Debt
MONDAY MONEY TIP PODCAST: Is All Debt Bad?
Welcome to this week’s edition of the Monday Money Tip Podcast! This week, my co-host, Megan Hibbard and I are discussing debt and if there is a such thing as good debt. We also have some interesting statistics for you from the Motley Fool in regards to the average American and their finances and a success story from a woman who now has a net worth of $1,000,000. Make sure you tune in to get your tip today!
It’s our goal at the end of each episode that you gain hope and encouragement in your financial journey, you’re equipped to take a next step, and that you’ve had FUN with us!
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Show Notes
About the Episode:
- Joe answers the question, “I have debt but is there a such thing as good debt or is all debt bad?”
- Joe shares some interesting statistics from the Motley Fool.
- Hear a success story about a woman who started using our tactics 8 years ago and now has a net worth of $1,000,000.
- Joe shares a tool that can be useful for you in your financial journey.
Resources:
Motley Fool Article
Credit Sesame
Credit Karma
Quote of the Day: “Build financial margin up during PEAK times so it can help cover you during WEAK times.” -Joe Sangl
Actual Cost of Debt Calculator
Do you know what your debt is really costing you? How much of your monthly payments to your debt is actually going to principal and working at attacking your debt? Use our Actual Cost of Debt tool today to find out! By entering in the name of the debt, the amount you owe, the monthly payment and annual interest rate, the tool will calculate the amount of interest you are paying per month and per year. It also shows the overall percentage of your payments that are being applied to your principal balance and your debt freedom date.
Take some time to calculate what your debt is costing you in interest payments. If you are carrying a balance on credit cards from month to month, consider using a 0% balance transfer HERE. This can allow you to start applying 100% of your payments to debt and accelerate your debt freedom date.
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0% Balance Transfer Credit Cards
Do you carry a balance on your credit card from month to month? If so, you are likely paying hundreds, if not thousands, of dollars in interest year after year. You should consider transferring your balance to a 0% Balance Transfer Credit Card.
Most people want to pay off their outstanding balance but feel stuck due to the interest rate that is applied to the credit cards each month. 0% balance transfer credit card offers provide a way to eliminate a credit card debt very quickly and can provide HUGE savings over keeping a balance on a high interest card.
Here is how it works:
Suppose you transfer a balance of $5,000 from a card that has a 21.99% interest rate. You apply for a 0% balance transfer credit card. This offer comes with a 3% balance transfer fee, but it also provides 0% for 18 months.
Upon acceptance of your application, the 3% balance transfer fee ($150) will be applied to your balance on the new credit account making your total balance owed equal $5,150 ($5,000 balance that was transferred PLUS the $150 balance transfer fee).
Now comes the good part! You now owe 0% interest for the 18 month period – as long as you make all of your payments on time, of course. By taking 15 minutes to do a little research and apply for a 0% interest card, you can eliminate hundreds or thousands of dollars in interest and accelerate your debt freedom date.
We keep a running list of these credit cards HERE on the I Was Broke. Now I’m Not. website.
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Calculate Your Debt Freedom Date
Do you know the date of when you will be debt free? The 8th wonder of the world is compound interest and it will work against you every single day that you pay interest to someone else! Interest payments have the power to keep you broke. I have yet to hear a person who is living a fully funded life tell me that their car loans and credit cards were the reason they became wealthy. So what should you do about your debt? You can start by calculating your Debt Freedom Date by using the calculator found HERE on our website.
You will document every debt you owe including the name, balance and the minimum monthly payment. You will be able to see just how close or far away your debt freedom date is. This is so empowering because once you know, you can make changes in your lifestyle to move that date closer and closer to you.
Our team has conducted research to document the steps people have taken to speed up their climb to debt freedom:
- Reduce Interest Rates: Many people with substantial consumer debt do not realize that 50% to 75% of their payments are merely going to the lender as interest payments – greatly reducing their ability to lower the debt. If you have high interest rate credit card balances, consider transferring them to a 0% interest balance transfer credit card. If your mortgage interest rate is higher than those listed at BankRate.com, consider refinancing.
- Pay Raise: Are you being compensated fairly? Few things speed up debt elimination faster than receiving additional income from your current job.
- Tax Refund: A tax refund might be an “interest free loan to the government” but it also represents an opportunity to force yourself to save money which can be used to impact debt in a big way.
- Bonus: Do you receive an end of the year bonus? Use it the same way you would as a tax refund by throwing it towards that outstanding debt.
- Found Money From Better Budgeting: When I started preparing and living by a budget, it literally transformed my finances. I freed up hundreds of dollars each month that was disappearing in the form of “miscellaneous ATM cash withdrawals” and impulsive purchases.
- Sell Some Possessions: Sell the boat, motorcycle, extra car, and collectibles. Eliminating possessions will free up space, eliminate stress, and greatly speed up your debt freedom date.
- Work Overtime: If you have the chance to earn additional income by working extra hours, you can use this money to speed up debt reduction.
- Extra Job: If you do not have the opportunity to work overtime at your existing job, obtain a second job – or start a small side business. The key here is to focus on something short term and commit to putting all additional money earned towards debt.
However you decide to eliminate your debt faster, the first step is knowing your debt freedom date. Calculate yours today!
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Types of Debt
Do you feel like you are drowning in debt? Like the payments are consuming your entire paycheck and you can never get ahead? Or worse, there really is not enough money to pay for basic living expenses and cover the debt payments you owe? If you are in a situation where you do not have enough money to pay for everything, I would suggest prioritizing in this order:
- Housing
- Food/Prescription Medicine
- Transportation
- Back Taxes
- Secured Debts
- Family & Friends Debts
- Unsecured Debts
As you can see, your debts would actually be addressed last. So many people are so terrified of creditors that they make sure these payments are made first. I would suggest the opposite. Once you have your basic living expenses covered, it is then time to decide which debts are going to get paid. At this point it is very beneficial to have an understanding of the different types of debt and how they operate.
The first type of debt you should focus on paying back is secured debt. This is debt where the lender can come take something – like a car, boat, motorcycle, tractor, etc. If the lender repossesses the item, they will sell it at a wholesale auction and then come after you for the difference.
The next type of debt I would suggest paying off would be debt to family and friends. I feel this is important because unpaid debts to family and friends have been the cause of relationship issues. It is essential to pay back these debts to avoid these problems!
The last type of debt to pay is unsecured debt. These are the debts that are screaming at you the loudest to pay: credit cards, student loans, signature loans, etc. Why are these creditors the loudest? Because there is nothing they can come take from you! The debt is not attached to anything that they can come and repossess. This is why creditors will play on your emotions to get you to pay them before anything else. I have met so many people who are up to date on their credit card payments but behind on their house payment. I do not want this to be you! Pay your secured debts first!
So go back to your spending plan and make sure that you have all of your priorities in order. If you cannot make all of your payments this month, make sure you are prioritizing and paying the most important first.
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