Reduce Debt Increase Wealth.com welcome and Mr. Chuck here. This week I'm going to concentrate on talking about good debt and bad debt. Some people will tell you all debt is bad. Other people tell you all debt is good. It's just a matter of opinion. And that's basically what I'm going to give you is my opinion. To me good debt is the debt you absolutely need to get through life. You'll need a mortgage for your home. It's always better to buy than rent. I'm not going to go into that now. But rent you're just throwing your money away. If you're buying a house even though you have additional costs such as maintenance, when you sell you should get all your money back. So a mortgage for home as good debt. You need a car to go to work. Now you can buy a used car you can keep your debt down That's what I recommend buying a new car every two or three years or leasing a new car, I think is a waste of money. Buy an inexpensive car. If you have to finance it, finance it, get it paid off early. Keep it a long time. I just bought a new car about two years ago, the car before that I had 18 years. Most of that time. I didn't even owe on it. So I was putting money aside. I should have been paying down debt. So that's good debt, bad debt, payday loans. Getting cash advance on your money that you earned is a ripoff. You're paying way too much for a short term loan and interest. And they probably got fees. I've never done a payday loan. I never had to and I avoided it at all cost. So if you're doing payday loans, your first goal is to get out from underneath them. Get them paid off. off and never go back. Remember, we're not creating new debt. So you got a payday loan problems, you need to get taken care of first priority one. That's bad debt, student loans, you can consider that good debt or bad debt. If you owe way too much. It could be bad. If you got an education that helps you get a better career or job, you could say that's good. But you should concentrate on getting that you know, under control as soon as possible. If you're a medical doctor, you don't have to worry too much. If you're a history teacher, and can't get a job or you're teaching, you know, elementary school, and may not be too good. So it's, it's a matter of opinion, as I stated before, but you got yourself there, you're in debt. So let's just assume for now that your only good debt is your mortgage, and one car payment, anything other than should be considered bad debt, credit cards, payday loans, personal loans, or in the family money, whatever it may be. I consider that bad debt. Now there are an article in Motley Fool had an article in USA Today, then I'm going to refer to next. It's got average debt of American households. So it's kind of an eye wakening thing. But the average debt 137,000 I think it was in that range. I've paid off 100,000 maybe a little bit more than that. I don't have the exact numbers in front of me in the last four years, so it is possible. I've done it I'm doing it. So let's go to that article. Next. A foolish take. Here's how much debt the average us household Oh, owes. Bye by Leo sun, the Motley Fool the average American house. Household carries $137,063 in debt, according to the Federal Reserve's latest numbers. Yet the US center bureau reports that the medium household income was just $59,039 last year, suggesting that many Americans are living beyond their means. Here's how much debt the average us household owes and credit cards, auto loans, student loans and mortgage credit cards $16,883 Auto Loans $29,539 student loans $50,626 mortgages 187,421 those numbers are unlikely to shrink anytime soon. According to nerdwallet. That's because the cost of living in the US Rose 30% over the past 13 years, yet household income only grew 28%. As a result, more Americans are using credit cards to cover the basic needs like food and clothing. medical expenses have grown 57% since 2003, while food and housing costs climbed 36 and 32%, respectively. Those surging basic expenses could widen the inequity gap in America, as a quarter of Americans make less than $10,010 per hour on their bright side education costs Rose 26% during that period, and growth and student loan balance has slowed. So the picture could be improving for financially disciplined Manila, Manila. I can't say that sorry. The Motley Fool has to disclose their policy. Now that articles from the Motley Fool I like to make a comment about that article. Even though the article states the average American has $137,062 in average debt. If you're a Age 26 to 46. I'm gonna just make that a 20 year broad age span your average debts way more than that because then in that same article, they have a chart. When you add up credit cards of $15,883, you're talking about auto loan average of $29,500, student loan debt of $50,600. And mortgage of $182,000. I add that up to be about 280,000. So if you're younger, that's way your average debt for us citizens is way too low. You owe way more than that. You know, if you take in consideration all the seniors who have very little no debt that's bringing that number way down. I'm not gonna say that the average American living in a home even on apartment maybe was to children, you're looking at 280,000. Whole lot more debt. But you got there. How did you get there? You need to look back up. What happened? How did you get so far in debt? How'd you get $16,000 in credit card debt, the average credit card debt is around $6,000 per card. So that means you got multiple cards with a 6000 or more balance, or maybe you got one or two cards with 10 or $20,000 balance. Either way, you need to really look at your lifestyle. How'd you get there was one way you laid off? Did you have to use a credit card to live off for a while? Did your spouse quit? Did you quit your job and started a business and you got behind? There's all kinds of reasons people get behind. But the main reason is he don't keep track of your finances. At least that's my opinion. So that's what my podcast is all about. Getting your finances under control, know what your finances are, and keeping track of everything. Figuring out what your discretionary income is, that's money that you have, that you don't have a need to use right away for. That's a good description. That's my description. And then that's money you could set aside in your savings account and build up so you can make a big lump sum payment on your debt. I'm now going to talk about getting your finances more under control. One of the ways and doing that is going through your budget, what I'm calling a budget. Do you really need everything you're paying for? Can you get the same services at a better price? So I have another article I'm going to read from again The Motley Fool I believe spring cleaning should be done once a year at a minimum, especially if you're trying to get out of debt. And you need to be aware of what you're spending your money on, and how much you're spending. Don't just spring clean your house tidy up your finances to buy Aaron lottery special to USA Today. As you shake off those winter doldrums and put away snow boots prepared to deep clean the house, you can add a new technique spring cleaning your financial house. It's so easy for us to put our financial lives on autopilot and failed to evaluate the ways we're spending and the products we're using. So once a year, you should set the practice of running a financial audit to determine which products and services you no longer use or could switch to get a better rate. To get started. You want to print out a year's worth of bank and credit card statements. A true audit needs to be run by having all the financial information in front of you audit your statements realistically search for both monthly and annual fees you pay and make note of any services you no longer use. And be honest with yourself. This should be about the real version of yourself year to size you did you die utilizes not the idealized version who reads The New Yorker cover to cover each week and doesn't let it just stack up in an overwhelming pile in a corner. Do the math on how often you go to the gym versus your monthly membership fee and see if it's still worth the cost per visit Nexus subscriptions and memberships that aren't currently serving you. Next write down ones that you use but for which you can probably find a better deal. Bonus points if you go through all the statements with different colored highlighters and track patterns in your spending habits. That can be especially eye opening if you struggle to free up money to put towards savings. And or debts, debts and switch while you have all those bank statements in front of you, it's good to look for any recurring fees you're being charged by your bank. It's 2020. There's just no reason if you're paying a monthly fee on your checking or savings account, you shouldn't even be jumping through hoops like having a minimum daily account balance or a certain amount of monthly direct deposits. Maybe a 12 month dollar monthly fee for checking or an $8 monthly fee for savings don't sound like much, but that's up to $240 can go towards funding other goals. Speaking of savings, that's $240 should be routed to a savings account with a higher interest rate than the paltry point 01 2.06% offered by many traditional brick and motar banks, it can currently get 1.6% to 1.7% annual percentage yield or a p y on a savings account. That means if you have a thousand dollars in your savings. It's a difference between two cents and $4. eight cents earn an interest in a year on 10,000. That's $1 compared to $170 it's not a get rich quick money, but hey, it adds up. Internet only banks like Ali and Capital One 360 offer more competitive edge checking and savings account. Marcus by Goldman Sachs also offers a competitive savings account. The banks are just safe and carry the name same f Federal Deposit Insurance Corp FDIC insurance as the brick and motar banks you're used to. The only catch is if you're working a cash heavy job and need to be able to deposit bills. You could always use a brick and mortar for checking and set up a savings account with a better interest rate. Evaluate your credit cards speak of the need to potentially ditch and switch are the credit cards in your wallet. The best ones for you spending patterns. The easiest option is a flat rate cash back card on everything. For example, one offering 2%. But if you're willing to play the game a bit, you can also look for cards that offer higher cashback for the bigger line items in your budget, like groceries or gas or dining out. Put a sticker on each card remind you for which type of spend, you should use it. This is specially helpful practice for any cards that offer rotating cashback categories. Personally, when I'm not focused on racking up points for travel, I save up cashback all year to subsidize my Christmas gift budget. You should also consider closing any cards was a state steep annual fee that doesn't actually provide benefit. A fee might make sense. If it's say for the airline card and you get free check bags, you'll likely see a short term drop in your credit score for closing that card. But as Assuming you have other lines of credit, like like another credit card, then you rebound correctly anxious about closing it, try and negotiate the fee with the credit card company because they want you to keep it open to negotiate better deals, prepared to negotiate on everything from insurance to cable and internet to cell phone service, shopped around and see if you can get a better deal elsewhere. If you should occur a better deal then you can try to go back and negotiate with your current provider or just pull another ditch and switch. Save your save money. The final step to spring cleaning your finances is actually put all your saved money into savings. For a monthly payments like savings $20 a month by switching cable providers. You can automate an extra $20 per month through get routed into your savings account or apply it to any debt you're working to pay off. Another technique is to make more of this annual challenge to set up a new space savings accounts especially for the money save spring cleaning each year. That way you can see it really start to accumulate and even put it towards something exciting like a family trip or a splurge item you may not have otherwise purchased. I have a sponsor to try to offset some of the costs of this podcast. So that's what I like to talk about next. If you take vitamins, you should be taken isotonic liquid, it gives you rapid absorption. It's fairly easy to swallow, you get highly concentrated nutrients when which gives you the maximum benefits. It's much better than the pill vitamin because it gets into your system at a much faster rate and more of the vitamin gets into your body where your body can use it. I've been using it for five years now is highly recommended it learn more about isotonic vitamins, go to my website, Reduce Debt Increase Wealth.com dot buzzsprout, calm, upper right hand corner, click on the heart and I'll take you to an isotonic website which belongs to my wife and help support the show. Thank you very much. I have a few comments on that article. First of all he I agree with about everything he's saying, if you listen to my podcast last week, I told you to project your, you know, ahead from paycheck to paycheck. One of the easy ways to do that is to keep your statements in front of you. That way you know who you owe the due date, the interest rate, you can find the interest rate somewhere in that form, and your unpaid balance and all that good information. He was saying to take the money you say when you negotiate lower fees and put it into a specialized save account, save it? Well, my system automatically does that for you. So you don't really have to make an effort as you reducing your spending. When you figure out how much you need the next pay period, or the next month, you're going to have more leftover in your checking account. member, you want to keep a minimum of $500. And then over time when you get low, more accurate, maybe $300. And you're going to be transfer that into your savings account. So you really not have to make it extra effort to transfer money from your, you know, negotiated savings on whatever it is into a savings account. I think one of the biggest expenses everybody has is cell phone, cable TV. I know personally, I had at&t and it was bumping close to $200 a month. And I'm just one person at the time. One cell phone and I just thought I'm paying way too much. I need to get that down. I called up at&t What plan you got? I could save some money You know, I'm paying too much. If I can't get this down a little bit reasonable. I'm going to start canceling stuff. Cuz that was you verse that was phone line that was a home phone that was a cell phone and internet access. I can tell you today, at&t is only got internet access. And only reason I have my internet access is because they're the best choice for the area in which I live. So and that it is what it is. I switch my cell phone service. Now I had two lines because I got married over time. wife's has a cell phone So now I'm paying less for two phones, unlimited talk text and data than I was paying for one line a couple of years ago, every couple years, you just need to call and look at what they're offering. Tell him you're gonna change, Tom, I'm gonna go the better rate. You know, there's other providers out there. Now, what I, my personal option was, I didn't really stay with at&t, but I want to cricket, which is an at&t company. It's at&t cell phone network. So I'm still really with at&t, but cricket is their discount service. So if you can't get a reduced rate directly from at&t, change your cell phone service to cricket, you still got everything at&t offers under a different name for a lot less money. And since we're trying to reduce our debt, we need to reduce our spending. And I can't remember if I said it or not, I don't think I have, there's only two things you can do. increase your income, reduce your spending. It's up to you to increase your income. Personally, I change jobs. And I increase I almost doubled my income, just by changing jobs, quit one job, start a new job. That's the trucking industry, you can do that. That everybody can do that. The other option you have reduce spending this look at everything you're spending money on. specially those yearly subscriptions you probably are paying for stuff is automatically deducted out of your checking account. You forgot even have you're probably hadn't used it in two years, but you still pay for it every year. Internet Security is one of those items, maybe had an old computer and you got two plants and don't know you're paying for same thing twice. You want to use one of them. That that's a definitely a possibility and that's 80 $90 a year I paid off my line of credit, and there was a $90 annual fee. And I had a zero balance. But as here's a credit tip, if you want your credit rating to stay high, he cannot close your credit accounts. When you pay off your credit cards, just don't use them. Don't cancel them, don't close them. Well, I was in the same thing was my line of credit. I didn't want to pay $90 for something I want to use. But I knew if I cancelled it, that's gonna reduce my credit rating. I went to the bank I just asked asked them. I got my line of credit paid off. It's in June coming up. Is there any way I can get that $90 annual fee waived or removed. So I don't have to pay it. I don't intend on using it. But I just don't want to close it in case I need it. And the guy looked at it looked at my account and said this should have been done when you did this. You got your mortgage with us. You shouldn't Never been paying an annual fee from day one that was six years ago. or six years $90, almost $600. I wasted because I wasn't paying attention. So if that applies to you, all they did was change my, whatever checking account it was gold to Platinum or whatever, they change it. Now I don't pay the $90 and nothing's changed. Everything looks the same. Everything's the same, no big deal. So you never know what's going on. You need to keep track of your spending. I'm not saying do away with stuff that you'd like, are reducing what you're spending on things you need, are buying an inferior product that's cheaper. I'm saying just be careful. Be aware of where your money's going, and keep track of it. So now let's go over what you should have already. Done. It's been a week. I know. Some of you were busy. Did you check out your say your checking account? Do you know how much money you got in there today? Do you know how much you need to pay before your next pay? Check comes into you. Have you reduced all your credit payments to the minimum balance? Those are things you should be doing? Have you quit using credit? Have you stop borrowing more money? You're working on getting rid of those payday loans. Go to your lenders, tell them you want out. You need to get paid off what can you do? quit doing payday loans. That's That's the first thing. So that those were my tips last week. And this week I talked about good debt and bad debt. What you know everybody needs a place to live. Everybody needs a car to drive to go to work, maybe to if you're married Got a spouse but then you'd have, hopefully two incomes. If your spouse's stay at home and raise a family then that's good too is this maybe you need a beater card go back and forth to work and you're good car let the wife spout you know, let your spouse drive the good car. If you can, you know get by with one auto loan You're doing good. If you're younger and just getting started, you need to minimize your debt just don't go willy nilly. Oh, I got a credit card. It's like spend spend spend, I need this this this Oh, that's fine. It's go out drink it was my friends. Whatever it is. You need to keep that under control. Put yourself you know, when I when I was younger, I'd go out. You know Friday night with my friends. I just back in the day. 20 bucks went a long way. put $50 in your wallet, pay cash. When you're out of $50 you go home. That's the only The way you're going to keep everything under control. If you just start draw out, pay for it, put it on a credit card, you got to stop doing that. Stop creating new debt, start saving money, build up your savings account, build up that emergency fund, get yourself in better financial shape, so you don't have problems in the future. If you come a problem, you'd be easier to get out of it. work around it. I'm trying to think of my next step. review what you're spending, try to negotiate new deals. Cable TV is a big expense. Cell phones is a big expense. utility companies if you're not already on what they call a budget where you pay the same amount every month, set that up if you're behind on paying you utilities set up a budget down you know, there's so $50 a month it's going to go to my current bill and $20 a month it's going to go what's behind as long as they know you're trying, they're going to work with you. That's the main thing. Addition additionally for the people who have a credit card was a zero balance. I know that you can buy stuff online, and you shouldn't use your debit card from your checking account. You should use a separate check credit card that when doing that you need to treat it as cash. If I buy this today, can I pay for it? next payday. Can I pay for it on Friday? I need to keep that balance at zero. Most of the time you want to avoid paying interest. The new episodes are released weekly subscribe so you can follow Mr. Chuck's journey to Reducing debt and financial freedom as you do the same. If you liked this podcast please share Transcribed by https://otter.ai