Charles McDonald: 0:03

Hello, I'm your host, Mr. Chuck, a 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. Why stop with credit cards? Why stop paying off credit cards continue with other debt, doing all the work to get to this point, why stop, just continue with other debt. The point of this episode is maybe your initial goals was get your credit cards under control, maybe you're just wanting to pay him down. So you had carrying a lower balance. But why don't we change that goal to this pay off all our credit cards, and you've gotten to that point where you're maybe in the next three to six months, you're gonna have your credit card paid off, because you can figure out how much money you're saving and what's going on how often you're applying extra money to a credit card, and you figure it out within the next four to five months, you will have your credit cards paid off, and you'll be happy. My point is why stop there, he had done all the work to get to this point you you're doing tracking on a regular basis, you're keeping up with your control center, you got all your spending, under control your pan the bare minimum you can get by with, you've changed your cell phone plan your insurance companies, and he really done a good job of getting your spending under control. So why stop with just paying off your credit cards, maybe you have a boat or RV payment or two car payments, or both to car payments and or boat payment. Maybe you have a first mortgage and a line of credit on your home. So why stop with the credit cards. But let's first focus and you're you know, you're a few months away. So now is the time to think about what you're gonna do when you achieve that goal. Well, the first thing you might be aware of is do not cancel any credit cards, do not close them out or anything. But keep them use them responsibility. Use them like cash, make small charges on them, and pay them off at the end of the week or the next week or the next pay period. Let's look at the different type what type of debts would you have remaining. Once you get your credit cards paid off considered a type of debt you have some debts like high interest credit cards are more urgent to pay off than others. So that's why you're working on it. Maybe you've already got rid of that payday loan also maybe you went back and paid off your pawn loans, and you got your personal loans, pretty much under control before you start working on your credit cards. If you have any personal loans, or if you did a consolidated loan, I don't recommend that. Because there's some people who don't qualify for it. So I want to keep it simple. So maybe you paid off your credit cards but got a new loan. So you have a lower interest rate, which is good, but you really didn't reduce your debt, you just shifted around a little bit. So let's focus on getting that loan consolidation, loan, pay down and pay it off. And then this look at what else you have. What type of loans do you have personal loans, credit cards, car, auto mortgage, student loans, things like that? What's the interest rate? And how much time you have left on pan on them? What's your monthly payment? What's your age and what your goals were you want to do? Maybe you have a smaller boat, he wants to upgrade to a little bit bigger boat and you have a 10 year loan for the boat. You're in your second or third year. Are you upside down with that? Is the boat worth less than what you owe? And he should look at all these factors, even for your automobiles or your automobiles worth less than what you owe on them. And then there's the emotional factors. What do you personally feel you should be doing? If you're getting close to retirement, maybe you don't want to have all this debt going into retirement. Remember when you go into retirement you're gonna have most likely less income For most people, so you may not be able to handle all the debt, so you need to get your debt under control. And that's what I did. Personally, I got all my dad under control, so I can have a happier retirement and not have to worry about making payments on anything going payments, I'm making some my real estate taxes and insurance. So let's think about it. What do you have, and what are your goals should be the factors that you're determining on what he should continue to do, don't just stop with paying off your credit cards, don't just stop was paying off that consolidation loan. Let's continue on this journey. Now if once you get your credit cards paid off, your emergency fund should increase to a minimum of$2,000 and then build it up to 4000. Well, more 5000. So you can then have 3000, you're gonna apply it to something. So over time, your emergency fund should be growing, to get up to a minimum of three months worth of expenses, and then six months worth of expenses. Look at all your other loans. So let's say you have a boat loan, it's about$350 a month you've been paying on it for three years, the boat is worth little bit less than what you owe on the loan, you have two cars, you only have one loan on one car, which is fairly new, and you have zero rate of interest on that. So you feel that while the car loan is good, even though the car is worth less than, then the loan on that not really cost me interest. So let's just keep that for now. But the boat is starting to go upside down, but it's not too bad. But if I continue on the same path, if I trade in a boat, I'm not going to have any equity, and it might cost me some additional money. In order to kick down the new boats priced at 100% financing, you definitely don't want to do that. So let's focus as get off those credit cards and get them paid off, but we're not gonna close them. And we're gonna use them like cash and make a charge on them and pay them off at the end of the week or within a couple of weeks. So that you can keep a zero balance at all times. And that will improve your credit score. Now let's look at that boat loan, even though maybe the boating season is coming to an end, does the boat need any maintenance, you need to put it in storage, those are all additional costs. Maybe it might be better to sell the boat, pay off the loan, save up your money, and then buy a new boat or a different boat, a bigger boat, a couple years down the road when you get your debt under control. Well, that's an option or in just a little bit getting behind on the value. So let's keep the boat because it's the took really good care of it. It looks good. It performs good. You've done the oil changes and the maintenance and the hall cleaning and the hall painting and whatever you need to do to maintain it, and you really liked his boat. But you know, in five years, you want to get a larger boat for whatever reason. So you know that in four months, you're gonna free up some money because these credit cards are going to be paid off. So let's look at that boat loan. What can we do to get back under control? Oh, we got roughly seven years left on a 10 year alone. How much extra do I need to pay and you can find a calculator. How much extra need to pay every month in order to pay this boat loan off. And three years because you figure in three years. That's about the time you'd like to get another boat the boat will be roughly six years old. It still has some value and you'd be able to trade it in and get a good down payment for the newer boat that you plan or wanting to purchase. He never Oh, if you're in the news boat market, you never know when one's going to come up that you really would like to have. So you need to be ready, and maybe a year and a half. So let's say that your boat loan if you pay an extra $50 a month, and you can start that when your credit cards have paid off, you can have a paid off in three years. But if you continue to do the same thing, keep building up your emergency fund, build up to 5000, apply 3000 to the principal on that boat loan, you're gonna have a paid off in a year and a half. And then you'll be able to save up some money and increase your savings for a newer boat that you want. So if one becomes available before your time period, you're already ready, you got a boat to Egan sell, and keep 100% of the sales price unless you will plus commissions or whatever you have to pay or trade and to the dealer, who you can then 100% Apply that money to the newer boat that you're wanting to purchase. So that you can then apply some cash that you have built up, keep some for maintenance, and for some upgrades and change because if you buy a used boat, there's probably something you're gonna have to do to it sooner or later. Keep some cash available for that option. And then finance the rest 10 years and maybe your payment could be less than the old bolt payment. So you're making progress. As you go down your journey of life, and you're doing what you want to do. And then at the same time, you're looking at that car payment, well, it's almost paid off, but I'm gonna keep it for another five or 10 years. So I'm just gonna zero right interest, I'm just gonna make my minimum payment, keep on going there. Now look at your mortgage, or your line of credit on your home, what's the interest rate, maybe the interest rate on that is higher than your boat loan. So maybe you need to apply some that 3000 on your line of credit and take care of that. As you can see, here, it becomes a very complex situation. So putting everything down in front of you, and having all the information and facts available for each and every loan, the rate of interest, the mountain, the Met, the minimum payment, the due date, when it will be paid off. All that type of influence and what the type of loan it is. A line of credit could be event as most likely a variable loan. So as interest rates go up, it's gonna go up and cost you a lot more. And then maybe a year ago, it was cheaper than your boat loan because he used it as a down payment for that boat. But now it's more expensive because the interest rates went up. So everything is always changing. Everything is a complex puzzle that you need to continually be me viewing, thinking about and planning for, what's your next stop. My suggestion is, as long as you have that, as long as you've got everything under control in your personal finances, let's continue to work on getting that debt paid down and paid off. But there's another thing that pops up is interest rate. I did an AI and it's telling me interest rate, compare your debts and straight with potential investment returns. If your debt interest is higher, prioritize paying it off. Which means if it's lower, it shouldn't be making investments but they're not telling you one piece of that puzzle is with investment comes risk. Even though it's projected to have a 6% rate of return. That does not mean you're gonna get a 6% rate of return each and every year. It might be a percent one year it could be 3% And next year, or it could be a negative. You never know what's gonna happen with them. So, my suggestion is invest for your retirement, maybe you can increase it a little bit. Increase your retirement savings or the savings for your children's college education or savings for whatever you're planning on in the future. But Don't put it all 100% into investments because you have that risk factor, which is not taken, account of or account accounted for. So what are the benefits if you pay off all your debt, your mortgage your line of credit your boat loan, your auto loan, what's the benefits? Paying off your debts offers several benefits that can significantly impact your financial well being. Peace of mind. being debt free, reduces stress and provides emotional relief, financial freedom, no more monthly payments, your money is yours to allocate as needed. Well, that's no more monthly payments for loans and such improve credit score, pan off that positively affects your credit history and score. Lower interest rates, future loans may come with better

Unknown: 16:00

rates. May is the key word there.

Charles McDonald: 16:05

Not always but it could better job prospects, employers often check credit score so being debt free can enhance your chances of landing your dream job, easier apartment hunting, landlords sometimes check credit scores, rent renting apartments, I don't think it's more than sometimes I think they always do. So the last debt you got to have, the better off you got to be, your insurance rates will be lower because they check your credit score. Also, if you have a lot of debt, your fate insurance company can save you a higher risk. And they're going to charge you more on your premiums, among other things, and then the benefit of having more cash available to do what you want to do. And if you're not sure how much that would be, add up all your minimum payments, look at your debt, control your control center, what is the total of all your minimum payments. That's the amount of money you would have available to pay for your needs, and other things that you want to do. And just because you've got 100% debt free, does not mean you can go out and buy that$250,000 luxury automobile, you already always want it and pay$3,000 A month car payment doesn't mean that you go out and buy that boat and have a $3,500 a month boat payments. While you may be able to do those things, it's probably not a good idea to do those things. Because what's the point of freeing up money and having this money, and then automatically soon as you get that free and have your financial freedom as they call it. Go back and go back in debt. You need to plan for everything you do in life. So if you want to buy that big boat, you're on that mid size motor yacht, let's say that 5060 foot motor yacht, that's gonna cost you 500 to$750,000 You need to plan for that, you need to have a decent amount of downpayment, he need to get the loan down to a point where it's manageable, that is not gonna kill your budget and other things you want to do. It don't want to put all your eggs in one basket and be tied to it. And it's the same fat way with buying a home. The you don't want to put all your money that you make, and to making a mortgage payment. If you use more than 40 or 50% of your take home pay to make your mortgage payment you're gonna be struggling with everything you do. And you're gonna acquire more debt called credit card debt. And it's got to wear on you. That's what you're trying to avoid. So by saving money up in advance, by making larger down payments on things so your finance last year, better rates of interest, cost you less so you'd be able to pay it off faster. That's the advantage of being debt free. You can plan your future. He can plan what you want to do. Do and then achieve those goals. Quicker than having lots of debt that you're trying to get by on. I'll be back in one moment with my final thoughts are the articles are referred to in my episodes have a link in my show notes. If you're interested in checking out the software that I personally use to get my demo control, it's in my show notes under shop financial, you need to copy and paste the link. And it will take you to the website can any questions, you can just contact me through that particular website. If you value this podcast and I like to make a contribution, I had a contribution link in my show notes also give whatever you feel is appropriate for the information I am providing. I thank everyone for listening to my podcast, your initial goal was to pay off your credit cards. Why stop there, you've done all the work to get to the point where your credit cards are under control. And you owed a bundle of money on credit cards, you have 5000 on one 1000 on another 10,000 on another maybe 4000 on another, you've paid off a lot of debt, and it's high interest debt. So you made some really big progress and getting your debt under control. So why stop at this pan off credit cards, he should be looking ahead, plan in the head, know what kind of debt you have, how much is costing you how long it's going to be if you continue on the normal terms to pay it off. And what's the benefit of being having a lot less debt in me to focus on everything. Don't stop with just paying off credit cards. Specially if you've got if you've never tracked before, and you never had a budget before. And now you're doing it on a regular basis, you see that debt reduction plan work in the equate using your credit cards, your made the minimum payment, you build up your emergency fund, and you apply D mergency fund with a minimum of 1000 he applied DX s every three or four months to your debt, your credit cards and you made some significant improvements. He got one credit card left to pay off, he think you'll be paid off in the next three to six months. Don't stop there. Start planning today for what your progress your new goals are gonna be. Maybe your goal is to pay off a car payment, set that goal start planning for it and stay focused and stay determined on reaching these goals. As you pay off your credit last credit card. Now's the time to consider increasing your emergency fund minimum, maybe you just increase it $100 Every time you apply the excess. The difference between the maximum and your minimum, you just leave an extra $100 there. So now you have a learner love and $100 minimum and then you have $1,200 minimum, then you have $1,300 minimum. And over time, that's gonna be $2,000 minimum. And you just keep doing that. Because your goal when you get that free, which may be another a year and a half, two years or three years is to have three to six months worth of expenses and your emergency fund because now we're planning for the future. We're planning for the unknown. You never know what's gonna happen, whether you're gonna have unemployment, or there's gonna be a big depression and recession in the economy. You get laid off or you get injured and you can't work or you have children and one of you or your spouse quits working to stay home with the children. You never know. So let's kind of plan for the unknown by increasing that emergency fund and look at The as your credit cards are getting paid off and down, what's the next item? Should you start focusing on, maybe it's a car payment, maybe it's an RV payment, maybe it's a boat payment. Maybe it's your line of credit on your home, you need to prioritize, prioritize, which can save you the most money while paying off whichever has the highest rate of interest, or whichever loan where the interest rate can be adjusted and go up. They should be your focus on getting it paid down and off, and keeping your personal finances under control. And if you're thinking, why should I go to that all that extra effort to do that is because you've already made the effort. You just got to continue doing what you're doing. And it will automatically happen. You just need to think about which one should I focus on next, which loan can I pay off, which one can help me the most and benefit me the most by pan off one with the highest rate of interest for the one, we're the it's attached to an asset, where the loan is worth more, you owe more than what the assets worth cars worth less than what you owe on it, a boats worth less than what you owe on it. Maybe those need to be focused on. But I'd pay off the high interest first, unless it's one of those other two, and then focus on which asset you want to get rid of next, because we need to pay down that loan. So we don't have to come up with a whole lot of money, or refinance more and the next car or the next boat we get because the we owed more than what it was war. So you have to prioritize, you have to know what's going on with everything in your life, and stay focused and be determined because you can do it. And it's gonna happen a lot faster, he had those credit cards paid off, then it's gonna speed up because that's that much more you're gonna be putting into your emergency fund. And that much faster, you got to start applying it to the next debt. And as you get each one paid off, it's gonna speed up speed up. And before you know it, you'll be debt free, and only took it three and a half, four years or five years, whatever it was. You're not looking at that 30 year loan that you'd had 27 years left. It's gone. You paid it off, you paid everything off. you're debt free, you have financial freedom, you can bank a lot of money, you can save for retirement you can save for your children's college or whatever. You have your life under control, and you feel good