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 that struggles struggling with debt, how to handle this problem, getting out of debt takes longer and harder and getting into debt. But reducing debt can be done with the correct procedures. If you're struggling with any debt, maybe you're not struggling with debt, but you're wanting to learn on how to pay it off a little bit faster, or how to take care of it. Here's three things you must do, which I'm going to cover a little bit later on. In my show notes, I have links to two articles in my show notes, how to pay off debt faster from Wells Fargo, and the total cost of borrowing from Wells Fargo, a common thing most of us do. When we have multiple credit cards with a balance of say $2,000 or greater, we look for ways to get rid of it because we all understand that credit cards carry the highest rate of interest. So one of the common ways is do a debt consolidation. Or you borrow more money, you get take out a loan to pay off your credit cards. But you have to understand the costs of doing that. Even though it may be cheaper for your monthly payment is a really cheaper in the long run. If you take out a loan, that's five years, and that you're just adding more debt, you didn't get rid of any debt, you're just rearranging your debt. Yes, it may be at a better rate of interest, no doubt. Do you really understand what that is taken in consideration? Okay, do you only borrow what you absolutely need is the first thing you should do. The second thing is understand what the interest rate really is, is a fixed rate and rate that stays the same for the life of the loan? Or is it a variable rate? Or it may go up or down over the life of the loan? Most likely, it's gone to go up? Unless you start out with a percent. It could drop but not likely these days. So understand what kind of interest rate and how much is the interest? What rate 12% may seem better than 17 or 20% on the credit card, but that's still at very high rate. And then what's the terms of the loan? How long? Is it gonna last? Is it five years or 15 years or 10 years? And does the interest rate change? And what type of fees may be Association? Do you have to pay an origination fee at the beginning in order to get the loan? Is there a prepayment penalty? If you pay extra? Are they gonna penalize you for paying it off early or paying it down early? Are there annual fees? Are there transfer fees, all these things you have to take into consideration Wow, or before you do a loan consolidation? Personally, I don't recommend it at the beginning. If you're just trying to get out of debt, there's three things you're gonna do in order to do that. First thing is you got to track all your income coming in the household and all the expenses going out. What are you paying for? Once you do that, that will give you the numbers you need to do the step two, which is a monthly budget, and you're doing a month, why are you doing a monthly budget while you're doing the monthly budget so you can see or know how much you expect to spend that particular month. And you can plan for ahead. So you can make all your payments on time. And make sure you have money in your account to pay the bills that are coming up in the future. If you can look ahead, you're kind of be better off knowing what's coming due and when it's due. And then you control how much you're spending before you spend it because you know you have these bills coming up and you have to make those payments. Those all work together. And the third thing and those two you got to do the rest of your life you should always continue You're doing an even if you get out your debt problem, you still need to be tracking all your spending. So things don't go, hey, wow, you need to do your monthly budget so you can see if something is getting out of control. And then you can make adjustments. By doing away with something, adjust your, what you're paying for. And I'm one category try to get better rates get for the same service. That would be for cell phone, cable TV streaming, where you can keep your financial life under control. The third thing is a debt reduction plan. I plan on how are you going to pay off your debt, this is only comes into effect, when you have debt to you want to pay off. So with a debt reduction plan that's going to give you guidance of what to do, as you're trying to pay off your debt. I say it takes longer and may be harder than get into debt. Because you can just borrow money and buy whatever you want is fairly easy nowadays, especially with credit cards, and you can get yourself into trouble before you know it. And the key part of all this process is making sure and as part of the debt reduction plan is having a emergency fund or a savings account, where you build it up so that you have money available. So you don't have to use your credit cards or borrow money to pay your monthly bills as something bad would happen in the future. So let's start with Wells Fargo how to pay off debt faster, and they're saying pay more than a minimum, I disagree with that. Pay more than once a month, I disagree with that, pay off your most expensive loan first, which is known as the Avalanche Method. I do agree with that. Or consider the snowball method, which you pay off the lowest balance first. That way you seem like you're making some progress. Well, I do a mix of both of those. If you're just getting started, I say pay off your lowest balance item first, keep that credit card, if it's a credit card, do not close it, keep it open, but don't use it. And there's a reason for that the reason is down the road, maybe in six months or so, they might send you an offer where you can transfer a balance to that credit card from another credit card for a fee of three to 5%, you'll get no interest on that balance for 12 months to 18 months, I always use the 18 month on myself, but you gotta be aware of any additional fees that might be involved before you do that. Because that's the cost of borrowing the money, you know, you're gonna pay the transfer fee, which is a one time fee on the amount you put in there. But what happens if you don't pay it off in that 18 months? Are they gonna go back and recompute interest from the beginning and add it to it? Or are they gonna charge you an additional fee, a monthly fee until it comes down to zero, you need to understand those things. That's why I always say when you use the balance transfer, only do the amount you know you're gonna pay off in that time period. And then make sure that gets paid off. That also helps you because you're going to transfer it from your highest rate interest card first. And that's going to reduce the balance. So you'll be paying a little bit you'll be paying less interest there. You'll be paying no interest on whatever is on that card for that length of time. So understanding the cost of borrowing money is very important. Only do what you can afford to pay or what you need. When you're borrowing money. Make sure it does not have any prepayment fee. If you make an extra payment every month to try to pay off faster. Are they going to charge you a fee for that? You don't want that there's a lot of them out there that don't have it. That makes sure the one you're looking at. That's also the same case. Is there an annual fee? If you carry a balance of X amount, is the annual fee waived? Or is it gonna be charged no matter what I do away with those credit cards because why pay for something when you get another credit card that doesn't have that same theme and keep track of bills and pay them and last time understanding and knowing all your debt what you owe, you should know the name of the company, your unpaid balance, the interest rate, the due date, and a minimum payment for everything. Every loan that If you have, if you have multiple credit cards with a balance, you need to keep all them statements and put them in order. Because the statements kind of have all that information you need, you can use that to your benefit. So let's get started, how to shorten the length the loan, well, according to Wells Fargo make extra payments, you know, pay twice a month, pay more than a minimum, I'm not doing that. I don't recommend that. But that's something you could do. If you've been doing that in the past and you're not making any progress, then maybe you know that, that's not always gonna work. Because what happens? In my case, I would do that, or I did that in the past. And I'd make an extra payment on a credit card, and then something unexpected, or a normal bill would come up and I was short of money. Now I had to cut back somewhere, generally my food or entertainment, in order to pay that bill on time, you have to pay all your bills on time, every month, no matter what. So that is really your first step, start making timely payments on everything. So tracking, I'm going to talk about more in the future, budgeting and I talk on detail of that also in the future. But I'm gonna give you a debt reduction guideline. To help you understand what I'm talking about, the first thing you need to do on all your debt is just make the minimum payment. And you're gonna make the minimum payment to free up that extra cash that you've been paying towards that debt to start here, number two, emergency fund or your savings account. So whatever, if you've been paying extra $100 a month on four credit cards, that should give you $400 That you be able to put in to your credit card, or your savings account right away. Now you're thinking, Well, how am I gonna pay off my debt faster, if I'm not making more than a minimum payment? Well, we're gonna get to that, you need to get your emergency fund build up to a minimum of$1,000. As you're paying your debt down and off, that went minimum has gone to increase over time. And when you get all your credit cards paid off, you're gonna double or triple that minimum. And then eventually, you want at least three months of your household expenses in that emergency fund. So something bad would happen. And you can least get pie for three months, eventually, over time when your other debt may be your car payment to car payments, a line of credit on your home your first mortgage, as that starts to go away, you can increase that up to six months at the beginning, when you have $1,000 in there, you want to have it with the same bank, you have your checking account, because it makes it easy to transfer the money over. Once you put it in your savings, you don't want to take it back out of the savings to pay a bill. So you need to know exactly how much you can put in there without coming up short, your checking account, you should have at least a $300 minimum balance in your checking account at all time. If your checking account is running and negative balance and you got a reserve or something to cover those things, you need to pay that off. And that's one of the first things you need to pay off it your checking account balance up above zero, and then have a lease $300 In case you come up a little short, if a bill is 25 or$50, more than what she was expecting, you have the money there to cover it, I generally use to $600. Once I got going, I raised that up. So I had a minimum of $600 in my checking account at all time no matter what even after I paid all my bills, I still had a $600 balance. So if I needed to go to the grocery store or put gas in the car, I had the money there to pay for it as I want. If you're using credit cards to pay monthly bills, you got to stop doing that. Because the first step is quit using credit. And if you're using your credit card to pay a monthly bill, you're still using credit to do away with that and start paying it directly from your checking account. Everybody is going to tell you, you should be paying more than a minimum, maybe make two payments a month. Maybe make three payments month if you can afford it and just apply as much money to that debt as possible to pay it down as fast as possible. But that may work but then you may come up short some time. So once you get that minimum in your savings account, you keep building it up and until you have 3000, I would recommend 4000. Because as you're going through life, things are happening. And you never know when that unexpected bill might pop up, as if your emergency fund is 35 under it, and you're almost up to the 4000. And something unexpected happened in your refrigerator, broke your car needs tires, injured yourself, your child and yourself, he got some extra doctor bills you went accountant on, then you have the money there to pay for most of it, if not all of it, where it's so that you can minimize the use of your credit cards. That is the key reason why I recommend doing that. Once you get to the $4,000 range. And once you made all your minimum payments on your credit cards, and all paid most all your monthly bills, and you got enough money in your checking account to cover yourself for the rest of the month, you're looking pretty good. Take the extra over the minimum of $3,000 and apply it to one of your debt. As I said earlier, if it's the first time, he should find a credit card with the lowest balance and apply it towards that one may be it pays it off, maybe it pays it almost pays it off. And then repeat the process, you can still continue and not using credit, you're still building up money in your savings account emergency fund, and you still are keeping it there till you get up to the 4000 again. And once you do it the second time, maybe what you owe on that first debt you paid off is down to a couple of $100 you pay it off. And then the second one you want to apply it to and from now on, apply it to your highest interest card. Next, because that's costing you the most money do not cancel that card you pay off, because that will affect your credit rating. Also, as I said earlier, they might send you an offer to do a balance transfer for 3% 4% 5% with zero interest on that balance until 12 months or 18 months, and you want to take advantage of that, that's a lot cheaper than going out and getting the loan consolidation, you should be able to recover that balance transfer fee within two to three months of that amount of money you're not paying interest on so if your had 3000 transferred over at 17%, what amount of interest would you have paid probably about twice as much as that transfer fee and couple three months or so maybe even less. So use that to your advantage. So once you get your credit card statements and you know who you owe, you know the balance, you know the rate of interest, you know, the minimum payment, you know, the due date, put it on the counter, make yourself a master counter and put the due dates of everything you pay. So you can see it that way every month, you can look at okay, today's the 10th What's coming up in the next pay period, before I get my next check, do what do I have to pay, and you'll see it the right there in front of you. That's one of the best way you don't really need to know how much you just need to know once it's due. Because you're gonna be making the minimum payment on your debt. And you're gonna be paying all your monthly bills in full. And that has gone to help you immensely. So as we go, and you keep doing this, why are we tracking? Well, we're tracking and the money coming in so you know how much your monthly income is. Because you need to know that for when you set up your budget. You're tracking all your expenses. I categorize it for the budget by housing, transportation, food, debt, savings, five categories. Most everything is going to be in those five categories except maybe some entertainment, or maybe a hobby that you may have or maybe some clothing that you might buy once or twice a year. You can add that later. But for now, we just need to know that how much is due every month for your monthly budget. Again, I'm going to talk way more detail on this and the next few episodes. 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. It 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 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. You're probably wondering why I'm saying make the minimum payment on your credit cards. Why do you have to track? Why can I just do the debt reduction plan? I'll make the minimum payment or build up my emergency fund until I have X amount of money in there apply over the minimum amount to a debt. And why do I have to track and why do I have to do a budget and you're wondering that because you don't want to do any more and you have to buy you have to track because you need to know what's coming in and what's going out. And you need to have for at least the past 30 days on that town you need to cut back spending anywhere at this point. But you need to know what's going on in your financial life. Maybe you think you know, but do you really? How much do you spend on dining out every month or every week? How much you spend on a hobby, how much you spend on childcare? How much are you spending on your cable TV and all your streaming services, you know, you have those bills. You know, maybe this one is $25 a month and this 170 $5 a month and this is $150 a month. Do you know the toggles. So if you would start your tracking, and you can use an app to do it to make life easy. And there is an app out there that I use called count about. It's a yearly fee of less than 10 bucks was like $9.95 a year. And it's easy to use easy to learn, you can edit it and make changes to it that suit you for your categories. Categories are already set up and they're generally in alphabetical order. But as you see when you start your budget is not going to be in alphabetic order. So you won't be able to edit your categories. So that when you do a report by category for a time period, generally from the beginning of the month to the end of the month, when you're starting, and then weekly, from the beginning of the month to the current date than the beginning then the next week, beginning of the month to the new current day and week, your numbers gonna get updated. And once you have a 30 day picture, you're gonna know almost everything that you're paying for. Now, you may have some bills or do quarterly every three months, you may have a couple bills do semiannual you may have a couple bills do annually. And over time, those numbers will be picked up. And maybe you know what they are you can add them to your budget. But for now let's keep things simple. Start your tracking, go back 30 days from your current date or go back to the beginning of the previous month. And are all the detail from your checking account and go online to your checking account. I know it's there but it's not you're not gonna get the report you need it from it. Maybe some banks do I don't know but my bank don't. So do it and add a manually enter it don't transfer it in from your checking account. Because the part of doing this is the get you aware of where your money is going. You pretty much know where your money is coming from from your work, your spouse's work, maybe a part time job, maybe a side hustle, whatever you got going on your life, you kind of have an idea of what's going on. For the income side. You may think you know what's going out. But there's probably a lot more going out and a lot more spending going on that you forget about that you maybe don't think so important. But every penny every dollar that goes in that checking account you should be accounting for and that's what tracking is gonna do for you. Then once you get the previous 30 Day As you do report by category for that time period, now you have the numbers, you need to set up a budget, and you do a budget. So now you go one place, and you know, my housing costs is X amount a month, my transportation is X amount of money based on that first 30 days. Now those numbers could and are going to change over time, gasoline goes up and down, food goes up and down, you know, your cost of things are always changing. So over time, you will be updating that budget amount, the budget amount is your guideline that you're trying to hit every month, your actual amount is what you actually spend in that particular current month, the difference between the two should always be a positive number, if it goes a big negative number, you need to look to see what may have happened. Some times it can be explained, sometimes it's maybe not. Maybe you had a bill in there that was due quarterly that wasn't reflected. So you need to update your budget, dollar amount. And then you can look at the detail and you're tracking by those categories, like entertainment or TV or whatever category you have set up. You can look how many different things are you paying for how many subscriptions are you paying for, or any of those you no longer using, or maybe you have duplicates on some of them, you need to cancel those. And now you just save some money. And that's going to help build up your savings your emergency fund faster, which is going to help you pay off your debt a little bit faster, is just knowing the details is gonna help you very much on solving your debt problem. Knowing how much interest you're paying the interest rate on all your debt and your outstanding balance on all your debt, so that you have an idea which ones you need to get rid of first is going to help you pay off your debt faster. If you're interested in the software that I personally use to get out of debt, you can go to my show notes and the bottom is shop financial, copy and paste it and you'll get an overview of the software I use. If you have any questions, let me know and I can answer them and help you if you're interested. You need to keep listening because on next few episodes I'm going to talk in detail on tracking. I'm going to talk in detail on budgeting. I'm going to talk in detail of the debt reduction plan more than what I just covered here. This is intended to be an overview for those era refresher or for those who are just getting started. And their journey of getting their debt under control.