and pay off those three credit cards and have one payment, that's fine, it's gonna save you money because you're gonna have a lower rate of interest. But he gotta quit using those credit cards. If you pay them off, and you hate that debt, you still have the same amount of debt is this your pan, a lower rate of interest. So it's going to be paid off a lot faster. But if you continue using those credit cards, you it's going to be worse, because your credit cards, you get the balance back up there. Now you have the balance alone from the previous credit card build up in you did it again, it may your debt to income ratio, now it may be 48%, he may not be able to borrow money to get a debt consolidation loan, unless you borrow enough to do all your credit cards and the previous debt. So you're not reducing any time off, he keep extending the time, maybe it was a 10 year loan, maybe it was a five year loan, now it's grown. Now as a 10 year loan, you're adding time, you're not really making any progress. So do not do that. And last but not least, if you're struggling, and you can't make any progress, and you've been doing this for a year, and your debt is still out of control, consider a credit counseling service. But beware, they charge you a fee. And it will take you longer to get out of debt, because they take their fees first. And you're gonna have to pay that before you're paying towards the principal of your loans. So buckled down, and stay focused. Now let's get into the topic of this episode. How do you maximize your debt reduction? Or how are you gonna speed up this process? As I said before, you have a control center. I hardly ever say cut back or don't spend money. When I'm talking you through on how to set up the budget. you track all your spending and income first. You do that by having a application on your computer, or a spreadsheet or whatever you want to use. So that you can enter and everything your money, everything you're spending your money on for your checking account for your savings account if you have one for all your credit cards, know how, what, where and how much of your money is gone. Where that includes all your monthly normal payments, plus all your credit card spending everything in you figure out for first 30 days when you're just getting started. How do you set up a budget if you don't know what the numbers are? Why you can't set up a realistic budget. That's why people fail. That's why I call Call it a control center. Because you do your tracking first, for at least 30 days, if you're just getting started, you got the app brand new in his nothing in there, go back 30 days from the present day, and enter everything that happened in the last 30 days. Hopefully, you can do it from beginning to the end of moth to make it easier for the future. So you have one complete monthly cycle. And once you do that, you have your beginning numbers, you know, how much money is going where and kinda when, because you know the dates when you paid it. You know, the date you make your mortgage payment, the date, you make your car payments, the date you make all you tell the payments. Even if you made all those things late, you got a general idea when it's happening. And you start making those payments on time, because you're paying additional penalties for making late payments. And they're probably tacking on some interest for making those late payments or being behind. So you're getting farther and farther and farther behind it struggling. You're living paycheck to paycheck. Why? Because you have too much debt, this think how much money you would have, if you had zero credit card payments. And then think of how much money you would have in your budget, if he had zero car payments. And then think how much money you would have, if you didn't have that line of credit on your home. And then think how much more money you would have. If you didn't have any mortgages at all on your home? Or any personal loans on anything? How much money would you have to pay your monthly bills to pay your rent, your utilities, your gasoline, your food, your dining out? Your cable TV, whatever it is, how much money would you have in your bank account, or in your hand, if you had zero loan payments, including credit cards, mortgages, car payments, child support, now, you can't really not count that alimony can't really not count that. If you didn't have all that debt, how much money would you have, you'd be much better off. And if you didn't have that debt, you have a much larger savings account. So when the time comes to replace your car, and I advocate do not buy a brand new car, buy a used car, a two year old or a three year old automobile, preferably coming off a lease that's got maybe little on the high side on the miles, but you get a good deal on it. Somebody else took the depreciation on that asset, and you get it at a fair and reasonable price. And you can pay cash for it. How much better off you're gonna be, you're gonna be a whole lot better off and you'll be able to get by on lot less money. And what's that mean? That means if you don't like your job, and you decided I'm gonna quit tomorrow, you can do it. Or if he decided I want to start my own business, and I'm gonna start it tomorrow, you'll be able to do it because you don't have any debt. So how are we going to speed up this process? Well, the first thing is cut out all unnecessary spending. only pay for your needs. Your needs are housing, transportation, food, clothing, he can minimize that. Very little on clothing, minimize your clothing, expending and only pay for what you actually need. He got to pay for rent, you got to pay all utilities. He got to pay your car payment. You have to put gas in there and you got to do an oil change. You got to take care of the car. You got to eat, eat the cheapest way to do go to the grocery store. cook your own food. There's lots of services out there now though, send you meals pre packages. i They claim they're cheaper. Check it out. I don't advocate for it on that. I don't know what they are. I never used them. I go to the grocery store. I buy food Should I cook it and I eat it, or the wife does. So maybe I'm lucky because my wife does all the cooking, and she's a good cook to minimize it. If you have a bunch of streaming services, stop them. If you pay him for cable TV stop, get rid of the cable TV period, and replace it with one streaming service. That's gonna replace everything that that cable TV is giving you. Chances are, you're not watching most of it anyway. And you can save a bunch of money and still have a little bit entertainment when you're home. Anything that you've been deducted from your checking account, you're no longer using or need cancel. Subscriptions to Jim's Big Thing is subscriptions for computer anti virus programs, maybe had one anti virus program on an old computer, you got a new computer, you got a different anti virus program. That old computer is long gone, that you're still paying for the subscription for the anti virus on that computer, cancel it, know what's going on in your life. Be aware of what's coming out of your checking account, even if it's only one time a year, know what it is what it's for, and tried to cancel it before they take the money, because it's impossible to get your money back after they have your money. If you'd like to support this podcast, you can go to my show notes and bottom, click on the link that says description link. And you'll be able to make a contribution any amount you like. Or you can go to reduce debt increase wealth.com. Click the support button takes you to the same place. Any amount would be appreciated, but it's not required. Thank you very much. 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 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 reduced debt increase wealth@gmail.com. And I'll send you the information about this online software that worked great for me. The fastest way to reduce your debt is to cut your spending back to the bare bones minimums. only pay for the needs. Not any once. If you want to buy a new suit for work, put it off. Do you really need it? Or is it something you want? Again, needs housing, transportation, food, things you need to survive. You need transportation, seeing it back and forth to work. You need a place to live so you're comfortable and can rest at night. So you can go to work and earn your maximum potential. You need food to survive. Other than that, anything else is a want. Cable TV, NFL, NBA, baseball, Major League Soccer subscriptions. That's all a once II do not need those things. You do not need cable TV. I say that you should have some entertainment. Don't get me wrong. Bare Bones, one streaming service. If you want to get out of debt, and you want to do it the fastest way you want. You got to make tough choices. You got to decide not to buy things that you want when you want them. But you got to consider Do I really need that item? How much is it? How long would it take me to pay it off? If I have to borrow money? Do I have enough money in my savings account to pay for it? What am i How much am I really gonna use it as something I might use? is a few times and then forget about or is it something that I use on a weekly basis, it doesn't have to be daily on a weekly basis. But put it off, if you can pay off a couple credit cards, make it a reward for reducing your debt, give yourself a reward, but you got to earn the reward before you buy it. It's easy to get into debt, everybody does it, it's as you don't even have to think about it. But getting out of debt is hard, because it takes up all your money. And the less money you have to pay for things you need, the worse off you're gonna be, the more you're gonna struggle, the more financial problems you're gonna have, when you're gonna argue with your spouse or significant other, it's just gonna cause problems, you have to make a tough choice. Cut back today, so you can live better tomorrow. That is all I'm saying. I'm not saying you're gonna do do without these things the rest of your life. I'm not saying that someday down the road, you're never ever gonna buy a brand new car. You can, if you can afford to buy a brand new car and pay cash for it and not borrow money. Good for you. There's your and gum gum up some ethically well, you can afford to do that. mean, the easiest thing to get near debt under control is to cut back spending. Then second thing you can do to get your data and control faster is increase your income. But it's much harder to increase your income. If you can cut back on spending, and not pay for something you don't need and not gonna use, you're gonna be guessed, easier choice and then trying to increase your income. Unless you're in a field where increasing your income is easy and no problem. Maybe you're in sales, maybe you have a product where you get a higher commission, maybe you can push that product more often than you have in the past because maybe you don't like that product, but it pays you a good commission. So maybe you can push it in the future. But that's going to be more difficult than just not spending your money, tried to save your money, try to increase your savings, and you'd be better off. So you gotta make tough choices. You may have to do it out some things for a long time. It's not one month or two months or six months. It's gonna be two years or three years, ending on how much debt you're in, the longer you gonna have to do without the things you want. So get your debt under control today. You'd be much happier in the future, and you'll be able to do the things you want to do without having to worry about the financial responsibility. You'd be glad you did. So