September 8, 2024 • 24 mins
What is a debt reduction plan compared to a debt management plan. First will give a debt reduction plan and what must be done to reduce or eliminate debt. Then once debt is gone will discuss a debt management plan to put into place.
Article Link:
https://www.incharge.org/debt-relief/debt-management/debt-management-program-template-debt-relief/ By Tom Jackson
Please support the show by subscribing, can cancel at any time. Thanks for the support.
- Subscription page: https://www.buzzsprout.com/961804/support
- Contact: ReduceDebtIncreaseWealth@Gmail.com
- Wanting Budget Spreadsheet Place Spreadsheet as Subject
- https://Happygiraffe.org/live
- https://www.shopfinancial.com/lantianbaiyu/
All other inquires place topic into Subject.
Mark as Played
Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Charles McDonald (00:03):
Hello, I'm your host, Mr. Chuck, a retired
accountant turned truck driver,I reduce my debt in a relatively
short period of time, debtreduction to achieve financial
freedom takes commitment,confidence determination debt
reduction plan, what is a debtreduction plan compared to a
(00:27):
debt management plan? First,we'll give a debt reduction plan
and then what must be done toreduce or eliminate debt, then
once debt is gone, we'll discussa debt management plan to put
into place, I want to start offat the beginning here and just
say that a debt management plan,if you would look that up on the
(00:52):
internet is basically the sameas a debt reduction plan. They
want you to get a credit advisoruse one of these agencies, and
they'll negotiate lower interestrates on your credit cards, and
they take care of it and you paythem a fee. That is not what I'm
(01:16):
talking about. The debtmanagement plan that I'm talking
about is how do you manage yourdebt, so you don't get into
trouble in the future. And Icouldn't find any article out
there that talked about that. Sowhat is a debt reduction plan? A
(01:39):
debt reduction plan is what youput in place, it's your
guidelines to help you stayfocused on getting your debt
under control. That's all thisis just some guidelines you put
in place that you follow for aperiod of time, until you get
(02:02):
your debt paid off. So what's mydebt reduction plan, the one
I've been talking about for thelast almost five years now is
this. One, quit using credit tomake the minimum payment on all
your credit, credit, I mean,credit cards and or loans,
(02:27):
including your mortgage payment,car payments, personal loans,
all those type of things, makethe minimum payment. I know that
doesn't sound like that's whatyou should do. Because everybody
says if you got extra moneyevery month, pay that extra $50
(02:47):
towards that big bet. Maybe thehighest interest rate one, maybe
it's a credit card, and try topay it off as fast as possible.
Unknown (02:56):
But I'm not gonna do that. We're gonna make the
minimum
Charles McDonald (03:00):
payment because the rest of the plan is
gonna guide you into what you'regoing to do to pay off your
debt. Three, set up an emergencyfund, an emergency fund is
nothing but a savings account.
It could be at the same bankwhere you have your checking
account, if you don't have anemergency fund has the need to
(03:23):
do that. Quit using credit, makethe minimum payment, set up your
emergency fund, and build it upto a minimum of $1,000. And
that's going to get you started.
Why do you need a emergencyfund? I when I was younger, I
(03:45):
had a little bit of savings, butit usually didn't wasn't enough
to cover whatever I needed. Itwas the last thing because what
I was doing was paying all myextra money towards that credit
card that I was trying to payoff. Or that loan I was trying
to pay off, whether it was a carloan, motorcycle loan or credit
card, whatever it was, and thenI didn't have any money as
(04:09):
something would happen. Andmaybe I would need to buy
groceries or put gas in the carand I came up short that
particular month. And thathappened No More times than not
each and every month. Imiscalculated I miss plan. I
thought I had more money than Ihad and I didn't I had that
(04:32):
surprise bill I forgot about soyou have yourself an emergency
fund. Build it up to a minimumof $1,000. Then once you reach
that point, you continuebuilding it up until you have
$4,000 1000 is your minimum younever want to go below 1000 4000
(04:56):
Is your maximum you're not gonnago over 4000 out, unless you
want to, you can set up anythingyou want to do. Once you reach
that 4000, the difference, the3000, the 4000 minus 1000, the
3000 difference, once you haveall your monthly bills paid up,
(05:17):
and everything is looking good,he got that 4000 in there, and
it's been in there for a week,you don't see any surprises
coming along, you take that3000, you apply it to one of
your debt that you're trying topay off, then you just repeat
that process, you build theemergency fund up again, till
(05:40):
you have another 4000. And thenyou apply it to one of your
debt. So
Unknown (05:45):
why does this work works because
Charles McDonald (05:49):
you're no longer increasing the amount of
credit that you're have. Soyou're not going further into
debt because he quit usingcredit, you're making the
minimum payments. So that allowsyou frees up some money,
sometimes very little, sometimesmore to fund your emergency
fund, you're building anemergency fund up to 4000. And
(06:11):
the time that you're doing that,between 1004 1000, your
emergency fund is just bigger,bigger and bigger. And something
would happen, your car breakdown, you have an accident,
somebody gets injured, and youhave a bill that pops up that's
unexpected unforeseen, you haveup to $4,000 you can use to pay
(06:38):
for that bill. Now, most ofthese so called emergencies are
somewhere under $1,000. And theaverage person in America cannot
even cover a surprise event billof $400 or less. So you're going
to be better off than mostpeople if you just have the
(07:00):
minimum of $1,000. And you justkeep doing that over and over.
Now, which credit Do you pay offfirst? Or how do you apply the
money? How do you choose how tohow to pay off your debt. Most
people gonna say you want to payoff the debt with the highest
(07:22):
rate of interest, which aregenerate credit cards, personal
loans, payday loans, things likethat, once you get those under
control, then you work on carpayments, because a car has gone
down in value. And if you get ifyou owe more on the card and
what the value of it is you cantrade it in without going
(07:44):
further into debt. And that's abad thing. So you want to get
rid of those car payments,because generally they got the
next highest rate of interest,probably 789 percent, unless you
have bought a new car brand new,and you got a five or six year
loan zero rate of interest,which case you save that for
(08:07):
last because you're not costinganything. The only reason you
want to pay off a zero interestloan is because you don't want
to have that principal amount orthat monthly payment. They're
impeding on your budget andpainting on money that you could
(08:27):
borrow in the future. Forsomething else that you may
want, such as a home, secondhome, motor yacht boat, whatever
the case is, that will, youknow, your credit is based on
your income. And the more credithe got, the more income you
need. So the less credit youhave the you can get by and
(08:50):
borrow on money on a lower rateof income. Okay, that covers the
debt reduction plan. Now we'regonna go over real quick, quit
using credit, make the minimumpayment, start emergency fun,
minimum 1000, maximum 4000.
Apply the maximum you know thedifference between the minimum
(09:11):
maximum to one of your higherrate of interest. As far as how
to apply it there's the snowballmethod, which is the pay off the
lowest balance first so you feellike you're making some
achievement and then there's theAvalanche method to pay off the
highest interest rate first sothat you save more money. If
(09:34):
you're just getting started thevery first time you want to pay
off the credit card with thelowest bounce. And if you got
multiple credit cards that youmight be able to pay off with
that first $3,000 Do that first.
Once you pay off a credit card,do not cancel it. Leave it open
(09:58):
but you're not done. To use it,it'll go a year, maybe longer,
they'll send you a notice sayingwe're going to cancel your card
for inactivity, and then do onesmall charge on it 20 $30 pay it
off, and you're good for anotheryear or so. But the reason you
don't cancel is because that'savailable credit, your income to
(10:22):
credit ratio looks good, becauseyou have this large amount of
credit based on your income,that you're not using it. And
that makes you a better risk fora lender. Also down the road
within three months, six monthsor whatever, one of those credit
(10:43):
cards may send you an offer,where you can do a balance
transfer from another creditcard to that credit card for a
fee of say 5%. But have 12months to 18 months of no
interest on that balance and youwant a zero balance, you want to
(11:05):
make it easy for them tocompute. And then you transfer
from a higher rate card to thatcard, the amount of money that
you can pay off in that timespan, whether it's one year or
18 months. Now, what you got tolook at your budget, you got to
look at what your minimumpayments can be divided by that
(11:30):
number of months, when can youget it paid off, you can go a
little bit higher than that. Butyou want to make sure you get
paid off within before the endof that time period. So you're
gonna use a credit card for youradvantage, you're gonna make it
work for you, instead of youworking for them. That's the
(11:51):
idea here. Uh, once we get allthat done, now you have to have
a debt management plan, you gotmost of the work already done.
When you were setting up yourdebt reduction plan, because you
had to identify the type of debtyou had, what it was, how much
(12:15):
you owe, when's the due date?
What's the rate of interest? Andyou wrote, we put those in order
by maybe interest or bounced dueor whatever the case, you know,
what type of debt you have, youhave, say you had five credit
cards that you owed a balance onof 5000 or more, and you got
them all paid off. That's good.
(12:39):
You're making progress. Now yougotta look, do you have to car
payments, do you have an equityline of credit on your home,
because that generally has ahigher rate of interest. And
it's an adjustable or variablerate loan, which means as the
mortgage interest rates go up,the your line of credit,
(13:01):
interest will go up. So betweenthe car loans, and that line of
credit on your home, those arethe next ones you need to focus
on to pay down and pay off yourfirst mortgage, or even a second
mortgage. If you have a fixedrate meanings, the same rate of
(13:22):
interest and never changes, youcan focus on that at the ferry.
And when you get everything elseunder control. So in order to
have a debt management plan, I'mcalling it a debt management
plan. But it's really a cashmanagement plan. How much money
(13:46):
do you have coming into yourhousehold? What are your monthly
expenses? What can you put asideto save and that number gets
bigger as you pay off your debt?
How long is it going to take youto save up to buy a big ticket
item such as a new car, a boat,motorcycle, maybe a vacation
(14:09):
home? Whatever the case wouldbe? How long is it going to take
you to save money to have alarge down payment. Because our
management of our debt is wewant to reduce the monthly
payment as much as possible.
Meaning we want to borrow theleast amount we can possibly get
(14:33):
by on the less you borrow. Theless your monthly payment the
easier it is to manage. And ifyou're a two income household,
and then all of a sudden you'rea one income household. If you
borrow based on one income,you're not gonna have as many
(14:53):
problems as in if you borrowedyour loans based on two Do
incomes, and then all of asudden, whatever the reason you
have one income, so we're wantto manage our debt by using
larger down payments, when wewere if we have to borrow money
(15:15):
to purchase something, we wantto make a larger down payment,
if it's gonna be a home, youwant to try to get 15 or 20%
down. So you don't have to paythat mortgage Premium Mortgage
Insurance, you want to try toavoid paying X that does cost
you a lot of money on a monthlypayment. And you want to get
(15:36):
your monthly payment down to amanageable amount that's not
going to kill your monthlybudget. And you got to look at
inflation over time, things aregonna cost more five years, 10
more years down the road. If youhave a 20 or 30 year loan,
(15:57):
granted, you're may get some payincreases, but you may not, your
income could go down also. Butwith pay increases that might
help you keep up with some ofthat. But every year, there's
gonna be some delay between yourpay raises and inflation, you
need to have some extra money inyour budget to pay for things
(16:21):
such as groceries, gas,insurance, things that can go up
a lot faster than your income.
So it's not really a debtmanagement plan. Yes, you're
managing your debt, but it'sbased on how much cash you have.
So that's why it's important totrack all your things that come
(16:42):
in and go out of your household,all money in all money out. You
need to track and you need tokeep up a budget. Even when you
have all your debt paid off, youstill need to do a budget, so a
whole lot easier. But sometimeshe may be your budget may be
(17:08):
$1,000 a month into yoursavings, which you put into a
high yield because now you havemore than $10,000. So he got it
in a high yield. But all of asudden, you're coming up short
on cash, that 1000 a month nowshould be adjusted down to $800
a month. Because of inflation,because of groceries and gas and
(17:30):
other expenses that's gone up.
But your income has remained thesame. It's a matter of keeping
control of your finances. Andthat's what a debt management
plan. And my book is, I have alink in my show notes. For a d y
i DIY, yeah, do it yourselfplan. And that's basically the
(17:55):
same thing a counselor is gonnado, but you do it yourself. It's
doable. I talked about it in thepast. That's basically what this
podcast is all about. Create aspreadsheet, determine debt
management strategy, negotiatelower interest rate and limit
expenses, track your progress.
Eliminate expenses means keepingtrack of everything that you
(18:15):
spend money on, and try not tobuy things that you don't
actually need. And part of thatis before you spend more than
$100 on an item you got to askyourself, do you really need it
or not?
I'll be back in one moment withmy final thoughts are the
articles are referred to in myepisodes have a link in my show
(18:38):
notes. If you're interested inchecking out the software that I
personally use to get my debtover control. It's in my show
notes under shop financial, youneed to copy and paste the link
and it will take you to thewebsite. Any questions you can
just contact me through thatparticular website. If you value
(19:01):
this podcast and I like to makea contribution, I had a
contribution link in my shownotes also, give whatever you
feel is appropriate for theinformation I am providing. I
thank everyone for listening tomy podcast, a debt reduction
plan. It's a plan that sets theguidelines for what you're gonna
(19:24):
do to reduce your debt. Quitusing credit, make the minimum
payment, create emergency fundmarches, see find a minimum of
1000 Maximum 4000 Take theaccess to 3000. Once you have
everything paid up on yourmonthly bills and everything and
(19:47):
apply that 3000 to one of yourdebt, repeat until your debt is
paid off. That's a debtreduction plan that's gives you
guidance guidelines and somewhat to do with limits, to focus
on paying off all your debt, adebt management plan. And it's
(20:09):
the same as a cash managementplan. It's tracking all the
income into your household, andall the expenditures out of your
household, reduce your spending.
So you can increase yoursavings, the faster you can
build up your emergency fund,the sooner you'll be able to
apply it to your debt. So you'regoing to have a period of time,
(20:32):
whether it's one year, threeyears, are you gone to limit
your spending, I'm not sayingthat you're gonna go without,
but you're trying to reduce yourspending from things you don't
absolutely need to do, in orderto say more money to pay off
your debt. So track everything,have a budget, know where your
(20:59):
money's going, and how much it'sgoing. And eventually, you'll
even know when it's going,earning a month, middle of the
month, end of the month, have aplan on which debt, you're gonna
pay off first, high interest,lowest balance, maybe the first
one is the lowest balance, andthen after that the second ones,
(21:21):
and they're on is gone be thehighest interest, once you get
your credit cards paid off,don't pose any of them, because
that's gonna hurt your creditrating. As I said earlier, they
might offer you a balancetransfer, where you have at
least a year or 18 months of nointerest on that amount of
(21:42):
money. And you just pay thetransfer fee, which usually made
up within one to one to twomonths of not paying the
interest, it all comes down towhat you want to do this, you
could pay off your debt reallyquick, if you reduce your
spending down to the bareminimum. Or it may take you a
(22:04):
long time, there's people outthere that may take three to six
months just to get to the pointwhere they're not using credit.
If you're using a credit card topay a monthly bill, you got to
stop doing it. Because that'swhy you're in such a problem.
And it may take your while butdon't give up. Look for ways to
(22:25):
not spend money on somethingelse. And then you know, free up
the cash to pay that monthlybill. And if you've got tracking
and a budget in place, you'llknow exactly how much money you
need a month, the month, themonth to pay your monthly bills.
And, and which includes all theminimum payments on your credit
(22:50):
cards and all the debt year.
Then as you pay these thingsdown, the amount of cash that
you have to save is going toincrease gradually over time.
And it's going to speed up andtowards the end is going to us
faster, faster and faster. Andlike okay, I'm when I got down
(23:15):
the pan off my mortgage, I hadmy credit cards paid off, my
car's paid off, my line ofcredit paid off and I was on my
final mortgage and I had aboutsix or seven years left on
probably, I don't know 50,000 orso. And man, I paid that off in
a hurry maybe three or fourmonths. Because I just kept
(23:39):
doing the same thing. My buildup my emergency fund faster,
which allowed me to put a lumpsum down on my loan my mortgage
faster, which reduced theprincipal, which reduced the
amount of interest I owe, buthad to pay and that kept
(23:59):
speeding up speeding up and nextthing I know I owe only got one
more payment two more three morepayments of doing this three
more monthly payments and one ortwo more my extra funds I'm
putting on there and I'm not andit's paid off. And I did that a
couple years before I actuallyretired. So I was able then to
(24:21):
continue the same process andbuild up my savings for
retirement. So it doesn't matterwhy and why you want to do it.
You just have to get less debton your budget. Yeah, get that
debt out your budget which willfree up the cash will free up
(24:42):
your savings which will free upyou be able to afford the things
you want to do
Unknown (24:49):
and you'll be glad you did. So
Hello, I'm your host, Mr. Chuck, a 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 debt
reduction plan, what is a debtreduction plan compared to a
(00:27):
debt management plan? First,we'll give a debt reduction plan
and then what must be done toreduce or eliminate debt, then
once debt is gone, we'll discussa debt management plan to put
into place, I want to start offat the beginning here and just
say that a debt management plan,if you would look that up on the
(00:52):
internet is basically the sameas a debt reduction plan. They
want you to get a credit advisoruse one of these agencies, and
they'll negotiate lower interestrates on your credit cards, and
they take care of it and you paythem a fee. That is not what I'm
(01:16):
talking about. The debtmanagement plan that I'm talking
about is how do you manage yourdebt, so you don't get into
trouble in the future. And Icouldn't find any article out
there that talked about that. Sowhat is a debt reduction plan? A
(01:39):
debt reduction plan is what youput in place, it's your
guidelines to help you stayfocused on getting your debt
under control. That's all thisis just some guidelines you put
in place that you follow for aperiod of time, until you get
(02:02):
your debt paid off. So what's mydebt reduction plan, the one
I've been talking about for thelast almost five years now is
this. One, quit using credit tomake the minimum payment on all
your credit, credit, I mean,credit cards and or loans,
(02:27):
including your mortgage payment,car payments, personal loans,
all those type of things, makethe minimum payment. I know that
doesn't sound like that's whatyou should do. Because everybody
says if you got extra moneyevery month, pay that extra $50
(02:47):
towards that big bet. Maybe thehighest interest rate one, maybe
it's a credit card, and try topay it off as fast as possible.
Unknown (02:56):
But I'm not gonna do that. We're gonna make the
minimum
Charles McDonald (03:00):
payment because the rest of the plan is
gonna guide you into what you'regoing to do to pay off your
debt. Three, set up an emergencyfund, an emergency fund is
nothing but a savings account.
It could be at the same bankwhere you have your checking
account, if you don't have anemergency fund has the need to
(03:23):
do that. Quit using credit, makethe minimum payment, set up your
emergency fund, and build it upto a minimum of $1,000. And
that's going to get you started.
Why do you need a emergencyfund? I when I was younger, I
(03:45):
had a little bit of savings, butit usually didn't wasn't enough
to cover whatever I needed. Itwas the last thing because what
I was doing was paying all myextra money towards that credit
card that I was trying to payoff. Or that loan I was trying
to pay off, whether it was a carloan, motorcycle loan or credit
card, whatever it was, and thenI didn't have any money as
(04:09):
something would happen. Andmaybe I would need to buy
groceries or put gas in the carand I came up short that
particular month. And thathappened No More times than not
each and every month. Imiscalculated I miss plan. I
thought I had more money than Ihad and I didn't I had that
(04:32):
surprise bill I forgot about soyou have yourself an emergency
fund. Build it up to a minimumof $1,000. Then once you reach
that point, you continuebuilding it up until you have
$4,000 1000 is your minimum younever want to go below 1000 4000
(04:56):
Is your maximum you're not gonnago over 4000 out, unless you
want to, you can set up anythingyou want to do. Once you reach
that 4000, the difference, the3000, the 4000 minus 1000, the
3000 difference, once you haveall your monthly bills paid up,
(05:17):
and everything is looking good,he got that 4000 in there, and
it's been in there for a week,you don't see any surprises
coming along, you take that3000, you apply it to one of
your debt that you're trying topay off, then you just repeat
that process, you build theemergency fund up again, till
(05:40):
you have another 4000. And thenyou apply it to one of your
debt. So
Unknown (05:45):
why does this work works because
Charles McDonald (05:49):
you're no longer increasing the amount of
credit that you're have. Soyou're not going further into
debt because he quit usingcredit, you're making the
minimum payments. So that allowsyou frees up some money,
sometimes very little, sometimesmore to fund your emergency
fund, you're building anemergency fund up to 4000. And
(06:11):
the time that you're doing that,between 1004 1000, your
emergency fund is just bigger,bigger and bigger. And something
would happen, your car breakdown, you have an accident,
somebody gets injured, and youhave a bill that pops up that's
unexpected unforeseen, you haveup to $4,000 you can use to pay
(06:38):
for that bill. Now, most ofthese so called emergencies are
somewhere under $1,000. And theaverage person in America cannot
even cover a surprise event billof $400 or less. So you're going
to be better off than mostpeople if you just have the
(07:00):
minimum of $1,000. And you justkeep doing that over and over.
Now, which credit Do you pay offfirst? Or how do you apply the
money? How do you choose how tohow to pay off your debt. Most
people gonna say you want to payoff the debt with the highest
(07:22):
rate of interest, which aregenerate credit cards, personal
loans, payday loans, things likethat, once you get those under
control, then you work on carpayments, because a car has gone
down in value. And if you get ifyou owe more on the card and
what the value of it is you cantrade it in without going
(07:44):
further into debt. And that's abad thing. So you want to get
rid of those car payments,because generally they got the
next highest rate of interest,probably 789 percent, unless you
have bought a new car brand new,and you got a five or six year
loan zero rate of interest,which case you save that for
(08:07):
last because you're not costinganything. The only reason you
want to pay off a zero interestloan is because you don't want
to have that principal amount orthat monthly payment. They're
impeding on your budget andpainting on money that you could
(08:27):
borrow in the future. Forsomething else that you may
want, such as a home, secondhome, motor yacht boat, whatever
the case is, that will, youknow, your credit is based on
your income. And the more credithe got, the more income you
need. So the less credit youhave the you can get by and
(08:50):
borrow on money on a lower rateof income. Okay, that covers the
debt reduction plan. Now we'regonna go over real quick, quit
using credit, make the minimumpayment, start emergency fun,
minimum 1000, maximum 4000.
Apply the maximum you know thedifference between the minimum
(09:11):
maximum to one of your higherrate of interest. As far as how
to apply it there's the snowballmethod, which is the pay off the
lowest balance first so you feellike you're making some
achievement and then there's theAvalanche method to pay off the
highest interest rate first sothat you save more money. If
(09:34):
you're just getting started thevery first time you want to pay
off the credit card with thelowest bounce. And if you got
multiple credit cards that youmight be able to pay off with
that first $3,000 Do that first.
Once you pay off a credit card,do not cancel it. Leave it open
(09:58):
but you're not done. To use it,it'll go a year, maybe longer,
they'll send you a notice sayingwe're going to cancel your card
for inactivity, and then do onesmall charge on it 20 $30 pay it
off, and you're good for anotheryear or so. But the reason you
don't cancel is because that'savailable credit, your income to
(10:22):
credit ratio looks good, becauseyou have this large amount of
credit based on your income,that you're not using it. And
that makes you a better risk fora lender. Also down the road
within three months, six monthsor whatever, one of those credit
(10:43):
cards may send you an offer,where you can do a balance
transfer from another creditcard to that credit card for a
fee of say 5%. But have 12months to 18 months of no
interest on that balance and youwant a zero balance, you want to
(11:05):
make it easy for them tocompute. And then you transfer
from a higher rate card to thatcard, the amount of money that
you can pay off in that timespan, whether it's one year or
18 months. Now, what you got tolook at your budget, you got to
look at what your minimumpayments can be divided by that
(11:30):
number of months, when can youget it paid off, you can go a
little bit higher than that. Butyou want to make sure you get
paid off within before the endof that time period. So you're
gonna use a credit card for youradvantage, you're gonna make it
work for you, instead of youworking for them. That's the
(11:51):
idea here. Uh, once we get allthat done, now you have to have
a debt management plan, you gotmost of the work already done.
When you were setting up yourdebt reduction plan, because you
had to identify the type of debtyou had, what it was, how much
(12:15):
you owe, when's the due date?
What's the rate of interest? Andyou wrote, we put those in order
by maybe interest or bounced dueor whatever the case, you know,
what type of debt you have, youhave, say you had five credit
cards that you owed a balance onof 5000 or more, and you got
them all paid off. That's good.
(12:39):
You're making progress. Now yougotta look, do you have to car
payments, do you have an equityline of credit on your home,
because that generally has ahigher rate of interest. And
it's an adjustable or variablerate loan, which means as the
mortgage interest rates go up,the your line of credit,
(13:01):
interest will go up. So betweenthe car loans, and that line of
credit on your home, those arethe next ones you need to focus
on to pay down and pay off yourfirst mortgage, or even a second
mortgage. If you have a fixedrate meanings, the same rate of
(13:22):
interest and never changes, youcan focus on that at the ferry.
And when you get everything elseunder control. So in order to
have a debt management plan, I'mcalling it a debt management
plan. But it's really a cashmanagement plan. How much money
(13:46):
do you have coming into yourhousehold? What are your monthly
expenses? What can you put asideto save and that number gets
bigger as you pay off your debt?
How long is it going to take youto save up to buy a big ticket
item such as a new car, a boat,motorcycle, maybe a vacation
(14:09):
home? Whatever the case wouldbe? How long is it going to take
you to save money to have alarge down payment. Because our
management of our debt is wewant to reduce the monthly
payment as much as possible.
Meaning we want to borrow theleast amount we can possibly get
(14:33):
by on the less you borrow. Theless your monthly payment the
easier it is to manage. And ifyou're a two income household,
and then all of a sudden you'rea one income household. If you
borrow based on one income,you're not gonna have as many
(14:53):
problems as in if you borrowedyour loans based on two Do
incomes, and then all of asudden, whatever the reason you
have one income, so we're wantto manage our debt by using
larger down payments, when wewere if we have to borrow money
(15:15):
to purchase something, we wantto make a larger down payment,
if it's gonna be a home, youwant to try to get 15 or 20%
down. So you don't have to paythat mortgage Premium Mortgage
Insurance, you want to try toavoid paying X that does cost
you a lot of money on a monthlypayment. And you want to get
(15:36):
your monthly payment down to amanageable amount that's not
going to kill your monthlybudget. And you got to look at
inflation over time, things aregonna cost more five years, 10
more years down the road. If youhave a 20 or 30 year loan,
(15:57):
granted, you're may get some payincreases, but you may not, your
income could go down also. Butwith pay increases that might
help you keep up with some ofthat. But every year, there's
gonna be some delay between yourpay raises and inflation, you
need to have some extra money inyour budget to pay for things
(16:21):
such as groceries, gas,insurance, things that can go up
a lot faster than your income.
So it's not really a debtmanagement plan. Yes, you're
managing your debt, but it'sbased on how much cash you have.
So that's why it's important totrack all your things that come
(16:42):
in and go out of your household,all money in all money out. You
need to track and you need tokeep up a budget. Even when you
have all your debt paid off, youstill need to do a budget, so a
whole lot easier. But sometimeshe may be your budget may be
(17:08):
$1,000 a month into yoursavings, which you put into a
high yield because now you havemore than $10,000. So he got it
in a high yield. But all of asudden, you're coming up short
on cash, that 1000 a month nowshould be adjusted down to $800
a month. Because of inflation,because of groceries and gas and
(17:30):
other expenses that's gone up.
But your income has remained thesame. It's a matter of keeping
control of your finances. Andthat's what a debt management
plan. And my book is, I have alink in my show notes. For a d y
i DIY, yeah, do it yourselfplan. And that's basically the
(17:55):
same thing a counselor is gonnado, but you do it yourself. It's
doable. I talked about it in thepast. That's basically what this
podcast is all about. Create aspreadsheet, determine debt
management strategy, negotiatelower interest rate and limit
expenses, track your progress.
Eliminate expenses means keepingtrack of everything that you
(18:15):
spend money on, and try not tobuy things that you don't
actually need. And part of thatis before you spend more than
$100 on an item you got to askyourself, do you really need it
or not?
I'll be back in one moment withmy final thoughts are the
articles are referred to in myepisodes have a link in my show
(18:38):
notes. If you're interested inchecking out the software that I
personally use to get my debtover control. It's in my show
notes under shop financial, youneed to copy and paste the link
and it will take you to thewebsite. Any questions you can
just contact me through thatparticular website. If you value
(19:01):
this podcast and I like to makea contribution, I had a
contribution link in my shownotes also, give whatever you
feel is appropriate for theinformation I am providing. I
thank everyone for listening tomy podcast, a debt reduction
plan. It's a plan that sets theguidelines for what you're gonna
(19:24):
do to reduce your debt. Quitusing credit, make the minimum
payment, create emergency fundmarches, see find a minimum of
1000 Maximum 4000 Take theaccess to 3000. Once you have
everything paid up on yourmonthly bills and everything and
(19:47):
apply that 3000 to one of yourdebt, repeat until your debt is
paid off. That's a debtreduction plan that's gives you
guidance guidelines and somewhat to do with limits, to focus
on paying off all your debt, adebt management plan. And it's
(20:09):
the same as a cash managementplan. It's tracking all the
income into your household, andall the expenditures out of your
household, reduce your spending.
So you can increase yoursavings, the faster you can
build up your emergency fund,the sooner you'll be able to
apply it to your debt. So you'regoing to have a period of time,
(20:32):
whether it's one year, threeyears, are you gone to limit
your spending, I'm not sayingthat you're gonna go without,
but you're trying to reduce yourspending from things you don't
absolutely need to do, in orderto say more money to pay off
your debt. So track everything,have a budget, know where your
(20:59):
money's going, and how much it'sgoing. And eventually, you'll
even know when it's going,earning a month, middle of the
month, end of the month, have aplan on which debt, you're gonna
pay off first, high interest,lowest balance, maybe the first
one is the lowest balance, andthen after that the second ones,
(21:21):
and they're on is gone be thehighest interest, once you get
your credit cards paid off,don't pose any of them, because
that's gonna hurt your creditrating. As I said earlier, they
might offer you a balancetransfer, where you have at
least a year or 18 months of nointerest on that amount of
(21:42):
money. And you just pay thetransfer fee, which usually made
up within one to one to twomonths of not paying the
interest, it all comes down towhat you want to do this, you
could pay off your debt reallyquick, if you reduce your
spending down to the bareminimum. Or it may take you a
(22:04):
long time, there's people outthere that may take three to six
months just to get to the pointwhere they're not using credit.
If you're using a credit card topay a monthly bill, you got to
stop doing it. Because that'swhy you're in such a problem.
And it may take your while butdon't give up. Look for ways to
(22:25):
not spend money on somethingelse. And then you know, free up
the cash to pay that monthlybill. And if you've got tracking
and a budget in place, you'llknow exactly how much money you
need a month, the month, themonth to pay your monthly bills.
And, and which includes all theminimum payments on your credit
(22:50):
cards and all the debt year.
Then as you pay these thingsdown, the amount of cash that
you have to save is going toincrease gradually over time.
And it's going to speed up andtowards the end is going to us
faster, faster and faster. Andlike okay, I'm when I got down
(23:15):
the pan off my mortgage, I hadmy credit cards paid off, my
car's paid off, my line ofcredit paid off and I was on my
final mortgage and I had aboutsix or seven years left on
probably, I don't know 50,000 orso. And man, I paid that off in
a hurry maybe three or fourmonths. Because I just kept
(23:39):
doing the same thing. My buildup my emergency fund faster,
which allowed me to put a lumpsum down on my loan my mortgage
faster, which reduced theprincipal, which reduced the
amount of interest I owe, buthad to pay and that kept
(23:59):
speeding up speeding up and nextthing I know I owe only got one
more payment two more three morepayments of doing this three
more monthly payments and one ortwo more my extra funds I'm
putting on there and I'm not andit's paid off. And I did that a
couple years before I actuallyretired. So I was able then to
(24:21):
continue the same process andbuild up my savings for
retirement. So it doesn't matterwhy and why you want to do it.
You just have to get less debton your budget. Yeah, get that
debt out your budget which willfree up the cash will free up
(24:42):
your savings which will free upyou be able to afford the things
you want to do
Unknown (24:49):
and you'll be glad you did. So
Popular Podcasts
Stuff You Should Know
If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations.
The Clay Travis and Buck Sexton Show
The Clay Travis and Buck Sexton Show. Clay Travis and Buck Sexton tackle the biggest stories in news, politics and current events with intelligence and humor. From the border crisis, to the madness of cancel culture and far-left missteps, Clay and Buck guide listeners through the latest headlines and hot topics with fun and entertaining conversations and opinions.