Understand Debt

What is debt and the different types, understanding debt will help to get all your debt under control. It important to know and understand what getting into before using credit or borrowing money.

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Ultimate Guide to Debt Reduction: Proven Strategies and Tactics - The Money Coach (askthemoneycoach.com)

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Charles McDonald: 0:03

Hello, I'm your host, Mr. Chuck, a retired accountant turned truck driver, I reduce my debt in a relatively short period of time, debt reduction to achieve financial freedom takes commitment, confidence determination. Understand that, what is debt and the different types, understanding debt will help get all your debt under control. It's important to know and understand what you're getting into before using credit or borrowing money. And some poor night you understand that type of debt you're getting into. And it comes with different levels of costs. So let's start with the very basic, so you're struggling with your dad, maybe you understand you have some credit card debt, maybe some other debt, but do you really know the details of what makes it up and all the good things you need to help you understand what's going on. And this guide I'm referring to there's a link in my show notes. It's starts out with understanding debt and its impact creating a realistic budget devising a debt repayment plan, cutting expenses and increase in income making smart financial, those are all the different categories we're gonna talk about. So understanding debt and and its impact. That is a common aspect of modern life for many individuals and family it can provide a means to achieve important goals, such as purchasing a home or pursuing higher education. However, if my main is carefully debt can quickly spiral out of control, have a negative impact on your financial well being. In this section, we'll explore the different types of debt, the consequences of debt, and how to assess your current debt situation. So the types of debt credit card debt, this is one of the most prevalent types of debt and carries the high interest rates make it easy for balance to accumulate quickly if my paying off in full student loans. Many individuals rely on student loans to finance their education. While they can be a valuable investment in friend your future, they can also lead to a significant financial burden after graduation. Mortgages a mortgage is a loan specially used to purchase real estate. Homeownership is a dream for many, but it's essential to understand the long term financial commitments that comes with a mortgage auto loans. Financing a vehicle can be a convenient way to get on the road. But it's important to consider the total cost of ownership, including interest and insurance, consequences of debt, financial stress that can be a source of significant stress and anxiety, especially when struggled to make monthly payments or facing the possibility of bankruptcy. Eliminate financial opportunities. Large mountain of debt can limit your ability to assess credit in the future, making it a challenge to obtain loans for important purchases, or even secure housing. Higher interest payments. The more debt you have, the more you pay in interest over time. This means less money available for other financial goals, such as saving for retirement or emergencies. Negative impact on credit score late or missing debt payments can result in a lower credit score and make it more difficult and expensive to borrow money in the future. Assessing your current situation. Now that is the probably the most common thanks about having too much debt and the debt that we talked about credit cards, student loans, mortgage auto loans, those are the common debts that bad everybody has. There's personal loans, payday loans, Pawn Shop loans, and all those are not good. They're not mentioned but there are also other ways you can get in debt. Assessing your current debt situation. You got to gather all your necessary information. Collect statements and documents for all your debts, including balances interest rate and minimum monthly payment. And also note the date your payments do. Calculate your debt to income ratio. Add up your monthly debt payments and divided by a monthly income. This will give you a clearer picture of how much your income is being used to service that. Now that's your minimum payments you make not any extra payments on the debt. And your income should be your gross income, before deductions for income tax, alimony, anything else 401k Stuff like that. If you really want to get a handle on it, divide your debt into your net income, which is your into your taxes are taken out any other things that are in 401k, stuff like that, so that the more of the available income that you have, review your credit report, attach a copy of your credit report from a reputable credit bureau and review it for accuracy any errors should be disputed and correct it properly. Consider seeking professional advice if your debt situation feels overwhelming, and or you're unsure the best course of action, don't hesitate to consult with a financial counsellor or credit counselor. They can provide guidance tailored to your specific circumstances. If you're overwhelmed is the matter of you probably don't have enough information and do some research on your own. Before you spend money on a credit counselor. Maybe that might be what you need. If you can do some homework on your own and learn more about what it is that you think you're missing. Or if you think you can't get it under control for whatever reason, then go and seek a credit counselor but you don't start out the beginning, going to see an attorney and claiming to file bankruptcy, because they're gonna make you do a budget. They're gonna make you do things before you can file bankruptcy to prove that you tried creating a realistic budget, I'm not going tracking your income expenses. So if you do tracking first and then create a budget, it's much easier. Identify areas for savings, you know areas where you can cut back on and save and not spend as much as you can say more and setting financial goals. Well it should be getting out of debt or paying off your credit cards, cutting expenses and the increase in income reducing discretionary spending. Take a quick, closer look at your monthly expenses. Identify areas where you can cut back do you really need that expensive cable package or that magazine that you never have time to read? Make a budget stick to it that ghostwriting lower rates Good luck on that, looking for additional sources of income even if you just have a garage sale and get rid of stuff you're no longer using clean out your grass, get rid of stuff. And maybe you get $1 here$1 There $5 $10 But it'll add up you might have a couple of bucks or a couple 100 extra dollars. It could be your down payment for your emergency fund. It could be get you started. Get you on your way. building emergency fund and portance of emergency fund serves as a financial safety net provide you with a peace of mind and you have funds available to cover unforeseen expenses. Here are some reasons why building an emergency fund is important financial protection. Having an emergency fund ensures you're prepared for unexpected events like a medical emergency car repairs or sudden job loss and allows you to handle these situations without restoring too high interest loans or credit cards. Breaking a debt cycle without an emergency fund me forced to rely on credit cards or loans to cover unexpected expenses. This can lead to more debt and make it Dongo difficult to break the cycle of borrowing and repayment. And it reduces stress. Knowing that you have money set aside for an emergency significantly reduces stress instead of worrying how you pay for unexpected expenses. You can focus on other aspects of your life. And I go into all this your tracking your budget, your emergency fund your debt reduction plan. I go into that in detail in this podcast. This is just an overview to either remind you or for those new people starting the lesson. You have to have a starting point. And knowing and learning about what your problem is and made up of before you get started is going to help you get control of your personal finance strategies for saving set a goal. Determine how much you want to save for your emergency fund minimum 1000 hours, a general rule of thumb is to aim for three to six months worth of living expenses, that's after you get your debt under control, the rule of thumb as a minimum of $1,000 to eat never go below, you build that up to a maximum of 3000. He used the deference, apply it to your debt. And if you've listened to my debt reduction plan, he should know that. But I am Oh, keep saying that, because important to understand. And poor net, you know it in your brain, it's drilled in there, you'll never forget it. And you do that the rest of your life, he just don't do that, while you're trying to pay off that, we're going to do that for the rest of your life, you're gonna build up and get your three months, maybe four or five months or six months. And then after that, he can increase what you investing in the market. He can increase setting money aside to buy the things that you want to have, whether it's upgrade your home or bio RV or a boat, or whatever the case would be. Take your hobby to the extremes travel, whatever it is you want to do, it's a lot easier to do if you don't, or if you're not struggling to pay their debt down and pay off your debt. Where do you keep your emergency or not? Do you understand the importance of emergency fund that have strategies and start saving, it's important to choose the right place to keep your funds. Consider the following options. This is after your debts under control. And you have that three to six months. And you'll and your local bank II just want to keep $1,000 Anything over that say you have 20,000 for your emergency fund. So yes, 1000 of that is going to be in your local bank so you can put it in and out of your checking account fairly easy. After that, this is what you should consider that other 19,000 high yield savings account a high yield savings accounts offers a higher interest rate than traditional savings. This is why your emojis fund that grow over time provides an easy access to your fun when needed because it's very liquid. money market accounts similar to high yield savings or money market account offers higher interest rate however, might be slightly higher minimum balance requirements. At 19,000. You don't have a worry, Certificate of Deposit laws you earn a fixed rate over a specific period of time. While the interest rate may be higher than a savings account, it's important to note the funds be locked in for the duration of the CD, meaning our certificate of deposit is not as liquid the money market and the high yield is very liquid. The money market and the high yield interest rates were fluctuate up and down to C D is fx. So if you go back in at 3% and the interest rates go to 5% you're locked in a three you got to pay a penalty if you want to get out of it. So I don't recommend CDs but it's an option for their alter conservative people out there dealing with debt collectors. Okay, if you have a debt problem, you got credit cards and you're probably getting phone calls from debt collectors. So let's talk about this. This is important. dealing with a debt collectors can be stressful, intimidating experience radio money on credit cards, medical bills or student loans as important to understand your rights and the handle the situation responsible. In this section we discuss some strategy to help you to navigate the process of dealing with debt collectors efficiently. Knowing your rights when dealing with debt collectors is crucial to be aware of your rights as a consumer. The Fair Debt Collection Practices Act is a federal law that protects you from harassment and unfair practice by debt collectors. Some key points you may have to include the right period traded treated with respect and fairness. The right to request a written revocation of the debt. The right disputed debt if you believe it's inaccurate, the right to request a debt collector to cease all communications. Communicating with debt collectors stay calm. It's natural to filter frustrated and overwhelmed Bustan comm can help you think clearly and find a solution. Document everything. Keep a record of all communication with that collectors, including dates, times and the names of the individuals you spoken to. That should also include their name, the date, the time, who the debt collector is and who they collect for which debt are they collecting for. You may get multiple calls from different debt collectors trying to collect the same debt. So Beata, be aware of that, ask for a written agreement if you reach a payment agreement or settlement, request a read written agreement that outlines the terms to protect yourself. negotiate a payment plan if you're unable to pay the full amount. Try to negotiate a payment plan that fits your budget be honest about your financial situation, and propose a responsible monthly payment, considered debt falsification. If you believe your debt is not yours or isn't accurate, you can request a debt collector provides proper valid verification. If you believe the debt is not yours, or is an accurate you can request the debt collector provides proper validation, this can help you confirm the legitimacy of the debt, you may have forgotten about some things, seeking professional advice. Wow, that's the last resort. You don't want to do that unless you're soonly overwhelmed. When you're dealing with debt collectors, they, whoever you owe may have turned it over to debt collector. Recently, call them up, not the debt collector, recall the person you owe, and set up a payment plan directly with them. That way, you're not paying that debt collectors fee, because they're going to take a fee. For all the money that you pay them, they're going to siphon off their fee, and pay the rest to who you owe. And you're going to end up paying more. If you can get a hold of the person you owe the money first, directly to that doctor, the hospital, whoever would be the original loan company and set up a payment with them and do that long before they get ready to turn over maybe your first delinquent notice. Or your second delinquent notice, call them up, Don't bury your head in the sand because it will not go away, it only will get worse over time. Call them up, tell them what your situation is and set up a payment plan with them. That is lower than what you owe on a regular basis. Let's say it's a car payment of $1,500 a month, and you're two months behind on it. You know they're gonna foreclose on you call them up, tell them the situation, whatever happened, they probably don't care, but you tell them anyway, Rini document all this. Set up a payment plan for the two months through your past two or three months that you're gonna be passed to coming up at a minimum amount that you can pay, and then agree that you'll start paying the form out at a certain point and time. And once they agree to it, you have it written down, you have them send you a written documentation. So sometime in the future, they turn you over to collections. And when that debt collector calls you you're nice and cordial. Ask them to identify themselves on what debt they're referring to. And you say, I have a payment plan set up with them directly. I don't understand why they turn it over to collections. But I want you to cease and desist on contacted me. Check with the creditor that provide you this debt. Quit contact me cease and desist and then hang up the phone if they don't want to. If they call you back to say I made plans I've got a plan set up I'm current on it. I have it in writing. Quit call me cease and desist that's taken care of and you no longer need to call me hang up again and this don't answer the phone after that. If they keep bothering you. Contact your state attorney general's office about this collection company and tell them what's going on. And now we'll contact them, and you'll get rid of them. So there's ways around it, you know, it, it's gonna be a hassle, it's gonna be time consuming. But we need to stay motivated and discipline during the whole process of getting your debt under control. You got to identify what caused that? Why did you get into a debt problem? How bad is a really laid out in front of ya and see what it is add it up to a spreadsheet. When you identify each and individual debt, you want to know the name of it, the date, the payments, do the minimum balance, the minimum payment, and the current balance. And you do that for all because you need to know how much is due, when it's due and what the minimum payments gonna be. Because to get things started, he got to quit paying any extra on any debt, start paying the minimum balance, because you need that emergency fund. And we need the minimum of$1,000 in there. And you got to get that started. If you're still unsure what to do, there's books and articles, you can Google online, there's lots of things you can do but understand what your dad is, understand what you need to do have an emergency fund, cut your expenses. And if any way possible, you can increase your income, look for other ways to make some extra cash, whether it's a garage sale or yard sale, selling that item you no longer need. Also, he got to have a cut back your lifestyle. He got to be realistic, based on your current income, what you can really afford. Maybe at the time you bought those two expensive cars, you could afford them. And then you bought a home. The banker says you could afford it. But they don't take in consideration utilities, living expenses, and insurance, everything else. Your personal finances, everything, whether it's investing your banking, you're paying your bills, it's your investments is your retirement, it's all your insurance is for protection, insurance, on your home insurance, on your cars, insurance, on your life, insurance on your health, that's there to protect you. And that's all under the term personal finances. It's a big broad everything that runs through your household is considered a personal finance. I'll be back in one moment with my final thoughts are the articles I referred to in my episodes, have a link in my show notes. If you're interested in checking out the software that I personally use to get my demo control. It's in my show notes under shop financial, you need to copy and paste the link. And it will take you to the website. Any questions you can just contact me through that particular website. If you value this podcast and I like to make a contribution, I had a contribution link in my show notes also good. Whatever you feel is appropriate for the information I am providing. I thank everyone for listening to my podcast, perhaps you're feeling overwhelmed by all your debt didn't really know what to do. You found this podcast and you got to learn what are the different types of debt. You got credit card debt, student loans, auto loans and mortgages. Those are the four basic types. You also have payday loans, personal loans that can also add to and compound the problem. Maybe you was like $50 short one week, and payday was Friday and you need to pay a bill on Thursday. So you went and got a payday loan. But somehow it never got paid off. And as compound so now it's 50 bucks turn into 100. Now it's a couple 100 And you have to keep doing it because you never have enough cash or quite get it all paid off. But you got to do it because those are the most expensive type of loans. Maybe you took something to a pawn shop to get some quick cash and was intending to go back and get get the item that you never did. So you lost an item that you now gotta go back to pay full price for it because you pond it, and it's something that you want. So whatever the case is, learning and understanding what that is, and what it will do to your budget, before you borrow the money is very important. So in order to know that you need to one be doing tracking, and to have some type of budget setup, so you can understand what your needs needs are the basic things that you pay for on a monthly basis. Such housing, utilities, everything related to housing, utilities, cell phone, internet. And then the Another category is transportation, your car payments, car maintenance, gasoline, stuff like that. So you can get back forth to work and back and forth to the store. Food is a need because you have to eat to survive, survive and some clothing is a need. Because you have to have clothes to go to work, savings and your minimum payment on your credit cards, those are all needs anything other than that is a want. Take care of your needs first. Know how much they are and when they're do plan ahead and make sure you have enough money to pay them every month before you start spending a bunch of money on once, things he may not need you can do without one of those needs is putting money into that savings account that emergency fund and build it up to a minimum or$1,000 these are goals you should set for yourself one by one goal one is to pay off my debt. Goal two is the credo emergency fund to help me pay off my debt. Goal three is learn and understand what I need to do to get this under control and to keep it under control. So I can live a better life less stressful, and not to worry about money and what to do and how I'm gonna pay it and you'll be glad you did. So