Welcome together, we're gonna explore our personal finances and figure out how to improve them. Whether you're just getting started in life on your finances, or you may already have a home and a car payment and you're struggling to get credit cards under control, or you again at a later start in life on saving for retirement, reduce debt increase. wealth.com is a podcast to educate those to improve personal finances, whether it's eliminating debt, or making smart investments. Mr. Chuck here, this week, I'm going to talk about reducing your debt and get more primary focus on ways you can do that. Before I get started in that I have a short little story that I just recently happened. I want And then had a medical procedure done in July. And I thought my health insurance gonna pay for it all because it did the last time. But lo and behold, surprise, surprise, I owe an extra $1,750 some dollars and I called the provider. They said they did it right. And they explained to me what the difference was between the first time I had it done and the second time, I called the insurance company, and they said the provider didn't build it properly and I should contact them. So I'm in the middle, there's not much I can do about it. But here's the good news. If you owe a provider and you contact them, and you can make up a payment plan. And the payment plan usually is going to be within a year's time 12 months, so you don't have to pay it all at once. They're not going to charge you interest, which is always a good thing. I could have used my emergency fund to pay the whole amount off, it was around 1700 50 some dollars. But I didn't want to deplete my emergency fund, because that's important in case something really comes up. And why would I do that when I can get interest, even though it's a high yield account, it's a little bit under 1%. But three to $4 a month is still more than zero. So if I would add all that up, I wouldn't be getting any interest. So I decided just to go ahead and set up a payment plan with my provider, even though I can pay it all off because I'm almost debt free. But why pay it off when they're going to give you a year interest free? So I'm going to take advantage of that. Opportunity laws and earning interest is a consideration I made and Another consideration is If I should deplete my emergency fund or not. So that's just some word of advice. If you're dealing with medical expenses, contact your provider right away, find out why the insurance company didn't pay what you thought they should have paid, and then go from that point forward. Now I'm going to start to talk about debt counseling services. Should you use a debt counseling service or not? That before you even consider it, there's 10 things you should know about debt management programs, or a debt counseling service. And I get this from money under thirty.com then 10 things you should know about debt management programs. debt management programs, also called credit counseling, which is a booming industry these days as more and more consumers are drowning in credit card debt. And ads are promising easy debt relief. These programs are tempting to anybody struggling to stay on top of debt, but are they legit and will they help you or hurt you? Here's 10 things you should be should know about. But before I go over that, I have some warning signs. There are some warning signs you should consider before you even start looking into a debt Counseling Service. The first warning sign if they contact you first and be aware it's probably a scammer or could be a scammer and the warning signs are a debt relief company that asked for fees up front before it settles any debt. That's a red flag. The company guarantees it can eliminate your debt or reduce it by a particular amount and a set period of time. Another red flag, the company advise you to cut off communication with creditors Big Time red flag. The company won't send you information about his services unless you provide financial information such as credit card account numbers and balances. Do not give anybody your information before you commit to using nurse services. Those are warning signs period. Don't pay a debt relief or counseling servicing fee in advance. Even they as voluntary contribution. There is no such thing as voluntary contributions. Don't believe in guarantees no no company can insure can reduce your debt by a certain amount or stop collection calls and lawsuits. Don't let a company enroll you in a debt relief program without reviewing your financial situation with you. know other words don't get started with them. You give them some general information like how many credit cards you owe, what is the balances on those credit cards, don't give them the details. Don't give them your account numbers. And for Pete's sake, don't give him any credit card number that taken charge you. Because a scammer will go, we'll take care of that, and then they'll charge you their fee and disappear. Don't buy that a company can get negative information on your credit file. If data on delinquency defaults and other problems is correct, and it stays on your credit report for at least seven years by law. I don't believe them when they say they can remove bad credit ratings or bad credit information about you. If you're not paying things on time, that information is not going to go away. It's going to be there for at least seven years. And that's required by law. So those are some of the signs you should be thinking about. Now, let's get to the Back to the article. And the first number one thing you should be aware of, don't be fooled by a non profit status, they may claim they're not a non profit organization. And that may be true. But they're still out to make money because they have expenses to pay. And the only difference between a nonprofit a non profit and a for profit company is what they do with their profits. So a nonprofit status they might take their profits at the end of the year, if they're not spending it on salaries, rent, utilities, whatever, and then donate it to a charitable organization. That's the only difference. a for profit company the owners of the companies may may take the profits. Number two, you may be able to do it yourself. Much of Many companies do involve simply simply contacting your creditors and negotiating alternative repayment plans and hopefully with reduced interest rates and fees. If you're struggling to make payments you can do this yourself. Most credit creditors will be eager to help you meet your debt obligation because they want to help you avoid bankruptcy which sucks for them. Talking to your creditors directly isn't pleasant and it may not be easy, but it can be done. You want to do that yourself first. At least try your credit score may drop. A lot has been written about how debt management programs hurt your credit score. That is not always the case. If you have several late payments are currently way behind on any credit payments, chances are debt management may actually improve your score if have loads of debt, but our current account Your payments your credit score may drop when you enroll in debt management. That's because as your debt management company renegotiate your credit obligations, they may change when payments are made to creditors, resulting in late payments being reported on your credit history. Additionally, many creditors will close your accounts while you're in debt management and good history you have with those accounts will be taken off your credit history. And that is why it's important when you pay off a credit card. don't cancel it don't close the account because you do have a credit history with them. And the credit history Some of it may be bad, but over time it'll go away and creditors are looking for that long term debt credit history. Regardless of whether your credit score goes up and down in the short term, enrolling in a debt management program is a long term decision. And the fact is repaying your debt is the best thing for your credit score. And it's definitely better than continually being late or not paying it off. Number four, you must give up new credit. Once in a row and a debt management program, you'll be prohibited from opening new lines of credit. If you do your arrest, the benefit of your debt management program has negotiated for you. While not opening new credit is generally the best move for you while you're trying to get out of debt. Make sure you're not anticipating needing an auto loan, for example, during your repayment period. These repayment periods are anywhere from three to five years. So if you're going to be needing a car in that time period, using a debt counseling service may not help you because you may have a hard time getting an auto loan or any loan for that. Five it doesn't take effect immediately, there is a delay. Because you can enroll in it, it may take a month or more before your creditors receive their first payment. This can mean two things. First, you want to avoid late marks on your credit report, you need to make at least one month, possibly two months of double payments one payment to the debt management service and your regular payments directly to your creditors. Since most people cannot afford this, you must be prepared for the possibility of getting a late mark on your credit report. And second, you may receive collection calls from your creditors before they receive their first disbursement from the debt management agency. Unfortunately, that debt management agency cannot stop collection calls. But most collectors will be satisfied when you tell them you have enrolled in a program and we'll leave you alone once you inform them. The patient swear That same six, your interest rates real fall. Once your debt management company makes contact with your creditors, most creditors are immediately lower your interest rate by several points, typically to a rate between 12% and 16%. This can be a huge help if you're paying 17% or more, especially if you have been late on one or more accounts and are pan default APR of 20% or more. These reduces aprs can save you thousands of dollars and help you get out that earlier. Seven fees will be waived. That management company may also be able to get your credit to eliminate future late fees that might be incurred as creditors adjust your payment schedules, saving you as much as $40 per creditor each month. Number eight, you will have one monthly payment. One simple benefit of debt management program is to build a consolidate Your debt payments into one monthly payment. The debt management service then distributes your payment to your creditors. It's kind of like filing for bankruptcy where you pay the bankruptcy court and then they pay all your creditors for you that you're not doing bankruptcy so that would not show up on your history. So that could be a good thing. Nine you avoid bankruptcy but retain the option. Nobody wants to declare bankruptcy and it's true debt management provides a viable alternative to becoming legally disabled, destitute. However enrolling in debt management or credit counseling is actually a pre rescue it to filing bankruptcy. So even if you find yourself still unable to pay all your creditors in bankruptcy is then an option for you after you tried debt management 10 years debt will be on autopilot. Once you have enrolled in debt management plan and let your debt management plan pay all the creditors each month, you never have to worry about your debt. Again, your payment is auto debited from your bank account and your debt will be gone in just a couple of years, usually three to five. Of course, it's smart to allocate more money to your payments whenever you're able to, but it's a matter of logging in your debt management company account page and increase in your Payment Summary. If you think a debt management program can help you, I encourage you to get all the facts and do your research before you sign up for any program. These programs are lifesavers for some, but for others, they can do more damage than they do good. So if you're thinking about using a debt Counseling Service, that you haven't tried to do all those things on your own. That's step one. Step one is one Create your personal finance plan. What's your goals? What's your short term goals? What's your mid term goals? What's your long term goals and set that up. If one of your goals is to get out from honor a bunch of credit card debt, and then that should be one of your short term goals, and then you have a debt reduction plan in place to take care of your credit card. And you can do all that yourself. Why pay somebody a fee to do what you can do yourself and you can save the money and pay down your debt a little bit faster. Maybe you can get those credit cards paid off in one to two years instead of three to five years. It could make a difference when you are looking at their fees and remember f a counseling Company contacts you first. Don't give them any information. The where to look them up on the internet. Look at their history. Do they have a website? Are their customers happy? Look at any reviews that customers or past customers may have left. If they're if you can't find them anywhere, or it's under some other name. I would be leery and I wouldn't give them any of your personal information. It's up to you to contact a debt counselor and up to you to do your homework and find a debt counselor in your area. Maybe you can go and see go to their office and talk to them. I know with COVID-19 they may not want you to come in the office, but you can least talk to them on the phone. And no they haven't Office nearby and know that they are legit. Ish that shouldn't want you to do any of the warning signs. And don't do anything like don't pay them in advance. And definitely keep in contact with your creditors. If even if you sign up for a debt management counselor, and they tell you, we'll take care of everything and I think it would be a good idea that you call your creditors your credit card companies and let them know, Hey, I just signed up with this debt counselor, company. Here's their information. Here's the name of them. Here's the contact person, here's their phone number and tell them what you're doing. And that will get rid of all those late phone calls. Maybe. If it seems too good to be true, it most likely is now going to move on to the do it yourselfer information What can you do to improve your debt? Well, the first thing you should be doing is creating a budget. You got your financial plan, you identified what your goals are, you know that you got credit card debt, or maybe all your debt, you want to get greatly reduced, get paid off your credit cards, get a little more equity built up in your home, maybe pay off a car too. So you got that identify, but how are you going to do that? Well, the first thing you need to do is set up a budget. Because if you do not know how much income you got coming in, versus how much expenses you got going out and you won't ever know how much extra you should be paying as part of your budget. You need to set up an emergency fund. An emergency fund is a savings account, where you set aside money so that you can quit. Use it debt, you can quit using those credit cards is takes time. But the bigger your emergency fund becomes, and as I talked earlier in this episode for the reason why I didn't deplete mine is you never know what kind of emergency might come up. So if you have an option to have a zero percent interest on a debt that you owe, and you can get it paid off in a reasonable amount of time, then I would go for that, you know, anywhere you can get interest free loan, you're you're improving your situation. So budget, let's about a talk about budgets in the past, but I'm going to go over it again because it's important and knowing where your money's coming from and where your money is going. This is from money management.org Ultimate Guide to creating a budget step one, find your why and write it down. Why do you want to create a budget? Why do you want to pay off those credit cards? Well, because it's costing you a whole lot of money, and you rather have that money in your own pocket. And remember, your retirement is the only thing you cannot borrow money for when you retire. So saving up for your retirement, the more money you have saved, the more you have invested, the more you're gonna earn. The more you earn, the more you're going to have a better life you're going to live when retirement time comes. Find your why and write it down. And don't stop at the obvious and figure out the fears and desires that will motivate you to make a change. Start with your why. Before you start building a budget ask yourself why am I doing this and keep in mind the deeper you go the more effective your reasons will be. For example, I want to become debt free is a good reason to budget but why do you want to become Free, I want to become debt free. So I never have to experience anxiety and stress of living paycheck to paycheck ever again. That's this even better reason. And I did it because even if I have a bad pay week, I could still pay my mortgage. So I have one week where I make very little money, but it's still enough money, I can pay my mortgage for the whole month. So I'm better off overall that was my why. My other Why is, um, want to increase my retirement. And I didn't want to worry about paying a mortgage car payment credit cards once I retired because once you retire, generally speaking, your incomes gonna go down. And once your income goes down, it becomes harder to make all those debt payments and still live a decent and good life and do it Things you really want to do. Step two, set your priorities and figure out what you value and what you want to accomplish, then put it all in order of priority. This will make difficult financial decisions easier to tackle. So if one of your priorities to save for retirement, that's one of one of your priorities to save up money, so you can help your children with their college education. That may be too if one of your priorities is to have money to travel around the world when you're retired. Well, that's priority number three becomes much easier for you to justify to yourself and maybe to your spouse of why you're saving money now, why you're cutting back why he may be doing without some things that you really want or don't want. Step three, track your spending and review past statements or certainly record A month of spending to see where your money is going and set a baseline for your budget member my simple and easy way to set up a budget, you go back to three months and look at what you're spending and put it in order by category, utilities, mortgage, auto, food and groceries, entertainment, clothing, whatever. You set up categories you put in, you go back two or three months, and see how much you spent. And each of the categories. You add that up and divide it by the number of months. So if you have three months with expenses in there, say under your utilities category, you add them all up divided by three, that's your average and that's your budget number you want to start with. Start with your average of what you've been spending over the last two or three months and watch your money. While you're doing that, you may just discover some things you're no longer using. So you want to go ahead and cancel those items out. So you don't keep paying for something you no longer use. You may have gotten multiple subscription for antivirus software, maybe you only use one, maybe you had some old computers you got rid of, you're no longer use it. So if you got more than one and you're not using those computers no more than you get cancel and save yourself some money. And step four, choose your method experience with different budgeting tools and method to find the one that suits your best to find the right budget style for you and there is no shortage of way you can approach budgeting. Some of these are simple and bare bones. Others are more complex in detail. No method is a right for any than any other is simply want to find a method that matches your personality and goals. Here's An example of the 50,30,20 budgeting rules 50% for needs and 30% for wants and 20% for savings and paying down debt and I've talked about that in the past and this here saying 20% for savings but I've also seen other places where it was savings and credit card debt and so needs once and savings, the zero sum budget, a plan for every dollar so you know, I get $4,000 every month you have it counted for every dollar coming in. You have a plan for what it's going to be spent on going out and spent on includes put it in your savings account is a spending category as the zero sum budget and the anti budget. That's the minimalist use priorities to pay as you go spending by priority food rent and utilities and savings. This is perfect for those who need to budget for having trouble starting a requires consistency and understanding of your priorities and money flow style, automate it up effort upfront minimal maintenance. money flow budget is where you automate all your payments. So, you know, like for my, for my example, for myself, and all my income is directly deposited into my checking account. So I know every pay day, my net payroll is gonna be there on every Friday. So it's automated, direct deposit, and a lot of people do that nowadays. So you do the same thing with your expense. So why are you going to pay every month, the same amount most of the time, your mortgage Your utilities, your car payment, the minimum balance of all your credit cards, I set that up so it happens automatically. And then you don't have to worry about it. And when I say set it up, so happens automatically set it up. So it's paid on time, on or before the due date. And that's why I like doing it online banking. I remember in the old days you wrote a cheque and you mailed it. And if you didn't mail it, female to five days in advance, they might have got it two days early. If you mailed it two days in advance they might have got it two days late. He never knew he so one month there early to next month are saying your pay too late they're penalizing it but a penalty. So if you do that through your bank, and set up that as automatically pay on the due date and the bank is gonna pay it on that due date. So that money he knows the exact day The money will come out of your checking account. And if you keep track of how much money you have, then you know you'll have enough in there, you don't have to worry about overdrawn your checking account, which is, you know, overdrawn fees is a waste of money. And you want to pay the bank as least amount as possible. So making timely payments to everybody, make sure you have enough money in there. And the best way to do that is to automate as much as that as possible. And then you have your budget, oh, I have $300 a month I'm going to spend on food. So you just need to track that and make sure you don't go over $300 a month, or it might be $300 a week, depending how big your family is. So that's an example of automating your budget. Step five, live with your budget and take the budgeting method you've chosen and put it into practice and don't worry about getting things perfect. Just do your best. And what they mean by getting things perfect is say you set up a budget that your food allowance is gonna be $300 a month that you spent $400. Well, the next month Do you want to go back in your budget and adjust that maybe the $400 was a better average and then your $300 and maybe the month before you was going out to eat more, maybe you're cut restaurants out of your budget, and you're just going to the grocery store now so your grocery store spending may go up a little bit and use your budget. One The best way to do it, whether you do it on paper manually, I would prefer using a spreadsheet and again, you have income and how much you get every month, you know, weekly, bi weekly, every pay period, and then down the side by category, utilities. housing, auto. Auto would be transportation, clothing, entertainment, entertainment, the restaurants and going out to movies or whatever you'd like to do. Keep track of it. Got to know how much money is coming and, and how much money is going out. That can change from month to month. Let's say that your goal is to maintain a $300 balance in your checking account. And you know the due dates of all your bills, so you have enough money in your checking account on the due date of all those bills before the end of the month comes and all your bills are paid and maybe you need to fill the car up with gas. One more time, you have an idea of how much it's going to take to do that. So leave that in your checking account plus your minimum balance. $300 or $500 anything over that should be transferred to your savings account for one to build up your emergency fund and to the build up the amount of money that you're going to accumulate. Once you have your emergency fund in place and happy with the dollar amount, then you build it up three to 4,000 above that with it takes them two months or three months and then take that lump sum out and apply it to your credit card debt. And then that's where the different methods of how do you apply your payment I use the snowball method or avalanche snowball means you pay off the lowest balance first. avalanche means you pay off pay towards your highest interest. Credit Card first. I know it can be overwhelming at times. I know it takes some dedication And I know it's not going to happen overnight. That's the end of another episode. I hope you found it useful in a feud like to share this episode with your friends please do so. I'm open for any suggestions for improvement or for information that you would like to talk about in future episodes. He can go to my Facebook page and leave me a message. more than glad to comply. 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