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 plan, details of debt reduction plan to work for everyone. This brings together tracking, budgeting and debt reduction to make financial life better. So what is a debt reduction plan, the plan is nothing but outline or guidance on what you should do in order to reduce your debt. So it just gives you guidance on what you're gonna do, and gives you a plan on how to achieve the goal of paying off your credit cards, or paying off all your debt or whatever particular goal would be. So I'm gonna start out here, by just giving you a debt reduction plan, they all are be similar. And just note, I don't have any article links on my show notes. Because usually when you do debt reduction, you're gonna get a lot of counseling services, consolidated loan services, and things like that, I'm looking at this plan that you do, and do it yourself or you're not going to do a loan consolidation, because that's really not reducing your debt, that's just rearranging your debt, you're not going to use a credit counseling services yet, unless you cannot get beyond the stage. And you're definitely are not looking to file bankruptcy, he can work through this and get out of debt on your own. If you can be focus, have a plan, and do every step it takes I gave you step one is tracking. Step two is doing your monthly budget. So you can see, in a nutshell, where your money is gone. Step four, if you're trying to pay off debt, it doesn't have to be credit, any type of debt, student loan, credit card, auto, loans, mortgages, whatever it is, for whatever reason, you're trying to reduce your debt or get out of debt. This is the plan one, quit using credit to make the minimum payments, three, start an emergency fund, build it up to a minimum of $1,000. Continue building it till you have$4,000, take the excess over$1,000 apply it to one of your debts for repeat, he keep doing this over and over and over and your debt will start to disappear. Now let's go through. I know number three seems involved. But it's not. You're setting up a savings account, or you're gonna refer to as an emergency fund. You gotta put money in there. And where's that money coming from? Well, it's coming from, you're making the minimum payment. You're not making any extra payments on that debt right now. Because we need an emergency fund. And why do you need an emergency fund in need in case some thing on expected happens, you'll have some money cash available to help pay for it, which is gonna reduce you using credit, which is step one, quit using credit. So all is enter related to each other. You're making a minimum payment, because that's going to free up cash to build up your emergency fund and your savings account. You're building up a savings account. So if something would happen unexpectedly, and emergency plan events that you had not budget for that you did not foresee an accident or something breaking. Yes, you can argue that you should set aside money for repairs, things like that. Yes, but at this point. We're trying to keep things simple. And that's how this is gonna work. So let's go back quit using credit. How do you expect to pay off your debt if you keep increasing it. So if you say what the average person done, and I did this for years, I made sure I every month I paid at least the minimum payment. And then I was paying 100 or$200 Extra, what I thought I could afford at the time. And I usually made that at this one payment, when a credit card bill was due, then what would happen? Some months, I was fine. Some months, I came up a little short. So I had a cut back somewhere. And I cut back by not maybe buying as much gas for the car, or I will what I was eating, and pretty basically eating macaroni and cheese for dinner got old for a quick and I went a long period of time years, where I was in this cycle, I would get the credit card paid off, I'd be good. Something bad would happen that would charge x I never had enough savings. Or I would splurge on something I want it. But I never build up a savings. So when something would break our repairs for the car or something would happen, I would never had any money in my savings, or not enough money in my savings. So I ended up charging a big percentage of it. And my thought always was, I'll pay it off in two or three months. But in two or three months, what happened, something else might happen. And then it grew some more whether it grew on the same card, or another credit card didn't matter, my credit card debt just got better. I am maybe I did eventually pay one off, maybe eventually both of them that was good for a month or two, but I never build up my savings enough, I had some savings. But it was never enough. It was maybe two $300 500 Whatever the bank might require. So they didn't charge me a fee for my checking account is basically what I had in my savings account. Maybe sometimes I would build it up, and then I would buy something and use it and then not build it up. And then something bad would happen. And I would use credit cards or whatever. And I was stuck kind of in that cycle. We're gonna quit using credit. And the reason is, we don't want to keep increasing our debt. We're trying to decrease the debt. So we need to switch our spending back to money that we have. And that's why you're doing your tracking. That's why you do the budget. How much money do you have to spend for new clothes? Well, the first thing I do, how much is your rent, or your mortgage payment, your car payment, how much you spend for groceries, and for gas for the car to go back and forth to work, what insurance payments you might have coming up, do my taxes maybe come and do. Okay, now, what if you pay all that stuff that's coming due in the next, say, 30 to 45 days, how much money have the buy clothes$50 Buy one pair of pants, I want to buy three pairs of pants and five or six shirts and a couple of ties when I worked in the office. So I just charge it, I'm gonna pay it off in two or three months, and never happen, it always got stretched out. So instead of living that way, we need to change our thought process. Instead of I'm going to pay that credit card off in two or three months by making $100 or $200 extra payment plus the minimum payment. So if the minimum payment is $40, and then I add more charge now the minimum payments $60. Plus, now I got to use a little bit more of my money to make that extra 100 or $200. As you balance goes up, your minimum payment goes up. As your balance comes down. Your minimum payment comes down bliss. Keep that in mind. That's probably gonna be the biggest problem and the hardest thing for most people to do is to pay their bills on time with the money they have in their checking account, the money and money out not using any credit to buy anything to pay for anything to pay for your gasoline or pay for your groceries. We're not going to use credit cards we're going to use our debit card and borrowing and spend The dollar amount we have available in our checking account, and we're gonna pay our bills on time, this is gonna take you the longest period of time to get through to get through that part and start building that emergency fund is gonna be a slow process in the beginning. Over time, it's gonna speed up, and I'm gonna explain why that's gonna happen. So we're not using credit anymore. And now we're only making a minimum payment on all the credit card debt we have. This does focus on our credit card, because your mortgage your car payments, you know, the minimum payments is what's due every month, there is no other amount. Don't pay anything extra. I know, if you pay $25 Extra on a seven year loan, you will not six months off. But you have to do that from day one, and you can't miss any months. So let's not worry about that at this time. Because now your problem is your credit card debts costing you way too much. Because it's that 20% plus interest, and that is gonna accumulate faster. And the more interest you have to pay, the longer it's gonna take you to pay it down. So let's not worry about paying off that car payment a little bit early, or making extra payments on your home and paying it off a year early on a 30 year loan. But really you think you're going to notice that? Are you going to live in that home for 30 years to start with? You're probably end up selling it and buying something else? Maybe maybe not? I don't know. But what are your long term plans? Are you gonna be there? 30 years? Why are you paying extra on your mortgage as a 30 year loan? If you only gonna be there? Eight or nine years? Yes, we'll give you some more equity. But you can use that cash today. And it's better used on paying off a 20% credit loan versus a 6% credit loan, see where I'm getting at. It's a matter of prioritizing, picking out and paying off what's costing you the most money is what we're trying to do here. So now we're making the minimum payments. And now we're gonna do the emergency fund. And you're thinking, where's the money gonna come from to put in my savings? Well, how much first of all, if you were not making any extra payments, you probably have a spending problem. If you're not making any extra payments and any of your loans and you don't have any extra money. We have to go back to tracking your income and your spending, setting up your budget, knowing how much do and when it's due, and figure out where you're spending too much money because you only earn limit to what you can spend based on what's coming in. So if you're making bring home, which is your pay after taxes and everything deducted, maybe you have your health insurance deducted, maybe a 401 K plan deducted. That's the amount of money you have to pay for everything that you do. So we have to look, now we're looking at where is my money going? And why don't I have more leftover. So you need to tackle that problem. Maybe it's straightforward and you just spending way too much. Maybe because you go out and eat two meals a day. And at a restaurants. And you're spending 100 plus dollars a day just to eat two meals a day, maybe is something that you like to buy, maybe you're a shoe collector, if you're a female, that I'm not trying to be bad here. Most females my wife's got more shoes and she know what to do with. He don't have to have that many pairs of shoes. Let's minimize everything now and only buy what we absolutely need and pay for what we absolutely have to pay for. We have to pay the mortgage, we have to pay rent, we have to pay our utilities. We have to pay the car payments, we have to buy gas, we have to buy groceries, minimize it down. How bad is your debt problem? How much do you owe? If you only owe seven or $8,000 you can cut back for a few months and you're gonna have it under control. If you have have 40 or 50,000 or$100,000 in credit card debt, you really need to scale way back on everything. And we need to be serious about looking at our problem, minimize as much as possible. So we can maximize how much money we can apply to our debt. Which brings up a good point, friends of mine, had a good job, made great money, got a bunch of credit card debt, doesn't matter how. But he had 100,000 and credit card debt. And he was paying on it. Which means he was cutting back on everything he did month to month, because he's been retired for four years. So in has a decent retirement, he won money in the lottery. And after he paid taxes, most of that money paid off his credit card debt, he got lucky. But don't plan on winning the lottery to get yourself out of debt. So let's look at this endless, come up with a plan and the plan is quit using credit, make the minimum payment, put money in your savings account or emergency fund, keep a minimum of $1,000 in there to start, then build it up to 4000. Because as you do that, if it never goes below 1000, he have at least $1,000. And something would happen. As you're building it up to the 4000 level, your emergency fund is just getting bigger, bigger and bigger is something that happened when you have 3000 in there, you can cover more of it. Meaning, you're may have to use less credit in order to get through the problem, then when you get up to 4000. And you're most of your bills are paid, and you got the money in your checking account to pay your bills, and you don't see anything unusual coming up and you know, you have the money available, you take that $3,000 That amount in excess of 1000. And you apply it to one of your bills that you want to pay off or pay down. So how do you select which one you're going to pay and how you're going to apply it. First thing you want to do before you apply that 3000 You do that after you make your minimum payment, because we want that 3000 The all go to principle that minimum payments gonna pay the interest and a little bit of principal. And then when you apply that 3000 is all going to be principal, your bounce is gonna drop in what happens when you do that, your minimum payments going down, I recommend just keep making the same minimum payment that you start out at that way, it's gonna be a little bit bigger, and you're gonna pay down some more principal. And you're already used to making that dollar amount payment. So your minimum payments gonna stay at where you start it for all your debt, you're not going to reduce that it's going to stay the same, then you start accumulating more into your savings account and you keep building it up. And you do it again, maybe you pay off the second time or the third time you pay off a credit card. While now that's good, do not cancel that credit card. Keep that credit card open, but don't use it. The reason is six months down the road that credit card company may send you an offer to where you can transfer a balance from another credit card for a fee of say 5% and have zero interest for 18 months, 12 months or some length of time. Generally it's at least 12 months, but I've had it as long as 18 months a year and a half. Now we can use that credit card to advantage because the transfer fees owing 5%. That's way less than what you're paying 20% we can transfer three or 4000 over whatever way you want to do is figure out the minimum payment of say 50 or $75. How many months 75 times 18 months If that's the amount you transfer over, and you pay $75 Every month, and you pay it off, now, the first month, you might pay more than that, because you got to pay that transfer fee of 5% off, whatever you do, you want to pay off the total amount you transferred within that time period, or a little bit short of that time period. So that they don't come back and charge you interest from the day one up and all that and you get a big chunk of interest Do you want to avoid paying that interest, so only transfer over what you think you can pay off in that time period, maybe it's $75 a month, maybe it's $150 a month, treat it as a personal loan, and that it's the same payment every month, because there's not going to be any interest on there. And what's gonna happen is the credit card, you're taking it off of, that's gonna drop down, so that minimum payments coming down. So you can adjust that minimum payment, if you're doing it for this purpose, that's gonna give you some of the cash or the money to apply to this new loan that you got for 12 months, 18 months, or whatever it is, you pay it off, you wait, and you might get another offer, we do it again, maybe you get a second credit card paid off the Wait, don't close any of them. And the main reason is you want to use them to your advantage in the future. But you don't want to reduce the amount of available credit. Because as you pay them off, your have more available credit based on your income to credit ratio gets better, your credit rating is better. That helps reduce the cost for insurance and new loans you might get and a future better credit rating is gonna work to your advantage. And you're gonna work by doing all this to improve your credit rating, maybe you only had a 300 credit rating, or credit rating is I think, from 300 to 850, something like that. Maybe you had a 400 credit rating, pretty low average. But you can get that up to average and then you can get up to good and then you can get it up to excellent. By just staying focused, paying off your debt and doing all this stuff the right way. I'll be back in one moment with my final thoughts. If you're interested in learning about an online software that help 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 and order. First. It's not cheap. It's a one time payment. But it would 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, quit using credit, make the minimum payment. And step three, start emergency fund and build it up to at least a minimum of 1000. And then continually build it to a total of 4000 Once you got to the 4000 and you're comfortable that your monthly bills are paid up, or you got the money available without using the savings, and nothing bad's gonna happen in next few days, apply it to a debt and then keep doing the first two and repeat number three. Number three is gonna be a process that goes over and over and over. In the beginning, it will be slow because you're paying a lot of those minimum payments. And then as you pay that off, the less your pan the faster is going to go. You have more available to put in savings, the faster the savings will grow. Then the quicker you'll be able to apply it to the next step. Then when you get two or three or four of them paid off, is gonna speed up. I remember when I was working on my I paid off I know doesn't seem like a lot. That was for me, it was 135,000, roughly. And I paid it off in three years and eight months. Part of the reason why it took me so long, I probably could have been a little bit faster if I had a better job. But it was about the first nine months or so, I was working a job, I didn't make a whole lot of money. So I was just barely keep my head above water. And then when I changed jobs, it really speed up because my income almost doubled, if not doubled. So now let's talk, how to choose which debt to pay off first, second, third, or whatever, what's the order on now's opportunity. If you want a spreadsheet that will help you do this. Happy draft.or has a debt. Some I forget what's called debt spreadsheet that you can put it in. And I'll show you the order because you put all the information and the name of the credit card, the date is due the rate of interest, the minimum payment, I'm pretty sure all that information goes into the spreadsheet. If not make up your own spreadsheet, you want the name of the card, the date, the payments, do the amount of the minimum payment, and the rate of interest you're paying on the cart. Once you get that in there, if you know how to sort in a spreadsheet, sorted by highest interest rate first to lowest interest rate, this would be what's called the Avalanche method, the Avalanche method and this is just a guideline on which one to pay off first, on the Avalanche Method, you're paying off the car with the highest interest rate first. And then working your way down the snowball method, which is the reverse, you're paying off the card with the lowest balance first, regardless of the rate of interest, so that once you get that first one paid off, you feel like you made some progress. Here's what I recommend. I do a hybrid, that very first one, I paid off the card with the lowest bounce one so that could feel like I'm making progress and two. So I had a card with a zero balance. And then a few months later, that happened along where they offer me a a transfer a balance from another credit card 18 months no interest, I jumped all over it. I did some math first, how much is gonna cost me to transfer it? How long is it gonna take to recover that and by not paying that much in interest. It was like two and a half months. Short time, I jumped all over it. So that's gonna help you. So if you kind of do a hybrid pay off the first one with the lowest balance, don't close it. Now I switched over paying off the highest interest rate next, and then came down that way. The reason I did that is because the highest interest rate one was cost me the most money and order to reduce my interest on paying, he got to pay off the one with the highest interest first. So that I can now because it was cheaper not to pay off the ones with the lowest rate now money wise, and then I worked my way down. Once I got through my credit cards, then I paid off my car loans. Once I got my car loans, then I paid off my line of credit on my home. And then I paid off my first mortgage. And this how fast I when I got down to the only thing I had was one mortgage they owed on I was making that extra payment that$3,000 about every three weeks how I'd make my monthly payment a week or two later. Three grand Oh, another three grand Oh, monthly payments do pay that, oh, I got another three grand and it went fast. I paid off like two years worth of loan payments, and basically two or three months and I was done. Now I had all this money that I could build up in my savings account and have a nice big fat emergency fund. And once I got over three or 4000 in my savings I thought why my banks not paying me nothing I found a online bank that had a active savings account that was paying two or 3%. I set that up to transfer my money. Now it's in a money market and I'm getting five and a half percent. So my money is working for me now and not against me. When you have all that credit, all that money you owe you the money is working against you. You want to get the money to work for you. And you'll be glad you did. You did so