ICFE eNEWS #16-10 - April 11th 2015
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Ready For A Change
By Jim Garnett, a/k/a Ask Mr.G, a member of the ICFE's Board of Educational Advisors
If you are living "paycheck to paycheck" and never seem to be able to
get ahead, maybe you are ready for a change?
The Martin's are a pretty average family, as far as families go. They
"live paycheck-to-paycheck," don't have much in savings, and never seem
to get ahead financially, regardless of the fact that both have received
steady raises over the years. They say they are tired of living like
this and would like to get out of debt. They are ready for a change.
One day they sat down together and discovered that they have a total of
$257,430 of debt and are spending $2,463 every month making payments
toward it. These debts include their mortgage, two cars, student loans,
and five credit cards.
The Martin's have just met with a counselor and have been told that with
a little preparation and a focused plan, they can be completely out of
debt in about 10 years! Mr. Martin told his wife, "Imagine what we would
could do with the money that we have been spending on debt! We could
adequately fund savings, retirement, college educations for our kids,
charitable contributions, and even a few special projects we'd like to
Here's an abbreviated version of what the Martin's were told they must
do in order to realize their dream of being out of debt.
The Required Preparation
- Discover whether their monthly spending is greater or lesser than
their income. They downloaded a helpful sheet from AskMrG.com that
assisted them in listing everything thing like housing, groceries ($200
per person per month), car expenses such as payments, gas, insurance,
and maintenance ($50 per month), utilities, medical, lunches, clothing,
daycare, pets, contributions, savings, and miscellaneous entertainment.
They consulted their checkbook ledger, their credit card statements,
plus wrote down their cash expenses in a small notebook for a month.
In order to get where we want to be financially, we must know where we
are. If we spend more than we make each month, we have a couple of
options to make things better: (1) make more, or (2) spend less.
Without a monthly positive cash flow, we will be destined to failure in
our attempt to get out of debt.
- Decide to stop creating additional debt. To create more debt while
we are trying to get out of debt is like trying to fill up a bucket with
a big hole in the bottom. The leak has to be stopped before progress can
be made. Stop using credit cards for a while to give you a much better
perspective of what and how much you can afford to spend.
The Required Plan
This plan triggers a "snow ball" effect in paying off debt that enables
it to be paid off much faster than we otherwise would. It does not
require us to pay more toward debt than we presently are, just not to
- View your debts as one debt. In three columns list the names,
balances, and the monthly payment for every debt you have. Include such
things as credit cards, student loans, mortgages, cars, boats. Total
balances and the monthly payments so you know how much debt you have
plus how much you are paying on those debts each month.
- Pay each creditor his monthly payment and do not decrease that
payment until that debt is completely paid in full.
- Transfer the payment of each paid off debt to the next smallest
debt. Any extra payment applied toward a debt almost always goes toward
the principal and greatly expedites the payoff.
If the Martin's divided their total debt ($257,430) by their monthly
payment toward debt ($2,463), they would see approximately how long it
will take to pay off their debt not including interest charged. That
would be 104.5 months or 8.7 years!
Chances are that without a plan to get out of debt, the Martin's will
pretty much have the same amount of debt in 8.5 years as they do now.
When most of us pay off a debt, we are ready to create another debt to
take its place. This tried and tested plan really works! We know because
in 2008 we became debt free!
This article is certainly not an exhaustive study on the subject of
becoming debt free. I would heartily recommend Dave Ramsey's book "Total
Money Makeover," or if there is a "Financial Peace University" seminar
near you, it is well worth the money to attend.
Are you ready for a change?
© Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023
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