May 26, 2024 • 24 mins
Perhaps living paycheck to paycheck but not sure what the cause maybe. Is it just inflation at the grocery store and gas station. This may be only a part of this problem but how to tell if debt is getting out of control.
Article Link:
https://www.bankrate.com/personal-finance/debt/signs-you-have-too-much-debt/ By Heidi Rivera
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Charles McDonald (00:01):
Hello, I'm your host, Mr. Chuck, a retired
accountant turn truck driver, Ireduce my debt in a relatively
short period of time, debtreduction to achieve financial
freedom takes commitment,confidence determination. Not
sure have a death problem,perhaps living paycheck to
(00:25):
paycheck, but not sure what thecause may be? Is it just
inflation at the grocery storeand gas station, this may be
only a part of this problem, buthow to tell if that is getting
out of control. I'm gonna talkabout some of the obvious stuff
at least obvious to most people.
But I'm also gonna go on moredetail on how you really
(00:50):
determine if you have too muchdebt. And there's multiple ways
of doing it. I'm going to try tokeep it somewhat basic. Because
if you don't know what your debtis to start with, you're not
going to be able to do thecalculations to figure out if
(01:10):
you have a debt problem. Ifyou're living paycheck to
paycheck, is your is your debtgrowing every month? Are you
making the minimum payment? Doyou not have a savings account
or setting up an emergency fund?
Those are some of the clues thatmay be telling you that you
(01:36):
could have a debt problem,because where is your money
going? I have an article link inmy show notes. They talk about
this very same project, thisproblem that some people may
have warning signs, your debtcould be a problem, not
remembering how much you owe,and who off the top of your
(01:58):
head. I'm not sure if that's awarning sign. I don't remember
how much exactly by now, who amI and there's only two credit
cards I use? Do you borrow moneyto make payments on other debt,
that's definitely you have adebt problem. Rely on credit
(02:19):
cards to make everydaypurchases, making only the
minimum payment due on yourcards, which is not necessary.
mean you have a problem. Itcould be that you have a debt
reduction plan in place. Soyou're doing that in order to
create your emergency fund, sothat you can accumulate money to
(02:42):
make big lump sum payments. Ifyou're familiar with my debt
reduction plan, you know whatI'm talking about, and not able
to contribute to your retirementsavings are able and wanting to
are two different things. A lotof people don't want to because
(03:02):
they think they got yours. Theydon't have to. But the sooner
you start, the longer you do it,the smaller dollar amount it
takes to build up allsubstantial amount of money. So
one of the ways you tell isthis, figuring out your debt to
income ratio. But in order to dothat calculation, you need to
(03:25):
know your monthly gross income,as before taxes, and any other
deductions. And you need to knowhow much debt you're paying.
When you're using this is not donot include the extra payments
you may made on your debt. Onlyadd up all the minimum payments.
(03:47):
So if you have your mortgage,house line of credit, or car
loan and bunch of credit cards,he got it pull it all together,
put it in a pile and figure outhow much do you have? Or how
much are you required to payevery month? What's the minimum
payment you have to pay and usethose numbers to figure out your
(04:11):
income to debt ratio. So youfigure up all your debt, you
divide your income into it, comeup with a percentage, hopefully
it's less than 100%, hopefullyis a lot less than 80%. Because
if it's those high of apercentage, you definitely have
a debt problem. Maybe of one wayyou've noticed you applied for a
(04:36):
credit card, and they're beingdeclined. Or maybe you're
getting a credit card andamortize a rate of say 15% but
they give you a credit card, buta has a 20% interest rate. That
could be an indicator that youyour credit is not as good as
you think it is. Or maybe you'vebeen declined Looking for a
(05:00):
loan. And they would say, well,because you have too much credit
card debt, those are all signsyou have too much debt. There is
good debt versus bad debt. Whilethere are many different kinds
of debt not all as necessarilybad for your overall financial
health, that that can increaseyour net worth over time or that
(05:21):
adds was a positive return canbenefit your financial future.
Have or bad debt does exist andit should be avoided whenever
possible. For example, highinterest debt accrual by credit
cards, payday loans, and highinterest personal loans won't
benefit your wallet in the longrun. So good dad is buying a
(05:44):
home and you borrow the money.
Because you know, over timebased on historic history, that
it's going to go up in value.
Most of the time now there maybe periods where it drops in
value, but it's in it's kind ofregain go back up. To me,
Baghdad is getting a seven yearloan to buy a $75,000 pickup
(06:10):
truck. The value of that truckis gonna drop significantly as
soon as you drive it off thelot. And as soon as you get more
miles on it, you're gonna be ohand more on it than what the
value of the truck is.
Therefore, you're not going toget your money back if you sell
it. So that would be bad debt,credit cards all bad debt. Why
does high debt matter? Havingtoo much debt particularly bad
(06:34):
debt, suggesting you may beliving beyond your means. This
can make you seem like a riskierbar or in the eyes of lenders,
as is makes you more likely todefault and someone with a lower
debt load too much debt and thewrong kind of debt will stand in
a way of making financialprogress. He won't be saving for
(06:54):
his entire retirement oremergency to the extent you
should your credit rating orsuffering if you're increasingly
and debt it limiting yourability to get better interest
rate impacting your autoinsurance premium ability to
rent an apartment or even getcertain jobs.
(07:15):
The more debt you haveparticularly bad debt, the more
likely you're going to fallvictim to the vicious that cycle
in which you need to take outmore high interest debt to repay
your existing debt over timethis pattering a borrower and
prevent a eventually spiralsimpacting your credit and long
term financial health. Plus moredebt means your debt to income
(07:38):
ratio is high, making it harderto get approved for loans or
similar products in the future.
So as your debt keeps growing,it's going to be harder and
harder for you to borrow money.
Also, your insurance rates willstart to go up because the
insurance company looks at howmuch debt you have. And they
consider you risky, thereforethey will charge you more. And
(08:03):
same way with lenders if you tryto get our car loan for say,
your spouse or a second vehicle,whatever, they're gonna see you
as a risk. And they're going tocharge you if if you can get the
loan, it'd be a higher rate ofinterest, what to do if you have
too much debt. The first thingwe have to do is determine if we
(08:26):
have too much debt. So you haveto get all your paperwork, keep
all your monthly bills from allyour credit cards, personal
loans, everything that you pay,so we can add up what your
minimum payment is for a month.
And then you can look at yourgross income for the previous
month or that current month. Anddo the math to figure out what
(08:51):
your total debt to income ratiothat includes your home, your
transportation, your personalloans, your credit card debt,
and student loans, just to getan overview of what you're
dealing with. Let's say thatnumber is 65 to 70% of your
gross income. That is why you'reliving paycheck to paycheck
(09:15):
because most your money iscoined to pay that debt. Now
let's break it down. What is themortgage on your home? That to
income ratio on your mortgage?
If you want to be superconservative, that should be no
more than 25% but that shouldinclude your mortgage your taxes
(09:39):
and your and your insurance onthe home. Because that's what
most people are paying in theirescrow. So if it's 25 to 35%
you're probably pretty good. Ifit's 55% you probably purchased
a home you can afford and thatis putting us drain on your
(10:01):
financial budget, and now youhave to cut back someplace else.
Whether it's not having a newcar, paying cash for a car,
driving an old beat up car,whatever the case, you have to
cut back somewhere else. Oryou're gonna have to borrow more
money to pay your livingexpenses. And if you're doing
(10:22):
that, you definitely have a debtproblem. Of course, then the
article I'm referring to talksabout get debt counseling, do it
yourself, Alma, do it yourself,or I'm gonna, I'm gonna
recommend that you take care,you got yourself in this problem
all by yourself, you can takecare of it all by yourself, Is
(10:47):
this getting to know figuringout what you need to do? And now
you decided that you have a debtproblem. That's step one. And
maybe you got all your debtstatements together, or your
credit card statements orpersonal loan statement, your
car loans together, you're, evenif you have to go online to the
(11:11):
website, and then write it downon a piece of paper, who you
owe, how much is your currentbalance? What's your minimum
payment, what's the interestrate, and when the payment is
due? What's the due date, and dothat, for all your debt, if you
do it in a spreadsheet, you'llbe able to rearrange it and sort
(11:33):
it any way you wish for futurereference. But if you just write
down on a piece of paper, if youdon't have a lot, that will
work, if you have 20 creditcards, yo, and it's going to
kind of get out of control. Soyou probably should use a
spreadsheet on a computer, someform or another. So once you do
(11:56):
that, what's your next step? Wehave the have to have a plan. So
the plan is, I want to pay offmy debt? How am I gonna go to do
that? How am I gonna go aboutthat? Well, that's called a debt
reduction plan, you identifiedall your debt, you've sorted out
(12:17):
by your housing, yourtransportation, and personal
debt. The goal here is we wantto pay down the personal debt or
the debt with the highest rateof interest first, so that we
can say more money, and thefaster we can get rid of that,
(12:38):
the better off we're gonna beoverall. So how you gonna do it?
Well, the debt reduction plan isyou gotta quit using credit.
Number one, quit using yourcredit cards, II gotta start
paying for everything from yourmonthly income, from your
paycheck from the amount ofmoney that goes into your
(13:00):
checking account. If you'resomebody that takes $500, and
don't deposit in your checkingaccount, because you don't want
your wife or other spouse toknow how much you really make.
But you use that cash, to putgas in your car or buy
groceries, those things youdon't have to really account
(13:23):
for. And a budget because you'rethe income is not included in
your budget, therefore, whereyou spend it on, is not going to
be included in your budget. Justa tip for those person doing
that. I recommend 100% of yourmoney go in your checking
account, You wrecked the youaccount for it, and you budget
(13:49):
for it. So, regarding quit usingcredit, we're gonna make the
minimum payment on our debt.
That's number two. Number three,we're gonna start a savings
account or emergency fund.
Emergency Fund is nothing morethan a savings account. At the
(14:10):
same bank, you have yourchecking account. That way it's
easy to transfer the money fromyour checking to your savings.
Or the other way if needed. Theemergency fund is money you set
aside in case some unforeseen,unforeseen event happens.
(14:32):
Whether that's an accident andsomebody gets injured, whether
you have an accident in your carand a car gets injured or
destroyed or you get laid offfor anything that you had not
planned for is what youremergency fund is for and
nothing else. The minimumbalance you need in there is
(14:56):
$1,000. So got to build up youremergency fund to $1,000 all the
time that you're paying cash foreverything. When I say paying
cash, you're using your debitcard, or paying cash, you're not
putting it a charge on a creditcard, or you're not borrowing
(15:21):
money to buy something, andyou're making the minimum
monthly payments on all the day.
And then we take the money thatwe have, after we pay all our
bills and everything, we thentake that five bucks, we have
$10, put it in a savings accountand start building that up. Once
(15:43):
you have your minimum of $1,000,you continue to build up your
emergency fund, you continue notusing your credit cards or using
credit, he continue making yourmonthly your minimum payments
until you have three or $4,000in your emergency fund. Now, why
(16:11):
am I doing that? The longbecause at the beginning, when
you're struggling, is gonna takeyou a long time to get that
first $1,000. The reason we havethe emergency fund, it's okay,
if some unforeseen eventhappens, we don't have to use
credit number one rule to payfor it. Or at least we can
(16:39):
greatly reduce what we have topay for our credit, we're gonna
continue to build it up to aminimum or out to maximum the
say, of three to 4000. I preferand I did 4000 When I personally
did this plan. That way, when Igo, that gives me longer time
(17:00):
with more money in my emergencyfund. In case something bad
would happen. It gave me alittle more peace of mind for a
longer period of time. Now, onceyou got your bills paid down for
a month, you have the $4,000 andyour emergency fund, you made
(17:23):
all your monthly payments, allyour utility bills are paid your
groceries are all up today,yeah, gas in the car. And now
it's time to take that $3,000The amount over the minimum of
(17:43):
1000. Take the 3000 and apply itto one of your debt. Unless you
can pay one off, then pie therest of it to the next debt you
may have. And then you startthat cycle over again, you make
(18:03):
the minimum payment, you keepbuilding up your emergency fund,
again, until you have yourmaximum amount of 4000. And you
then take the 3000 the amountover the minimum and apply it to
your debt. Whichever one youwant to pay off. There's various
(18:24):
different ways to apply yourmoney I've talked about in past
episodes, he can pay off thesmallest balance first, he can
pay off the debt with thehighest rate of interest, just
come up with something thatmakes you comfortable. And then
be consistent and do it. time inand time out. I'll be back in
(18:47):
one moment was my finalthoughts. If you're interested,
and the software that I usepersonally, to reduce my debt, I
have a link on my show notes,shop financial.com, copy and
paste it. And it will take youto the website. If you are
looking for any spreadsheets orother information that I talk
about from time to time. I havelinks in my show notes. And I
(19:11):
always have links to thearticles I refer to and my show
notes, plus other things likethe happy draft.org which is a
another organization that helpsyou with your debt. So feel free
to go on my show notes and linkand check out whatever I'm
putting out there. I appreciateit very much. If you would like
(19:31):
to make a contribution to helpkeep this alive, then I would
gladly accept that. That's in myshow notes. Thank you very much.
Well, that sounds let's not thatbad. So far. What you've done is
identified that you may have adebt problem. You got it in
front of you. You looked at allthe paperwork, you separated,
(19:54):
the credit card statements andyour personal loans. They manage
your auto loans and yourmortgages on your home, if
that's the case, so you have allthis debt in front of you, you
have a plan, you have a debtreduction plan, you're gonna
quit using credit, you're goneto make the minimum payment,
you're gonna start an emergencyfund and start building that up,
(20:18):
and then you're going toincrease it above the minimum to
a maximum amount, then you'regoing to take the difference
between the minimum and maximumand apply it to one of your
debt. And that happens over andover and over. Sounds easy
enough, doesn't it? It is. Butthe problem is, how do you build
(20:39):
up your emergency fund? How doyou save the money into your
emergency fund so that you canapply it to the debt? If you're
just winging it, you're probablynot gonna have a very successful
rate. Because if you have moneyin your pocket, or checking
(21:01):
account, you might be the typeof person that like, Okay, I,
how much money do I have Ichecked my checking account,
okay, I just got paid yesterday,I have $2,000, I can spend $500,
or grocery store, I can put $100in each of my vehicles, I can go
out and party or have do this,what I like to do on the side,
(21:27):
when I'm not working. And thenall of a sudden, all those
credit card payments come due,and you're broke? And what have
you done in the past? Have youdidn't start using a credit card
to pay for things? Until nextpay day? If so, you can't do
that no more, because you got topay cash for everything. So how
(21:48):
do you keep track of thesethings? That's the next episode.
And detail. I'm gonna talk abouttracking your income and all
your expenses. And looking forthings that you can do away with
that you're paying for, that youno longer use, no longer
(22:11):
interested in, or no longerneed, that you should cancel,
find ways to save money. And youcan do that by tracking all the
money that comes in yourhousehold. And all the money
that goes out of your household.
(22:31):
Then the next step, after that,is creating a budget T can see
this month, how are you doing?
Have you cut back your spendingin any way shape, or whatever?
Are you least keeping itmaintaining at the same levels,
so you're not spending more thanwhat you should. And that's
(22:54):
called a budget. Tracking isyour lifeblood, your budget is
your control center.
And that's one on lifebloodcontrol center. And with those
two things in place, your debtreduction plan will run like
(23:19):
clockwork, and you'll be able tolook, how do I speed off paying
off my debt? Well, I got to twothings. Either you got to
increase your income, or you gotto reduce your spending on that
saying you cut back to alifestyle where you never do
anything. And like I'm justgonna leave it at that. Because
(23:43):
it's up to you. You control yourlife. If you want to be a
minimalist, buy in only what youneed for the next year or two
years to get your debt paid off.
So then you can enjoy life anddo more things. But instead of
paying for it with a creditcard, you're paying for it with
(24:05):
cash, that you're not borrowingthe money to do what you want to
do. And your life will have awhole lot less stress, because
you're not going to be worriedabout that's gonna come to some
day. How am I going to pay forit? You're not going to have
that in your life, and you'll bemuch happier and glad you went
(24:29):
through this pain to get yourdebt under control.
Hello, I'm your host, Mr. Chuck, a retired
accountant turn truck driver, Ireduce my debt in a relatively
short period of time, debtreduction to achieve financial
freedom takes commitment,confidence determination. Not
sure have a death problem,perhaps living paycheck to
(00:25):
paycheck, but not sure what thecause may be? Is it just
inflation at the grocery storeand gas station, this may be
only a part of this problem, buthow to tell if that is getting
out of control. I'm gonna talkabout some of the obvious stuff
at least obvious to most people.
But I'm also gonna go on moredetail on how you really
(00:50):
determine if you have too muchdebt. And there's multiple ways
of doing it. I'm going to try tokeep it somewhat basic. Because
if you don't know what your debtis to start with, you're not
going to be able to do thecalculations to figure out if
(01:10):
you have a debt problem. Ifyou're living paycheck to
paycheck, is your is your debtgrowing every month? Are you
making the minimum payment? Doyou not have a savings account
or setting up an emergency fund?
Those are some of the clues thatmay be telling you that you
(01:36):
could have a debt problem,because where is your money
going? I have an article link inmy show notes. They talk about
this very same project, thisproblem that some people may
have warning signs, your debtcould be a problem, not
remembering how much you owe,and who off the top of your
(01:58):
head. I'm not sure if that's awarning sign. I don't remember
how much exactly by now, who amI and there's only two credit
cards I use? Do you borrow moneyto make payments on other debt,
that's definitely you have adebt problem. Rely on credit
(02:19):
cards to make everydaypurchases, making only the
minimum payment due on yourcards, which is not necessary.
mean you have a problem. Itcould be that you have a debt
reduction plan in place. Soyou're doing that in order to
create your emergency fund, sothat you can accumulate money to
(02:42):
make big lump sum payments. Ifyou're familiar with my debt
reduction plan, you know whatI'm talking about, and not able
to contribute to your retirementsavings are able and wanting to
are two different things. A lotof people don't want to because
(03:02):
they think they got yours. Theydon't have to. But the sooner
you start, the longer you do it,the smaller dollar amount it
takes to build up allsubstantial amount of money. So
one of the ways you tell isthis, figuring out your debt to
income ratio. But in order to dothat calculation, you need to
(03:25):
know your monthly gross income,as before taxes, and any other
deductions. And you need to knowhow much debt you're paying.
When you're using this is not donot include the extra payments
you may made on your debt. Onlyadd up all the minimum payments.
(03:47):
So if you have your mortgage,house line of credit, or car
loan and bunch of credit cards,he got it pull it all together,
put it in a pile and figure outhow much do you have? Or how
much are you required to payevery month? What's the minimum
payment you have to pay and usethose numbers to figure out your
(04:11):
income to debt ratio. So youfigure up all your debt, you
divide your income into it, comeup with a percentage, hopefully
it's less than 100%, hopefullyis a lot less than 80%. Because
if it's those high of apercentage, you definitely have
a debt problem. Maybe of one wayyou've noticed you applied for a
(04:36):
credit card, and they're beingdeclined. Or maybe you're
getting a credit card andamortize a rate of say 15% but
they give you a credit card, buta has a 20% interest rate. That
could be an indicator that youyour credit is not as good as
you think it is. Or maybe you'vebeen declined Looking for a
(05:00):
loan. And they would say, well,because you have too much credit
card debt, those are all signsyou have too much debt. There is
good debt versus bad debt. Whilethere are many different kinds
of debt not all as necessarilybad for your overall financial
health, that that can increaseyour net worth over time or that
(05:21):
adds was a positive return canbenefit your financial future.
Have or bad debt does exist andit should be avoided whenever
possible. For example, highinterest debt accrual by credit
cards, payday loans, and highinterest personal loans won't
benefit your wallet in the longrun. So good dad is buying a
(05:44):
home and you borrow the money.
Because you know, over timebased on historic history, that
it's going to go up in value.
Most of the time now there maybe periods where it drops in
value, but it's in it's kind ofregain go back up. To me,
Baghdad is getting a seven yearloan to buy a $75,000 pickup
(06:10):
truck. The value of that truckis gonna drop significantly as
soon as you drive it off thelot. And as soon as you get more
miles on it, you're gonna be ohand more on it than what the
value of the truck is.
Therefore, you're not going toget your money back if you sell
it. So that would be bad debt,credit cards all bad debt. Why
does high debt matter? Havingtoo much debt particularly bad
(06:34):
debt, suggesting you may beliving beyond your means. This
can make you seem like a riskierbar or in the eyes of lenders,
as is makes you more likely todefault and someone with a lower
debt load too much debt and thewrong kind of debt will stand in
a way of making financialprogress. He won't be saving for
(06:54):
his entire retirement oremergency to the extent you
should your credit rating orsuffering if you're increasingly
and debt it limiting yourability to get better interest
rate impacting your autoinsurance premium ability to
rent an apartment or even getcertain jobs.
(07:15):
The more debt you haveparticularly bad debt, the more
likely you're going to fallvictim to the vicious that cycle
in which you need to take outmore high interest debt to repay
your existing debt over timethis pattering a borrower and
prevent a eventually spiralsimpacting your credit and long
term financial health. Plus moredebt means your debt to income
(07:38):
ratio is high, making it harderto get approved for loans or
similar products in the future.
So as your debt keeps growing,it's going to be harder and
harder for you to borrow money.
Also, your insurance rates willstart to go up because the
insurance company looks at howmuch debt you have. And they
consider you risky, thereforethey will charge you more. And
(08:03):
same way with lenders if you tryto get our car loan for say,
your spouse or a second vehicle,whatever, they're gonna see you
as a risk. And they're going tocharge you if if you can get the
loan, it'd be a higher rate ofinterest, what to do if you have
too much debt. The first thingwe have to do is determine if we
(08:26):
have too much debt. So you haveto get all your paperwork, keep
all your monthly bills from allyour credit cards, personal
loans, everything that you pay,so we can add up what your
minimum payment is for a month.
And then you can look at yourgross income for the previous
month or that current month. Anddo the math to figure out what
(08:51):
your total debt to income ratiothat includes your home, your
transportation, your personalloans, your credit card debt,
and student loans, just to getan overview of what you're
dealing with. Let's say thatnumber is 65 to 70% of your
gross income. That is why you'reliving paycheck to paycheck
(09:15):
because most your money iscoined to pay that debt. Now
let's break it down. What is themortgage on your home? That to
income ratio on your mortgage?
If you want to be superconservative, that should be no
more than 25% but that shouldinclude your mortgage your taxes
(09:39):
and your and your insurance onthe home. Because that's what
most people are paying in theirescrow. So if it's 25 to 35%
you're probably pretty good. Ifit's 55% you probably purchased
a home you can afford and thatis putting us drain on your
(10:01):
financial budget, and now youhave to cut back someplace else.
Whether it's not having a newcar, paying cash for a car,
driving an old beat up car,whatever the case, you have to
cut back somewhere else. Oryou're gonna have to borrow more
money to pay your livingexpenses. And if you're doing
(10:22):
that, you definitely have a debtproblem. Of course, then the
article I'm referring to talksabout get debt counseling, do it
yourself, Alma, do it yourself,or I'm gonna, I'm gonna
recommend that you take care,you got yourself in this problem
all by yourself, you can takecare of it all by yourself, Is
(10:47):
this getting to know figuringout what you need to do? And now
you decided that you have a debtproblem. That's step one. And
maybe you got all your debtstatements together, or your
credit card statements orpersonal loan statement, your
car loans together, you're, evenif you have to go online to the
(11:11):
website, and then write it downon a piece of paper, who you
owe, how much is your currentbalance? What's your minimum
payment, what's the interestrate, and when the payment is
due? What's the due date, and dothat, for all your debt, if you
do it in a spreadsheet, you'llbe able to rearrange it and sort
(11:33):
it any way you wish for futurereference. But if you just write
down on a piece of paper, if youdon't have a lot, that will
work, if you have 20 creditcards, yo, and it's going to
kind of get out of control. Soyou probably should use a
spreadsheet on a computer, someform or another. So once you do
(11:56):
that, what's your next step? Wehave the have to have a plan. So
the plan is, I want to pay offmy debt? How am I gonna go to do
that? How am I gonna go aboutthat? Well, that's called a debt
reduction plan, you identifiedall your debt, you've sorted out
(12:17):
by your housing, yourtransportation, and personal
debt. The goal here is we wantto pay down the personal debt or
the debt with the highest rateof interest first, so that we
can say more money, and thefaster we can get rid of that,
(12:38):
the better off we're gonna beoverall. So how you gonna do it?
Well, the debt reduction plan isyou gotta quit using credit.
Number one, quit using yourcredit cards, II gotta start
paying for everything from yourmonthly income, from your
paycheck from the amount ofmoney that goes into your
(13:00):
checking account. If you'resomebody that takes $500, and
don't deposit in your checkingaccount, because you don't want
your wife or other spouse toknow how much you really make.
But you use that cash, to putgas in your car or buy
groceries, those things youdon't have to really account
(13:23):
for. And a budget because you'rethe income is not included in
your budget, therefore, whereyou spend it on, is not going to
be included in your budget. Justa tip for those person doing
that. I recommend 100% of yourmoney go in your checking
account, You wrecked the youaccount for it, and you budget
(13:49):
for it. So, regarding quit usingcredit, we're gonna make the
minimum payment on our debt.
That's number two. Number three,we're gonna start a savings
account or emergency fund.
Emergency Fund is nothing morethan a savings account. At the
(14:10):
same bank, you have yourchecking account. That way it's
easy to transfer the money fromyour checking to your savings.
Or the other way if needed. Theemergency fund is money you set
aside in case some unforeseen,unforeseen event happens.
(14:32):
Whether that's an accident andsomebody gets injured, whether
you have an accident in your carand a car gets injured or
destroyed or you get laid offfor anything that you had not
planned for is what youremergency fund is for and
nothing else. The minimumbalance you need in there is
(14:56):
$1,000. So got to build up youremergency fund to $1,000 all the
time that you're paying cash foreverything. When I say paying
cash, you're using your debitcard, or paying cash, you're not
putting it a charge on a creditcard, or you're not borrowing
(15:21):
money to buy something, andyou're making the minimum
monthly payments on all the day.
And then we take the money thatwe have, after we pay all our
bills and everything, we thentake that five bucks, we have
$10, put it in a savings accountand start building that up. Once
(15:43):
you have your minimum of $1,000,you continue to build up your
emergency fund, you continue notusing your credit cards or using
credit, he continue making yourmonthly your minimum payments
until you have three or $4,000in your emergency fund. Now, why
(16:11):
am I doing that? The longbecause at the beginning, when
you're struggling, is gonna takeyou a long time to get that
first $1,000. The reason we havethe emergency fund, it's okay,
if some unforeseen eventhappens, we don't have to use
credit number one rule to payfor it. Or at least we can
(16:39):
greatly reduce what we have topay for our credit, we're gonna
continue to build it up to aminimum or out to maximum the
say, of three to 4000. I preferand I did 4000 When I personally
did this plan. That way, when Igo, that gives me longer time
(17:00):
with more money in my emergencyfund. In case something bad
would happen. It gave me alittle more peace of mind for a
longer period of time. Now, onceyou got your bills paid down for
a month, you have the $4,000 andyour emergency fund, you made
(17:23):
all your monthly payments, allyour utility bills are paid your
groceries are all up today,yeah, gas in the car. And now
it's time to take that $3,000The amount over the minimum of
(17:43):
1000. Take the 3000 and apply itto one of your debt. Unless you
can pay one off, then pie therest of it to the next debt you
may have. And then you startthat cycle over again, you make
(18:03):
the minimum payment, you keepbuilding up your emergency fund,
again, until you have yourmaximum amount of 4000. And you
then take the 3000 the amountover the minimum and apply it to
your debt. Whichever one youwant to pay off. There's various
(18:24):
different ways to apply yourmoney I've talked about in past
episodes, he can pay off thesmallest balance first, he can
pay off the debt with thehighest rate of interest, just
come up with something thatmakes you comfortable. And then
be consistent and do it. time inand time out. I'll be back in
(18:47):
one moment was my finalthoughts. If you're interested,
and the software that I usepersonally, to reduce my debt, I
have a link on my show notes,shop financial.com, copy and
paste it. And it will take youto the website. If you are
looking for any spreadsheets orother information that I talk
about from time to time. I havelinks in my show notes. And I
(19:11):
always have links to thearticles I refer to and my show
notes, plus other things likethe happy draft.org which is a
another organization that helpsyou with your debt. So feel free
to go on my show notes and linkand check out whatever I'm
putting out there. I appreciateit very much. If you would like
(19:31):
to make a contribution to helpkeep this alive, then I would
gladly accept that. That's in myshow notes. Thank you very much.
Well, that sounds let's not thatbad. So far. What you've done is
identified that you may have adebt problem. You got it in
front of you. You looked at allthe paperwork, you separated,
(19:54):
the credit card statements andyour personal loans. They manage
your auto loans and yourmortgages on your home, if
that's the case, so you have allthis debt in front of you, you
have a plan, you have a debtreduction plan, you're gonna
quit using credit, you're goneto make the minimum payment,
you're gonna start an emergencyfund and start building that up,
(20:18):
and then you're going toincrease it above the minimum to
a maximum amount, then you'regoing to take the difference
between the minimum and maximumand apply it to one of your
debt. And that happens over andover and over. Sounds easy
enough, doesn't it? It is. Butthe problem is, how do you build
(20:39):
up your emergency fund? How doyou save the money into your
emergency fund so that you canapply it to the debt? If you're
just winging it, you're probablynot gonna have a very successful
rate. Because if you have moneyin your pocket, or checking
(21:01):
account, you might be the typeof person that like, Okay, I,
how much money do I have Ichecked my checking account,
okay, I just got paid yesterday,I have $2,000, I can spend $500,
or grocery store, I can put $100in each of my vehicles, I can go
out and party or have do this,what I like to do on the side,
(21:27):
when I'm not working. And thenall of a sudden, all those
credit card payments come due,and you're broke? And what have
you done in the past? Have youdidn't start using a credit card
to pay for things? Until nextpay day? If so, you can't do
that no more, because you got topay cash for everything. So how
(21:48):
do you keep track of thesethings? That's the next episode.
And detail. I'm gonna talk abouttracking your income and all
your expenses. And looking forthings that you can do away with
that you're paying for, that youno longer use, no longer
(22:11):
interested in, or no longerneed, that you should cancel,
find ways to save money. And youcan do that by tracking all the
money that comes in yourhousehold. And all the money
that goes out of your household.
(22:31):
Then the next step, after that,is creating a budget T can see
this month, how are you doing?
Have you cut back your spendingin any way shape, or whatever?
Are you least keeping itmaintaining at the same levels,
so you're not spending more thanwhat you should. And that's
(22:54):
called a budget. Tracking isyour lifeblood, your budget is
your control center.
And that's one on lifebloodcontrol center. And with those
two things in place, your debtreduction plan will run like
(23:19):
clockwork, and you'll be able tolook, how do I speed off paying
off my debt? Well, I got to twothings. Either you got to
increase your income, or you gotto reduce your spending on that
saying you cut back to alifestyle where you never do
anything. And like I'm justgonna leave it at that. Because
(23:43):
it's up to you. You control yourlife. If you want to be a
minimalist, buy in only what youneed for the next year or two
years to get your debt paid off.
So then you can enjoy life anddo more things. But instead of
paying for it with a creditcard, you're paying for it with
(24:05):
cash, that you're not borrowingthe money to do what you want to
do. And your life will have awhole lot less stress, because
you're not going to be worriedabout that's gonna come to some
day. How am I going to pay forit? You're not going to have
that in your life, and you'll bemuch happier and glad you went
(24:29):
through this pain to get yourdebt under control.
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