September 10, 2023 • 30 mins
Getting control of personal finances and stopping creditors calls are a couple of benefits. This is a plan for the do it yourselfer and is easy to start and stay on track.
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https://www.bankrate.com/personal-finance/debt/pros-cons-of-debt-relief/#consolidation By Holly Jonson
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Charles McDonald (00:04):
Hello, I'm your host, Mr. Chuck, I retired
accountant turned truck driver,I reduce my debt in a relatively
short period of time, debtreduction, to achieve financial
freedom takes commitment,confidence, determination.
(00:25):
Benefits of debt reduction plan,getting control of personal
finances and stopping creditorcalls are a couple of the
benefits. This is a plan forthat do it yourselfer and is
easy to start and stay on track.
I have a link in my show notesas always to two articles that
you can refer to if you want tosee what they're saying. But
(00:49):
before I get started, Igenerally focus on debt
reduction plan. And don't getconfused because there's other
plans out there. That soundssimilar debt relief, debt
settlement, that management,that management may be a
(01:15):
combination of everything,manage your debt. But debt
relief is a lot different thandebt reduction. So what is it
debt relief is when you contactor have a counselor do it for
you, your creditors, and you tryto get them to lower the
(01:38):
interest rate, maybe write offpart of the balance, things like
that, that is probably one ofthe worst things you can do.
Because if you're doing a debtrelief company that you're
working with that guy counselormaybe may tell you to quit
paying all your credit cardbills and all your loan bills.
(02:02):
And you pay them directly. Andthey put the money into an
escrow course they take theirfees out of that. And then they
contact their creditors and tryto pay off those debts or that
that was a little money aspossible, or maybe set up some
(02:23):
type of payment plan with themover a period of five years, or
a couple years, whatever thecase would be. The creditors
then may decide to I'm going tolower their interest rate, but I
want them to pay the wholebalance or make some type of
counter offers, so they make adeal. The problem with doing all
(02:44):
that is if you quit pan, timelypayments on all your debt,
what's gonna happen, they'regonna report you to the credit
bureau, your credit rating willgo down drastically, very highly
reduced. So if you already havepoor credit rating, it's gonna
(03:07):
get worse if that's evenpossible. And what's the chances
of them actually making sometype of settlement, they may not
decide to the creditor may say,a low your interest rate 1%. But
you got to owe me the wholebill. But there's already
charging at 20%. So they're notreally doing much of a favor.
(03:30):
And you keep on paying andyou're not gonna make any
headway because the interest hasgone to accumulate faster than
the debt relief counselor ismaking payments on. Because
they're making very littlepayments, probably like what you
would have been doing, butthey're also not making timely
payments. So your credit ratingis gonna go in the tank, then we
(03:54):
have debt consolidation, thathas nothing to do with reducing
your debt. It's only taking yourdebt and rearranging it and new
debt. So you take, maybe itmight be better, don't get me
wrong. But in the long term ofthings, you're not getting rid
(04:18):
of debt, you're just rearrangingit, you're taking maybe that
18 20% interest credit cards,three or four of them. paying
those all off. Now you have onedebt for five years, a single
payment, say at 8%, which is alot less than what you was
(04:39):
paying, but you still have thesame amount of debt. You just
have it in one place at a lowerrate of interest, which is good,
don't get me wrong. That's agood thing. Because now you'll
be able to pay it down fasterbecause you're paying a lot less
interest. But you're Debt didn'tgo away, you still had the debt.
(05:00):
And the bad thing about debtconsolidation. If they don't
require you to close thesecredit cards, you can use them
again, and you get farther indebt. So you didn't really do
anything to solve your problem,you just rearranged your debt
(05:21):
made a batter, and that's notbad, you kept your credit cards,
you keep on using them, andyou're in the same place. But
now you're in a worse placebecause you have more debt. If
they require you to shut thecancel all your credit cards and
close those accounts, then yourcredit rating is gonna go down
(05:42):
temporarily because your debt toincome ratio, you have less debt
to your income. So your creditrating gonna go down. No matter
what you do, it's kind of hurt.
Yeah. As far as debt reductiongoes. And I'm up to the point
(06:04):
where I don't want any morecredit, my credit to income
ratio is really good lot income,little credit. But I don't get a
good rating, because I don'thave enough credit. But if you
use the credit, that's bad, ifyou use too much as bad. So they
want you to have a lot of creditavailable, but only use five or
(06:27):
sign of us. So what's the what'sthe purpose doesn't make any
long term sense. So I won't doit, I just stick out my 825
rating. And I'll never reach850, which is the highest rating
you can get. I'm happy with a25. And all the creditors I
talked to are very happy to giveme money, which I don't do. So
(06:50):
that's debt relief, which theytried to negotiate a deal lower
what you owe lower your interestrate, debt consolidation, where
you're refinancing it. Debtsettlement is a process that
lets you settle a lot of money adebt for less than what you owe.
Not gonna do too well stoppaying on your bills, that's
(07:13):
bad. Creditors are not legallyrequired to settle for less than
you owe. And they're gonna stickto that debt forgiveness. There
are some scenarios where acredit we're forgive the debt
yo, and those incidents areincreasingly rare. medical debt
is one of them. The problem withthat forgiveness, that becomes
(07:36):
income to you on your federaltax return. So you got to pay
taxes on that you did not pay,because you couldn't afford to
pay it. Now you have a highertax liability, how are you going
to pay that if you couldn'tafford to pay it to start with,
and it's rare anyway, thatmanagement plan. In some cases,
(07:58):
they also recommend and overseedebt management plans. These
plans, you have a single paymentto an account with your name
each month, and that creditcounseling agent uses money to
pay bills on your behalf. So youhave a counselor sets up an
escrow account for you, when yousend them a monthly payment or
(08:20):
weekly or whatever you decide todo, then then they use the money
in that account to pay some ofyour bills. And then the most
extreme would be bankruptcy. Butremember, you're not going to be
able to file bankruptcy, he haveto prove you made an effort to
pay off this debt. They're gonnawant you to get a counselor and
(08:44):
have debt counselor, and they'reall wants you to have some type
of debt settlement or debtpayment or something. And then
when you do bankruptcy, it'sgonna be over a five year
period. So it's not gonna goaway overnight, but eventually
will and it does not get rid ofback do taxes, child support,
(09:06):
and it's on your record, Ithink, for 10 years. So I'm
going to talk about thatreduction. We know there's debt
consolidation, there's some typeof debt relief where they try to
make settlements for you. Andthere's a debt management that
kind of both of those togetherwhere they try to manage your
debt through maybe someconsolidation here, some debt
(09:29):
relief here, whatever the case,but in order to do that, you
need to have a professional,even nonprofits are going to
charge you a fee. So let's lookat Can I do this myself? And
yes, you can. But how you getstarted, the first thing you
have to do is figure out whatcaused you to get in this
(09:53):
problem. What got you into thedebt trap? Swelling two ways.
He can get into the debt trap.
The first way, which is probablythe most common is you spend
more than you make and use yourcredit cards to make up the
difference. Maybe you did thatfor one month, because you had
to buy clothes for your childrento go back to school or whatever
(10:17):
the case, get a car repaired,whatever the case you got a
little behind, you use yourcredit cards to make up the
difference for the money eachcouldn't afford to pay at that
time. Doesn't matter how ithappened, but it happened. Maybe
it was a slow process over aperiod of months, even years
where you gradually got a littlebit behind on your credit card,
(10:40):
maybe at first you're paying offthe balance, then maybe you as
almost paying it off, maybe $20Here, a month, $30 a month
short, then you got fartherbehind, then you start making
the minimum payments on theircredit card, then you got
another credit card, you see howthe snowball, that's one way.
(11:00):
The second way is doingeverything correctly, you're
keeping track of your finances,then all of a sudden you have a
debt problem. What happened ifyou didn't have an emergency
fund large enough to coverwhatever happened, or he didn't
have an emergency fund at all,because you didn't think you
need a one because you're alwaysbe able to pay your bills, and
(11:23):
you pay them on time and you paythem off each and every month.
And then an unforeseen eventhappened, you had to use a
credit card to pay for itbecause you didn't have any
savings. And it was a largebill. And then you couldn't pay
off the credit card. And thenyou tried to pay off the credit
(11:45):
card and you came up short oncash or use credit card to start
covering other things. You seewhere I'm going, and a snowball.
But the initial reason was youdid not have an emergency fund,
you did not have savings to helpoffset that unforeseen expense
that might pop up whatever itis, has something you don't plan
(12:08):
for but it happens. anythingmanmade is gonna break down
sooner or later is a matter ofwhen and not if. So your car's
gonna need repair appliance inyour home might need repair or
even replaced. My sometimes it'scheaper to replace them
(12:28):
nowadays. So you need to have anemergency fund, how much a
minimum of $1,000 If you don'thave anything to get started at
least three months of expensesin case you lose your job, and
you by three months, pay allyour bills and still have time
to get a job, or even moredepends on what your comfort
(12:51):
level is. But if you havenothing today, you need to start
a savings account. And you needto build it up to a minimum of
$1,000. That's part of my debtreduction plan. So that's how
you got into debt. You got torecognize what happened. Maybe
(13:12):
it was multiple events, maybe itwas one event, maybe it was over
a long period of time. But youhave to realize you have a
problem. And then what you donext is gotta know how big the
problem is. Collect all yourcredit card bills, all your loan
(13:32):
bills that you pay every month,put them together, put them in
order, right and by highestinterest rate first to lowest
interest rate. Your mortgageshould be the lowest your car
payment should be somewhere downtowards the bottom. Your credit
cards are going to be thehighest your personal loans,
your payday loans, your pawnshop loans, your buy here, pay
(13:56):
here, car loans, all those goingto be at the top. How much do
you owe? You have any idea?
What's the total? Is it 10,000?
Is that 100,000 300,000? What'sthe total dollar amount you owe?
And then break that down by highinterest? How much is they may
(14:20):
total high interest how much ismy mid interest? How much is my
low interest? High interest isanything 15% above med entrance
is like 12 The eight lowinterest is below eight should
be your mortgage should be yourline of credit. Your line of
(14:40):
credit is variable, meaning asinterest rate, interest rates go
up your line of credit interestrates gonna go up. So that may
not be a good deal a year fromnow. Maybe it started at 4% a
year For now could be 9%.
(15:01):
Keeping all your debt undercontrol is important because you
don't know what the future isgoing to bring. So you got it
under control, you got it all infront of you, you know, the
total dollar amount. Now what,how are you going to pay this,
(15:22):
you know, you don't have enoughincome to pay all your bills
every month, and then makepayments on all these credit
cards. And you know, I alwayspay $50 extra a month on every
credit card, that's where you'regetting them problems you got so
far behind, you can't afford tomake extra payments on those
(15:46):
credit cards, because he don'thave an emergency fund or your
emergency fund is too small.
First thing you got to dorealize you have a problem,
identify the problem.
Look at the problem, add up knowwhat it is what interest rate,
you're paying credit cards, howmany, how much when they're due,
(16:11):
how much is do what's theminimum payment on each credit
card, when what's the due dateof these credit all that
information, you need to havedoubt, put it in a spreadsheet,
that's the easy way to do it,write it down on a piece of
paper, put it in order, then youhave it in front of you, it
doesn't take any remember, youdon't have to remember it, you
(16:33):
just gotta have it in front ofyou. So the first the first
thing you got to do in my debtreduction plan, stop using
credit period, no more newcredit. So don't get any more
loans. Don't buy any don't useyour credit cards, don't do and
(16:56):
loan consolidation on thisparticular point in time,
because you have to get it undercontrol. So quit borrowing
money, quit using your creditcards. And number two, make the
minimum payment on everything,whatever it is, only pay the
(17:21):
minimum payment, do not payextra. And the reason is, number
three, start your emergency fundand build it up to at least
$1,000. That's more importantthan paying $50 Extra on all
(17:44):
your credit cards. Put thatmoney. If it's $50 $150. If you
have three credit cards, putthat money in a savings account
at your emergency fund. Once youbuild your emergency fund up to
$1,000, you've done good, nowyou have an emergency fund. But
(18:07):
you don't stop there, you keepbuilding up your emergency fund
until you have 3500 $4,000. Why?
Because it may take you sixmonths to do that. And you're
still making the minimumpayment, you're not using any
credit, you're making theminimum payment, you're paying
(18:29):
all your bills on time. Ifyou're not doing all those
things. And the first sixmonths, he got to get your stuff
under control, you have a biggerproblem than what you realize.
So once you build up yoursavings account, emergency fund,
(18:49):
it's the same thing $4,000 Youtake anything amount over 1000
at be 3000. Apply it to one ofyour debt, highest interest rate
debt first, if you have a creditcard, that's a higher interest
(19:14):
rate that has a lower balanceand you'll be able to pay it off
or pay it almost off. And it'sgot a little bit lower interest
rate than another one. Do theone that you can pay off sooner,
the better. You feel you'remaking progress. And once you
(19:35):
pay off a credit card, that'sone less minimum payment you're
making. So a little bit moremoney is going to go into your
emergency fund and youremergency fund or grow a little
bit faster. And you keep doingthat over and over. Don't use
credit. Make the minimum onpayment, apply excess money over
(20:00):
$1,000 over your emergency fundto a higher rate interest card
and then work your way down. Ifyou have maybe two or three
cards or close to being paidoff, maybe you be able to pay
off one or two cards, you'd beeven better. As you keep doing
(20:21):
this, your savings accountsgonna start growing faster,
which means your debts gonnastart shrinking little bit
faster, which means your savingsis gonna grow faster. And the
time you get to the end, you mayOh, I remember when I was doing
(20:42):
this, I was down to last $10,000on my mortgage, and I paid it
off like three months, twomonths, didn't take hardly any
time. It's like, wow, I didn'trealize I had that much money
mortgage paid off. Instead ofhaving another eight years, it
was paid off in three months. Itwent really fast, it just kept
(21:07):
going faster and faster andfaster. It's it's like a steam
locomotive starts out reallyslow. As a builds up steam, it
goes faster and faster. Thisdoes exactly the same thing.
debt reduction plan, that you doit yourself. I'll be back in one
(21:28):
moment with my final thoughts.
If you're interested in learningabout an online software that
helped myself get out of debt,it does tracking, budgeting, and
keeps track of all your assetsand all your debt. And even
(21:49):
tells you how much and when totransfer money into your savings
account, and how much and whento transfer money to your debt
and which debts to pay off inorder. First, it's not cheap.
It's a one time payment. But itwill definitely be an
investment, something andyourself and an investment in
(22:14):
your personal financial life. Ifyou're interested, send me an
email at reduce debt increasewealth@gmail.com. And I'll send
you the information about thisonline software that worked
great for me. So you'reoverwhelmed with your credit
(22:35):
debt, credit card debt orwhatever debt you're overwhelmed
with.
You're not sure what to do.
Alright, here are your options.
Debt Relief. That's where youget a counselor tonight tried to
negotiate a lower rate ofinterest, maybe a lower balance
with all your creditors. DebtRelief, you get some relief from
(23:00):
your debt, that consolidation,you're not really getting rid of
any debt, you're just putting itall into one loan at a lower
rate of interest. Hopefully, soyou can manage it and get it all
paid off. That's good. But thebad if they don't rip if they
(23:22):
require you to close your creditcards and get rid of them as bad
for your credit rating. If theydon't, and you continue using
them using your credit card,you're gonna be in the same boat
but worse because now you haveeven more debt. Debt
consolidation is a good thing,but you have to have everything
(23:45):
under control. First, before youconsider doing then you have
debt forgiveness. Not the onlyplace you're going to get debt
forgiveness would be fromhospitals there you owe massive
amount of money. And they knowyou'll never be able to pay it.
(24:06):
Your insurance paid whateverthey're gonna pay. And you're
not going to be able to affordto pay whatever it is. You make
some payments for a while andthen it just goes away. The
problem is was that forgiveness,they may report that to the IRS
and that forgiveness is incometo you say you owe a half
(24:29):
million dollars to a hospitaland you pay 50,000 And they give
you debt forgiveness of 450,000.
That's all going to be income inone year. You won't be afforded
IRS bill and your state taxbill. So just Just a warning
there. But that's rare andhardly ever have and you have
(24:49):
bankruptcy. But in bankruptcyyou have to prove that you
couldn't pay your bills thatyou're unable to pay your
creditors, and that you madesome sort of effort to do so,
before you could filebankruptcy. That's about all I
know about it, you need toconsult an attorney to find out
more debt reduction plan ismeaning that you have that and
(25:15):
you're trying to reduce it, itcan be done by yourself a do it
yourselfer who can get thisunder control without any
outside help you and yoursignificant other can work
together to identify theproblem. Why did this happen?
(25:36):
What do we owe? Who do we owe?
How are we gonna get it undercontrol? debt reduction plan
does that for you, you get itunder control by one, quit using
credit to make the minimumpayment on all your credit,
(26:01):
three, set up an emergency fundand build it up to a minimum of
$1,000. You continue building itup until you have at least 3500
to $4,000. At this point, don'tget in their hurry to take that
(26:22):
chunk of money and spend itbecause you're not gonna spend
it, you're gonna apply it to oneof your credit cards, one of
your loans, something that youowe, that has either the highest
rate of interest, or to the veryfirst time, the only time you do
(26:44):
this, something that you can payoff in full or almost pay off in
full. So if you have a creditcard, where you owe $3,000,
build that up to 4000. Take the3000 and pay off that credit
card. And it may not be thehighest rate, interest credit
(27:06):
card paid off, because you'llmake that feel that you're
making progress that you've doneall this and you made some
progress. And you did becauseyou got one less bill, one less
credit card to pay. So you keepmaking the minimum payment. You
don't use your credit, youcontinue building up your
(27:31):
emergency fund, again, until youget another 4000 or whatever
mount that you set, the wholetime that you're building up
this to the 4000 range, let'ssay you have a little bit larger
and larger and larger emergencyfund. If an unseen expense or
(27:53):
something unseen happens, youhave that much more available to
pay for. So if your car brokedown, that it was unforeseen,
you have a relatively new caryou want and expecting it and
the transmission one out, but itdoes under warranty for whatever
(28:13):
reason, you got two or $3,000Bill, you have the money to pay
for 99% of it. And then use yourcredit to pay off the remaining
balance. So you don't reallycreate it a little more debt. So
it's under control, then youkeep building up the merge sim
(28:34):
first, get the 1000 and thencontinue building it up again,
take the mouse over $1,000 andapply it to your highest
interest loan credit card,whatever it is first, because
after you pay off that veryfirst one, we're concentrating
(28:57):
on paying off the highestinterest rate, loan, credit
card, whatever it is, first andpaying it down. That may take a
little bit longer. But the lessinterest you pay, the faster
you'll be able to pay off allthis debt. So get rid of that
(29:19):
high interest stuff first startsa fairly slow process and may
take you anywhere from threemonths, nine months, maybe even
a year to get that emergencyfund built up to the $4,000
range. So you have $3,000 toapply to one of your credit
(29:43):
loans, credit cards, whatever itis, that may take a while it's a
slow process and may take youtwo or three months to quit
using your credit cards. Becauseyou always in the habit of doing
that. It's a long, tedious Theprocess the rewards at d n is
(30:04):
that you'll have more money todo what you want to do, instead
of being a slave to all thosecreditors, get your personal
finances under control, get yourdebt under control, and you'll
be happy you did so
Hello, I'm your host, Mr. Chuck, I retired
accountant turned truck driver,I reduce my debt in a relatively
short period of time, debtreduction, to achieve financial
freedom takes commitment,confidence, determination.
(00:25):
Benefits of debt reduction plan,getting control of personal
finances and stopping creditorcalls are a couple of the
benefits. This is a plan forthat do it yourselfer and is
easy to start and stay on track.
I have a link in my show notesas always to two articles that
you can refer to if you want tosee what they're saying. But
(00:49):
before I get started, Igenerally focus on debt
reduction plan. And don't getconfused because there's other
plans out there. That soundssimilar debt relief, debt
settlement, that management,that management may be a
(01:15):
combination of everything,manage your debt. But debt
relief is a lot different thandebt reduction. So what is it
debt relief is when you contactor have a counselor do it for
you, your creditors, and you tryto get them to lower the
(01:38):
interest rate, maybe write offpart of the balance, things like
that, that is probably one ofthe worst things you can do.
Because if you're doing a debtrelief company that you're
working with that guy counselormaybe may tell you to quit
paying all your credit cardbills and all your loan bills.
(02:02):
And you pay them directly. Andthey put the money into an
escrow course they take theirfees out of that. And then they
contact their creditors and tryto pay off those debts or that
that was a little money aspossible, or maybe set up some
(02:23):
type of payment plan with themover a period of five years, or
a couple years, whatever thecase would be. The creditors
then may decide to I'm going tolower their interest rate, but I
want them to pay the wholebalance or make some type of
counter offers, so they make adeal. The problem with doing all
(02:44):
that is if you quit pan, timelypayments on all your debt,
what's gonna happen, they'regonna report you to the credit
bureau, your credit rating willgo down drastically, very highly
reduced. So if you already havepoor credit rating, it's gonna
(03:07):
get worse if that's evenpossible. And what's the chances
of them actually making sometype of settlement, they may not
decide to the creditor may say,a low your interest rate 1%. But
you got to owe me the wholebill. But there's already
charging at 20%. So they're notreally doing much of a favor.
(03:30):
And you keep on paying andyou're not gonna make any
headway because the interest hasgone to accumulate faster than
the debt relief counselor ismaking payments on. Because
they're making very littlepayments, probably like what you
would have been doing, butthey're also not making timely
payments. So your credit ratingis gonna go in the tank, then we
(03:54):
have debt consolidation, thathas nothing to do with reducing
your debt. It's only taking yourdebt and rearranging it and new
debt. So you take, maybe itmight be better, don't get me
wrong. But in the long term ofthings, you're not getting rid
(04:18):
of debt, you're just rearrangingit, you're taking maybe that
18 20% interest credit cards,three or four of them. paying
those all off. Now you have onedebt for five years, a single
payment, say at 8%, which is alot less than what you was
(04:39):
paying, but you still have thesame amount of debt. You just
have it in one place at a lowerrate of interest, which is good,
don't get me wrong. That's agood thing. Because now you'll
be able to pay it down fasterbecause you're paying a lot less
interest. But you're Debt didn'tgo away, you still had the debt.
(05:00):
And the bad thing about debtconsolidation. If they don't
require you to close thesecredit cards, you can use them
again, and you get farther indebt. So you didn't really do
anything to solve your problem,you just rearranged your debt
(05:21):
made a batter, and that's notbad, you kept your credit cards,
you keep on using them, andyou're in the same place. But
now you're in a worse placebecause you have more debt. If
they require you to shut thecancel all your credit cards and
close those accounts, then yourcredit rating is gonna go down
(05:42):
temporarily because your debt toincome ratio, you have less debt
to your income. So your creditrating gonna go down. No matter
what you do, it's kind of hurt.
Yeah. As far as debt reductiongoes. And I'm up to the point
(06:04):
where I don't want any morecredit, my credit to income
ratio is really good lot income,little credit. But I don't get a
good rating, because I don'thave enough credit. But if you
use the credit, that's bad, ifyou use too much as bad. So they
want you to have a lot of creditavailable, but only use five or
(06:27):
sign of us. So what's the what'sthe purpose doesn't make any
long term sense. So I won't doit, I just stick out my 825
rating. And I'll never reach850, which is the highest rating
you can get. I'm happy with a25. And all the creditors I
talked to are very happy to giveme money, which I don't do. So
(06:50):
that's debt relief, which theytried to negotiate a deal lower
what you owe lower your interestrate, debt consolidation, where
you're refinancing it. Debtsettlement is a process that
lets you settle a lot of money adebt for less than what you owe.
Not gonna do too well stoppaying on your bills, that's
(07:13):
bad. Creditors are not legallyrequired to settle for less than
you owe. And they're gonna stickto that debt forgiveness. There
are some scenarios where acredit we're forgive the debt
yo, and those incidents areincreasingly rare. medical debt
is one of them. The problem withthat forgiveness, that becomes
(07:36):
income to you on your federaltax return. So you got to pay
taxes on that you did not pay,because you couldn't afford to
pay it. Now you have a highertax liability, how are you going
to pay that if you couldn'tafford to pay it to start with,
and it's rare anyway, thatmanagement plan. In some cases,
(07:58):
they also recommend and overseedebt management plans. These
plans, you have a single paymentto an account with your name
each month, and that creditcounseling agent uses money to
pay bills on your behalf. So youhave a counselor sets up an
escrow account for you, when yousend them a monthly payment or
(08:20):
weekly or whatever you decide todo, then then they use the money
in that account to pay some ofyour bills. And then the most
extreme would be bankruptcy. Butremember, you're not going to be
able to file bankruptcy, he haveto prove you made an effort to
pay off this debt. They're gonnawant you to get a counselor and
(08:44):
have debt counselor, and they'reall wants you to have some type
of debt settlement or debtpayment or something. And then
when you do bankruptcy, it'sgonna be over a five year
period. So it's not gonna goaway overnight, but eventually
will and it does not get rid ofback do taxes, child support,
(09:06):
and it's on your record, Ithink, for 10 years. So I'm
going to talk about thatreduction. We know there's debt
consolidation, there's some typeof debt relief where they try to
make settlements for you. Andthere's a debt management that
kind of both of those togetherwhere they try to manage your
debt through maybe someconsolidation here, some debt
(09:29):
relief here, whatever the case,but in order to do that, you
need to have a professional,even nonprofits are going to
charge you a fee. So let's lookat Can I do this myself? And
yes, you can. But how you getstarted, the first thing you
have to do is figure out whatcaused you to get in this
(09:53):
problem. What got you into thedebt trap? Swelling two ways.
He can get into the debt trap.
The first way, which is probablythe most common is you spend
more than you make and use yourcredit cards to make up the
difference. Maybe you did thatfor one month, because you had
to buy clothes for your childrento go back to school or whatever
(10:17):
the case, get a car repaired,whatever the case you got a
little behind, you use yourcredit cards to make up the
difference for the money eachcouldn't afford to pay at that
time. Doesn't matter how ithappened, but it happened. Maybe
it was a slow process over aperiod of months, even years
where you gradually got a littlebit behind on your credit card,
(10:40):
maybe at first you're paying offthe balance, then maybe you as
almost paying it off, maybe $20Here, a month, $30 a month
short, then you got fartherbehind, then you start making
the minimum payments on theircredit card, then you got
another credit card, you see howthe snowball, that's one way.
(11:00):
The second way is doingeverything correctly, you're
keeping track of your finances,then all of a sudden you have a
debt problem. What happened ifyou didn't have an emergency
fund large enough to coverwhatever happened, or he didn't
have an emergency fund at all,because you didn't think you
need a one because you're alwaysbe able to pay your bills, and
(11:23):
you pay them on time and you paythem off each and every month.
And then an unforeseen eventhappened, you had to use a
credit card to pay for itbecause you didn't have any
savings. And it was a largebill. And then you couldn't pay
off the credit card. And thenyou tried to pay off the credit
(11:45):
card and you came up short oncash or use credit card to start
covering other things. You seewhere I'm going, and a snowball.
But the initial reason was youdid not have an emergency fund,
you did not have savings to helpoffset that unforeseen expense
that might pop up whatever itis, has something you don't plan
(12:08):
for but it happens. anythingmanmade is gonna break down
sooner or later is a matter ofwhen and not if. So your car's
gonna need repair appliance inyour home might need repair or
even replaced. My sometimes it'scheaper to replace them
(12:28):
nowadays. So you need to have anemergency fund, how much a
minimum of $1,000 If you don'thave anything to get started at
least three months of expensesin case you lose your job, and
you by three months, pay allyour bills and still have time
to get a job, or even moredepends on what your comfort
(12:51):
level is. But if you havenothing today, you need to start
a savings account. And you needto build it up to a minimum of
$1,000. That's part of my debtreduction plan. So that's how
you got into debt. You got torecognize what happened. Maybe
(13:12):
it was multiple events, maybe itwas one event, maybe it was over
a long period of time. But youhave to realize you have a
problem. And then what you donext is gotta know how big the
problem is. Collect all yourcredit card bills, all your loan
(13:32):
bills that you pay every month,put them together, put them in
order, right and by highestinterest rate first to lowest
interest rate. Your mortgageshould be the lowest your car
payment should be somewhere downtowards the bottom. Your credit
cards are going to be thehighest your personal loans,
your payday loans, your pawnshop loans, your buy here, pay
(13:56):
here, car loans, all those goingto be at the top. How much do
you owe? You have any idea?
What's the total? Is it 10,000?
Is that 100,000 300,000? What'sthe total dollar amount you owe?
And then break that down by highinterest? How much is they may
(14:20):
total high interest how much ismy mid interest? How much is my
low interest? High interest isanything 15% above med entrance
is like 12 The eight lowinterest is below eight should
be your mortgage should be yourline of credit. Your line of
(14:40):
credit is variable, meaning asinterest rate, interest rates go
up your line of credit interestrates gonna go up. So that may
not be a good deal a year fromnow. Maybe it started at 4% a
year For now could be 9%.
(15:01):
Keeping all your debt undercontrol is important because you
don't know what the future isgoing to bring. So you got it
under control, you got it all infront of you, you know, the
total dollar amount. Now what,how are you going to pay this,
(15:22):
you know, you don't have enoughincome to pay all your bills
every month, and then makepayments on all these credit
cards. And you know, I alwayspay $50 extra a month on every
credit card, that's where you'regetting them problems you got so
far behind, you can't afford tomake extra payments on those
(15:46):
credit cards, because he don'thave an emergency fund or your
emergency fund is too small.
First thing you got to dorealize you have a problem,
identify the problem.
Look at the problem, add up knowwhat it is what interest rate,
you're paying credit cards, howmany, how much when they're due,
(16:11):
how much is do what's theminimum payment on each credit
card, when what's the due dateof these credit all that
information, you need to havedoubt, put it in a spreadsheet,
that's the easy way to do it,write it down on a piece of
paper, put it in order, then youhave it in front of you, it
doesn't take any remember, youdon't have to remember it, you
(16:33):
just gotta have it in front ofyou. So the first the first
thing you got to do in my debtreduction plan, stop using
credit period, no more newcredit. So don't get any more
loans. Don't buy any don't useyour credit cards, don't do and
(16:56):
loan consolidation on thisparticular point in time,
because you have to get it undercontrol. So quit borrowing
money, quit using your creditcards. And number two, make the
minimum payment on everything,whatever it is, only pay the
(17:21):
minimum payment, do not payextra. And the reason is, number
three, start your emergency fundand build it up to at least
$1,000. That's more importantthan paying $50 Extra on all
(17:44):
your credit cards. Put thatmoney. If it's $50 $150. If you
have three credit cards, putthat money in a savings account
at your emergency fund. Once youbuild your emergency fund up to
$1,000, you've done good, nowyou have an emergency fund. But
(18:07):
you don't stop there, you keepbuilding up your emergency fund
until you have 3500 $4,000. Why?
Because it may take you sixmonths to do that. And you're
still making the minimumpayment, you're not using any
credit, you're making theminimum payment, you're paying
(18:29):
all your bills on time. Ifyou're not doing all those
things. And the first sixmonths, he got to get your stuff
under control, you have a biggerproblem than what you realize.
So once you build up yoursavings account, emergency fund,
(18:49):
it's the same thing $4,000 Youtake anything amount over 1000
at be 3000. Apply it to one ofyour debt, highest interest rate
debt first, if you have a creditcard, that's a higher interest
(19:14):
rate that has a lower balanceand you'll be able to pay it off
or pay it almost off. And it'sgot a little bit lower interest
rate than another one. Do theone that you can pay off sooner,
the better. You feel you'remaking progress. And once you
(19:35):
pay off a credit card, that'sone less minimum payment you're
making. So a little bit moremoney is going to go into your
emergency fund and youremergency fund or grow a little
bit faster. And you keep doingthat over and over. Don't use
credit. Make the minimum onpayment, apply excess money over
(20:00):
$1,000 over your emergency fundto a higher rate interest card
and then work your way down. Ifyou have maybe two or three
cards or close to being paidoff, maybe you be able to pay
off one or two cards, you'd beeven better. As you keep doing
(20:21):
this, your savings accountsgonna start growing faster,
which means your debts gonnastart shrinking little bit
faster, which means your savingsis gonna grow faster. And the
time you get to the end, you mayOh, I remember when I was doing
(20:42):
this, I was down to last $10,000on my mortgage, and I paid it
off like three months, twomonths, didn't take hardly any
time. It's like, wow, I didn'trealize I had that much money
mortgage paid off. Instead ofhaving another eight years, it
was paid off in three months. Itwent really fast, it just kept
(21:07):
going faster and faster andfaster. It's it's like a steam
locomotive starts out reallyslow. As a builds up steam, it
goes faster and faster. Thisdoes exactly the same thing.
debt reduction plan, that you doit yourself. I'll be back in one
(21:28):
moment with my final thoughts.
If you're interested in learningabout an online software that
helped myself get out of debt,it does tracking, budgeting, and
keeps track of all your assetsand all your debt. And even
(21:49):
tells you how much and when totransfer money into your savings
account, and how much and whento transfer money to your debt
and which debts to pay off inorder. First, it's not cheap.
It's a one time payment. But itwill definitely be an
investment, something andyourself and an investment in
(22:14):
your personal financial life. Ifyou're interested, send me an
email at reduce debt increasewealth@gmail.com. And I'll send
you the information about thisonline software that worked
great for me. So you'reoverwhelmed with your credit
(22:35):
debt, credit card debt orwhatever debt you're overwhelmed
with.
You're not sure what to do.
Alright, here are your options.
Debt Relief. That's where youget a counselor tonight tried to
negotiate a lower rate ofinterest, maybe a lower balance
with all your creditors. DebtRelief, you get some relief from
(23:00):
your debt, that consolidation,you're not really getting rid of
any debt, you're just putting itall into one loan at a lower
rate of interest. Hopefully, soyou can manage it and get it all
paid off. That's good. But thebad if they don't rip if they
(23:22):
require you to close your creditcards and get rid of them as bad
for your credit rating. If theydon't, and you continue using
them using your credit card,you're gonna be in the same boat
but worse because now you haveeven more debt. Debt
consolidation is a good thing,but you have to have everything
(23:45):
under control. First, before youconsider doing then you have
debt forgiveness. Not the onlyplace you're going to get debt
forgiveness would be fromhospitals there you owe massive
amount of money. And they knowyou'll never be able to pay it.
(24:06):
Your insurance paid whateverthey're gonna pay. And you're
not going to be able to affordto pay whatever it is. You make
some payments for a while andthen it just goes away. The
problem is was that forgiveness,they may report that to the IRS
and that forgiveness is incometo you say you owe a half
(24:29):
million dollars to a hospitaland you pay 50,000 And they give
you debt forgiveness of 450,000.
That's all going to be income inone year. You won't be afforded
IRS bill and your state taxbill. So just Just a warning
there. But that's rare andhardly ever have and you have
(24:49):
bankruptcy. But in bankruptcyyou have to prove that you
couldn't pay your bills thatyou're unable to pay your
creditors, and that you madesome sort of effort to do so,
before you could filebankruptcy. That's about all I
know about it, you need toconsult an attorney to find out
more debt reduction plan ismeaning that you have that and
(25:15):
you're trying to reduce it, itcan be done by yourself a do it
yourselfer who can get thisunder control without any
outside help you and yoursignificant other can work
together to identify theproblem. Why did this happen?
(25:36):
What do we owe? Who do we owe?
How are we gonna get it undercontrol? debt reduction plan
does that for you, you get itunder control by one, quit using
credit to make the minimumpayment on all your credit,
(26:01):
three, set up an emergency fundand build it up to a minimum of
$1,000. You continue building itup until you have at least 3500
to $4,000. At this point, don'tget in their hurry to take that
(26:22):
chunk of money and spend itbecause you're not gonna spend
it, you're gonna apply it to oneof your credit cards, one of
your loans, something that youowe, that has either the highest
rate of interest, or to the veryfirst time, the only time you do
(26:44):
this, something that you can payoff in full or almost pay off in
full. So if you have a creditcard, where you owe $3,000,
build that up to 4000. Take the3000 and pay off that credit
card. And it may not be thehighest rate, interest credit
(27:06):
card paid off, because you'llmake that feel that you're
making progress that you've doneall this and you made some
progress. And you did becauseyou got one less bill, one less
credit card to pay. So you keepmaking the minimum payment. You
don't use your credit, youcontinue building up your
(27:31):
emergency fund, again, until youget another 4000 or whatever
mount that you set, the wholetime that you're building up
this to the 4000 range, let'ssay you have a little bit larger
and larger and larger emergencyfund. If an unseen expense or
(27:53):
something unseen happens, youhave that much more available to
pay for. So if your car brokedown, that it was unforeseen,
you have a relatively new caryou want and expecting it and
the transmission one out, but itdoes under warranty for whatever
(28:13):
reason, you got two or $3,000Bill, you have the money to pay
for 99% of it. And then use yourcredit to pay off the remaining
balance. So you don't reallycreate it a little more debt. So
it's under control, then youkeep building up the merge sim
(28:34):
first, get the 1000 and thencontinue building it up again,
take the mouse over $1,000 andapply it to your highest
interest loan credit card,whatever it is first, because
after you pay off that veryfirst one, we're concentrating
(28:57):
on paying off the highestinterest rate, loan, credit
card, whatever it is, first andpaying it down. That may take a
little bit longer. But the lessinterest you pay, the faster
you'll be able to pay off allthis debt. So get rid of that
(29:19):
high interest stuff first startsa fairly slow process and may
take you anywhere from threemonths, nine months, maybe even
a year to get that emergencyfund built up to the $4,000
range. So you have $3,000 toapply to one of your credit
(29:43):
loans, credit cards, whatever itis, that may take a while it's a
slow process and may take youtwo or three months to quit
using your credit cards. Becauseyou always in the habit of doing
that. It's a long, tedious Theprocess the rewards at d n is
(30:04):
that you'll have more money todo what you want to do, instead
of being a slave to all thosecreditors, get your personal
finances under control, get yourdebt under control, and you'll
be happy you did so
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