Welcome together, we're going to 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, a car payment, and you're struggling to get credit cards under control, or you may be getting a late start in life on saving for retirement, reduced debt increase wealth.com is a podcast to educate those to improve personal finances, whether it's eliminating debt, or making smart investments. Hello, Mr. Chuck here, mortgage calculators what that what does that have to do with paying down your debt? Well, mortgage calculator you can use, you can find them online, I have a link in my show notes to one that I like the best. And you can put in your numbers for your current mortgage. And you can put in an extra principal payment and make sure it's principal payment. And that will calculator will tell you how much interest you will save if you make that extra payment for the rest of the life of the loan. But before you consider paying extra on your mortgage, you got to make sure that you got all your higher interest rate debt paid off first. And that would be credit cards, auto loans, line of credit. You gotta get all that stuff paid off first before, you can consider making extra mortgage payments. And we're gonna go into that later on in this episode. As I was doing my research, I was trying to find maybe a different view on how to pay off credit debt or credit card debt. And I keep finding the same thing. And what I'm finding is the number one recommendation is make a larger payment. And the number two recommendation is do a debt consolidation loan. And the last and final recommendation is to go to a debt counselor who will tell you to do step one and two. And they will help you get that done. I'm not going to talk about the other one which is bankruptcy. Because I'm not an attorney, I feel that a bankruptcy should only be used in the extreme. You have lots of debt and no income and you're falling behind very quickly. If you're using number one make a larger payment. I don't advise that. That is not my plan. Remember my debt reduction plan is the first thing you want to do is stop creating new debt. The second thing you do is make the minimum payment on all your credit cards. And all your loans, auto loans and your mortgage is easy. Because it's a set amount as always the same every month. So you just pay that don't pay any extra when you have additional disposable income which is money that you had not spend because you're ours have a budget setup. And you're able to reduce your expenses and your spending from period to period month to month. That money goes into a savings account and it's called in our mergency fund and you build that up and you quit you quit using your credit cards. So that when you make those payments, it's kind of come down a little bit. It may take you 3,4,5 or six months to get a decent amount of money built up in your emergency fund and then you just keep doing the same thing and you build it up maybe you double or triple the amount. So if your emergency fund and what if you want that to be at$2,000 a month so that you can pay for something like a hot water heater goes bad in your home. You breaks down, you have enough money available to pay for that expenditure with out interrupting your other budget items that you pay every month. That's the idea of having an emergency fund. So once you double or triple that, so if it's $2,000, once you get$4,000, or $6,000, build up, view this, like you still have an emergency fund, but you got more. So you can handle a bigger emergency, if that happens before you use the money. So let's say you got up to 5000, that gives you $3,000 that you can use to pay towards credit card debt. If you're just getting started, and this is the first time, you're able to take that extra lump sum money out of your savings account and apply it to credit card debt. Which one do you pay off first? The avalanche method would be you pay off your credit card debt that has the highest rate of interest. And so you rank your debt based on the interest rate. And sometimes that may be a credit card was a very high balance. And you may have a credit card was a little bit lower interest rate was a small balance. And a lot of people want to feel like you're making achieving a goal. So if you have enough money, that $3,000 if that if you have any credit card, one or two, that you can completely pay down to zero and pay those first. And after that happens, and you keep going and you're not using those credit cards and they had zero balance, you do not cancel and you can quit using them be don't cancel them because that would hurt your credit score. We're trying to improve your credit score, as we get your debt reduced, very important. And after that first time you build up your emergency fund again, you got another $5,000 in there. So you have $3,000 he can do now From now on, you want to pay that money towards your highest rate cards. And keep doing that and you get the next one, pay it off, and then you work on the next one. And you do that over and over it may take it two years or may take you three years, depending on how much credit card debt you have. as you're going along, you may want to increase your emergency fund a little bit, maybe bump it up to $2,500. And that's fine, you can do that. Whatever make you feel comfortable, is what you want to do. And that is the reason why I say make the minimum payment. If you make a larger payment on all your credit card debt, how much more you really paint, are you paying $25 or $50 more across the board on each one, you're not really making a whole lot of headway there. And you still don't have an emergency fund built up. So something bad happens what you got to do, you need to use a credit card, so your balance is going to go up again. So it all works together. debt consolidation, if you still have good credit, and you're able to get a loan, to consolidate your debt into one loan, at a lower rate of interest, I would do that I'm for that no problem. You got to quit using those credit cards that you paid down to zero by doing that he still have to eliminate creating new debt. That's always gonna be the key no matter what you do. Whoever gives you that consolidation loan is may gonna require you they're gonna probably do it for you pay off those credit cards because they want to make sure they get paid off. And then they're gonna close those accounts. And that's gonna hurt your credit rating, at least for the short term, short term meaning being a couple years So that's why I don't like doing that. And there's costs involved in doing that loan, going to a debt counselor, they're gonna charge you a fee, up to 25%. Freedom Debt Relief, I believe is one of the larger debt counseling firms out there. And it's 25%, their average fee based on where you are what state it's like 21% or 22%. That' money that you could use to pa off that credit card withou using their services I'm all for the do it yourselfer. Debt counseling, service, do it yourself and use that money, you say that 25% Yes, maybe they're going to get some debt, you know, gone, may then get some credit card debt reduce, maybe they're going to get the interest reduced down. So you don't have to pay as much interest. But they're going to charge you 25%. To do that. Maybe you can call your credit card companies telling me your situation, maybe they'll help you out. And maybe they won't, I don't know, I've never gone that far to do that. So here's a recap of what you should be doing. One of the most important thing is quit creating new debt, to make the minimum payments on all your credit cards and all your loans and three, start putting money in a savings account and build up an emergency fund. And emergency fund will help you with number one, quit creating new debt and it all goes together. That's the cycle. I had been doing this. For three and a half years, I've paid off three or four credit cards, to automobile loans and a line of credit, almost got my mortgage on my home paid off. I'll be debt free, within the next three months, and it's the end of October now. So by the first of 2021, I will be debt free. And this is exactly what I have done. To do that. Plus, I looked at my budget, I set up a budget. And I eliminate pain. First off, I don't use or I have negotiate a better price with my cell phone provider, I changed cell phone providers and got a cheaper service and save money. I'm streaming all my TV now I got cut cable I did that three years ago, saving tons of money there probably 75 $80 a month. It doesn't sound like much. But we need take all these little steps, add them together, it's 200 $250 more a month. That's half of my mortgage payment. My mortgage payment is only $500 a month. So if I could cut out my budget or my wasteful spending, as I like to call it 200 to $250. That's half my mortgage payment. Now, it gives me more money to concentrate on getting my credit card debt under control. And my article for this episode is I might have used it in the past it kind of sounds familiar for reasons people don't pay off debt. It's from inspire budget calm. It's a very reasonable article. And this website inspired budget calm has information in there on how to do budgets. Now I've talked about how to do a budget the way I do it. But they give you examples and more information. And the four reasons are people don't pay off debt because when they're scared, can we agree that fear can lead people to do crazy things and don't get me started on irrational fear. When people act and feel that fear, they can either take action and tackle a problem or clam up and run from it. And when you have a large amount of debt, there's a lot more fear that comes with it. So instead of facing that fear, they shove it in a closet like minimum debt payments and hope to resolve it in 15 years. But here's the thing. Wouldn't you rather face fear and get the debt out of your life before 15 years is up? Don't you want to be able to keep all your money and do what you want with it, you can spend it or save it, as you choose. They're making a minimum payment, they're not making any effort on quit creating new debt. They're not making any effort and to set up a emergency fund. And number two, they are missed informed. I like to believe that the best than people, this can backfire on me though. So I think that sometimes people just grossly misinformed. I mean, let's be honest, our education system does not do a great job on teaching students about how to properly manage money. There is absolutely no education on this and high school. There's very little education on this in college, unless you're a business major, unless you're in a major that deals with this type of subject. I like to think that people are under informed. They're not stupid. They're just not aware of what you can do to keep your credit card debt under control. A lot of people were used to making a lot of money, and then they lost their job, or they got a career change in their income was reduced. And they were on now on able to pay off that credit card, maybe they were putting everything on their credit cards and paying it off every month, they lost a lot of income. So now they can't do that. And they got behind. Yes, I can see that happening. Number three is that they aren't willing to sacrifice. And this is the important part. When you decide to buckle down and pay off debt, you're going to have to make some sacrifices, the more you sacrifice, the faster you'll pay off debt. And in a world filled with instant gratification, and people telling you that you should have everything you want. Sacrifice is hard. I mean, think about it, the society we live in tells us that we can have whatever we want. And what we should get it now, no waiting, no savings, get the new car now, buy the living room furniture and put it on your credit card. More and more people are saving less and spending more. So when you try to go against the grain and break that cycle, it can be difficult. But thankfully, you are capable of doing hard things so it can be done. I agree with what she's saying here 100%. If you're serious about getting your credit cards, paid off, and getting out of debt, you have to cut back on your spending someplace. Personal Finance rule number one, spend less than what you earn. You apply that to your life situation. And you'll over time we'll start to see improvements and your budget and your financial situation. And number four reason you don't pay off that they don't know where to get started. If you're listening to reduce debt, increase wealth, well, you got started in a good place. You need to listen to my episodes. And I'll put a disclaimer here. Some of my early episodes, I'm not a professional podcaster I have no audio experience and editing audio or anything like that. I was a certified public accountant for 20 years, I gave that up, sold my business and became an over the road truck driver and I started doing this because I felt like is something I could do to help people. And when I get in, I'm getting close to retirement age is something I can do when I'm retired and I can keep my mind active and I can help people. That's what reduced that increased wealth is all about for me helping my listeners Get their debt under control, and where to get started. If you're listening to this podcast, you can google any subject matter I talked about and find it on the internet, you can read blogs, there's lots of articles from different, like nerdwallet bankrate.com, I have a lot of articles out there that's telling you the same thing. And I'm using those articles to do this podcast. And I can't think of everything all the time. I don't have time to sit here and think about it. I'm working 65 to 70 hours a week, driving a truck. And I'm doing this as a hobby and enough about me. If the glass half full person, I like to think that maybe everyone does want to be debt free, but just don't know where or how to get started. When it comes to making choices with your money can be difficult to know where to begin? Do you start saving money first and pay off debt first, and which loan Do you tackle First, it could be confusing and cause people to shut down and give up. Thankfully, there's been people who have done this before and had laid a path out before you. As far as do you say money first or pay off debt? First, I pretty much my plan pretty much tackles that. Make your minimum payments and all your debt. build up an emergency fund so you can achieve your number one goal quit creating new debt and nothing's gonna improve until you get that solved. And then you can move forward from that point. Okay, now let's get back to the mortgage calculator. In my show notes, the final item is a advanced mortgage calculator, you can put in your mortgage loan terms, and see what happens if you make a bi weekly payment, you make an extra payment every month, and how much interest you can say. And it's also got some in Canadian money, euro and some other foreign currency that you can put in there if you live in a different country. Now I'm gonna from bankrate.com pre paying your mortgage, and should you really do that. So but first, when you're prepay your mortgage, there are several ways to do that you can make an extra mortgage payment every year, that's one extra payment every 12 months or two, you can add extra dollars to every payment. So you can pay like extra $10 a month from the start of the loan for the life of the loan. And these mortgage calculators will help you figure out how much interest you can save and how much time you can say. Or you can apply a lump sum after an inheritance or other windfall. And that's what I do. But it's not an inherent, it's not a windfall, it's money I've set aside and saved up. And then every month or two or when I have, you know, the extra money and my emergency fund, I'll do a lump sum payment. And that really helps you pay off a lot of debt fairly quickly. It's like the dominoes. It's a slow start. But once you get going, and you perfect it and you make those sacrifices and you learn how to do it. It gets easier over time, and it speeds up and you get a credit card paid off. That's one less payment you have to make. Now you got a little more extra money. You pay off the second credit card. That's one that's two less payments you're making. You've got even more extra money on and on we go it speeds up over time. You gotta stay the course. So how much can I say by paying additional principal on a mortgage. The benefit of making a paying additional principal isn't just reducing the monthly interest expense a tiny bit at a time and it comes from paying down the outstanding loan balance with additional mortgage principal payments, which slashes the total interest you owe over the life of the loan. And this is all in that article and it's got some examples. And we're down what are the drawbacks of pre paying my mortgage? There are potential downsides to pre paying first starters tying up your cash in your home means you have less liquidity and wiggle room and your budget. In other words, you have less than ready available cash to put towards increase in your 401k contributions, or paying down high interest that, for example, these financial goals could offer a higher return on your investment. So instead of paying extra on a 3% mortgage, you're much better off applying that to a 21% credit card, your rate of return is 3%, or 21%. Pretty simple. So you gotta get that taken care of first, you got to get your retirement contributions up as high as you can get them where your employer is at least matching whatever the maximum match, you can get in your 401k. Or you got to get the maximum yearly contributions in your own IRA, individual retirement account. You got to do all these things first before considering making extra mortgage payments. When asking you so can I prepay my mortgage looked at your entire financial picture. And here are some important questions to consider is your monthly budget tight after meeting necessary expenses, after you pay all your monthly expenses, and you don't have much money leftover, and if you do, you should be building up your savings account your emergency fund is your income variable and or predictable? Like me, I'm a truck driver. Some weeks I do really good other weeks not so good. How long you plan to stay in your home? If you know you're going to be selling a home and moving? Why do you want to pay extra? are you saving enough for retirement? Do you have adequate emergency savings fund three to six months of household living expenses? And do you have a lot of high interest credit cards or loans. So that's in this article. But there are situations where it may be beneficial. If you just bought your first home, and you only put a 10% down payment, and you're paying principal mortgage insurance PMI, and you don't have a lot of credit card debt, maybe got one or two. You may consider making extra principal payments to build up equity on that loan. So he get over 20% equity. And then you can call your lender and say I want my pm I reduce I have enough equity and get that removed. And if you're thinking about buying your first home or refinancing, ask your lender if I have to have PMI on this loan. When I get enough equity build up Will you remove it without having to refinance. And that's one of the reasons why you refinance is to get rid of that. That's the only situation where it be to your advantage to make an extra principal payment on your mortgage until you get all those other things taken care of. Which that's what I've done. I got all those other things taken care of I got all my credit cards paid off, got all my loan, car loans paid off, got my line of credit paid off, got everything paid off. I didn't have to refinance, I didn't have to do any debt consolidation. That's the end of another episode. I hope you found it useful. 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