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8 Step Guide To Getting Out of Debt

8 Step Guide To Getting Out of Debt

Debt is like a noose around your neck. It irritates, suffocates and stifles the life out of you. No worries. We have a plan that will help spring you free and turn your frown upside down.

We’ve all read the success stories of people who got rid of their debt in 12-24 months. What they all had in common was a willingness to acknowledge, assess and tackle their problem head on. Using some of the most successful techniques out there, here’s an 8 step guide to help you get back on track.

List Your Debts

Before you can tackle your debts, you need to know your debts. Make a list of each loan or credit card, with the creditor’s name, balance owed, interest rate, minimum monthly payment required, and due date (if any). Loans include mortgages, leases, car payments, lines of credit, sales finance loans, overdraft, payday, etc.

Negotiate Lower Rates

Before you call a debt settlement company, see if you can do what they do. Call up each of your creditors and ask for relief. There are two strategies lenders typically use to reduce your pain.

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First, they can cut your interest rate. Credit card companies are most adept at this. Often you can go from a 19.99% rate to 11% or lower, cutting the cost of your debt by half.

Other times, lenders may be willing to reduce your minimum payment to ease your monthly obligation. This won’t lessen the cost of your debt, because you’ll pay for it over the long term, but it will make it more manageable within your budget.

Do A Balance Transfer

If you have high interest credit card, store card, even a line of credit, sometimes the fastest and most effective way to reduce your interest is by doing a balance transfer. Often times balance transfer credit cards offer 0% promotional rates for 12-24 months. The other advantage of balance transfer cards are that they allow you to consolidate multiple cards into one loan, and one payment.

If you do a balance transfer you’ll still have to make monthly minimum payments. Ideally, you’ll use the 12 months or more to pay down as much of the principle as you can, while it’s interest free. In the end you’ll have to figure out what to do when your promotional rate expires, because once it does, your interest rate will go back up to the 20% range. You can do yet another balance transfer, pay it down with a line of credit, or pay down your balance with cash.

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The High-Low

One strategy suggests you pay your high interest loans first. Mathematically, the faster you get rid of your most expensive debt, the cheaper your total debt obligation will be.

The way to do this is to rank your debts by highest to lowest interest rate. Calculate the minimum payment for each of your debts. Now whatever else you can afford to use to pay down your debts you should allocate towards the highest interest debt.

Snowball It

The other strategy, the snowball plan, says you should pay down your smallest loans first. The idea here, is that as you start knocking smaller debts off, you’ll start to feel more empowered, successful and organized.

The way to do this is, rank your debts by highest to lowest balance. Calculate the minimum payment of each of your debts. Then allocate left over funds towards the debt with the smallest balance. Cleaning up debts with $200, $500, or $1,000 balances will quickly make you feel like you’re on top of your game, and reduce the risk of missing a payment here or there.

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Tax Refund

Ever get a surprise tax refund? How about a planned tax refund. Either way, if you do, this time you’re not going to use it for an unplanned vacation. Use it to pay down your debt, either with the snowball or high-low strategy.

Sell, Sell, Sell

It’s guaranteed you have tons of “stuff”. You’re probably sitting on thousands of dollars of stuff you no longer use, but someone else can. Go on Craigslist, or ebay and start selling stuff you no longer use, pocketing $50 here, or $100 there. We’re talking things like your old treadmill, dumbbells, record player, teddy bear collectibles, baseball cards, bandsaw, etc… whatever you’re no longer using. Kids toys, strollers, cribs, high chairs, and car seats are great places to start.

You might even consider selling and/or downsizing some of your bigger ticket items like your car, ATV, boat, snowmobile, camper etc…

Cash Is King

For some psychological reason, study after study has shown that using plastic prevents us from assessing and feeling the impact of making purchases. As a result, we’re willing to spend more for the same items with plastic than we are with cash. We also have a harder time keeping a budget with plastic.

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The result? Your credit cards need to be put on ice. Don’t cancel them, because truthfully, sometimes they’re a necessity, like for hotel reservations or car rentals. But take them out of your wallet, and put them in your mother’s underwear drawer (that’ll make you think twice).

Also get rid of your debit card. While better than a credit card, it still allows us to overspend, and can impair your ability to keep to a budget properly.

The best way to stick to your budget is to take it out cash at the beginning of every month. Put it in an envelope (the envelope budget) and use it as needed. You will be shocked how much this will help you.

Featured photo credit: Michael Frank, Bankruptcy – to scissors a credit card, Flickr via flickr.com

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Marc Felgar

Marc Felgar is an aging, health & senior care expert focused on improving the lives of mature adults.

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Published on May 7, 2019

How to Invest for Retirement (The Smart and Stress-Free Way)

How to Invest for Retirement (The Smart and Stress-Free Way)

When it comes to stocks, I bet you feel like you have no idea what you’re doing.

Everyone who’s not a financial expert has been there. I’ve been there. But, time is passing and you need to be crystal clear with how you’re investing for your retirement.

Otherwise, it’s back to work until you can afford not to. So, how can you invest for retirement when you’re not a financial expert?

You take the time to learn the fundamentals well. If you do, you can grow your wealth and retire happy. The best part is that you don’t need to be a financial expert to make smart investment decisions.

Here’s how to invest for retirement the smart and stress-free way:

1. Know Clearly Why You Invest

Odds are you already know why should invest for retirement.

But, maybe you know the wrong reasons. It’s time you get clear on why you’d like to retire. Here are some questions to help you get started:

  • Will you spend more time with your family?
  • What does retirement mean to you?
  • Are you looking to launch that business you’ve been holding off for years?

Everyone wants to retire but not for the same reasons. Once you’re clear for why retirement is important for you, you’ll focus on making it happen.

Investing in the stock market allows you to take advantage of compound interest.[1] All this means is that your money earns money on top of its interest. A reason why investment in the stock market is one of the best ways to plan for retirement.

2. Figure out When to Invest

“The best time to plant a tree was 20 years ago. The second best time is now.”– Chinese Proverb

It’s true if you’d had started investing when you were 10 years old, you’d have a lot more money than you do today.

The reality is that most people don’t start investing until it’s too late. So, if you’re currently waiting for the perfect time to start an investment, it would be today. Open your calendar and block out 2 to 3 hours to choose how you’ll invest for retirement.

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A quick way to get a snapshot of where you stand is to use Personal Capital. Input all your personal information and spend some time setting your retirement goals. Once completed, you’ll know where you stand with your retirement.

Having a savings account for retirement isn’t planning for retirement. Why? Your money loses value when you factor in US inflation.[2]

3. Evaluate Your Risk Tolerance to Create the Perfect Portfolio

Investing your money well depends on your emotions.

Why?

Because when the market drops most people panic and withdraw their money. On average, the US stock market yields an annual 6% to 7% ROI (return on your investment.) But, this won’t happen if you’re worried about short-term loses.

Before you invest your next dollar, know your risk tolerance.[3] Your risk tolerance determines the number of risky and safe investments you’d have.

Regardless of your investing style, you need to view investing for retirement as a long term game. Know that some years you’ll lose money but recoup this in the long-term.

Avoid watching market-related new. Also, create a double authentication to log in your investment account. This way you’re less likely to withdraw your money.

4. Open a Reliable Retirement Account

Depending on your circumstance, you may need to open a new brokerage account. This is the account is where you’ll invest your money.

If you’re currently working for a company, odds are that they offer a 410K investing account. If so, here’s where you’ll invest most of your money. The only problem with this is that you’re limited to the stock options that are available.

You do have the option to open a separate IRA (individual retirement account.) Here are some of the best brokers:

  1. Vanguard
  2. TD Ameritrade
  3. Charles Schwab

5. Challenge Yourself to Invest Consistently

Committing to invest for retirement is hard, but continuing to do so is harder.

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Once you’ve started investment for your retirement, you run at risk from stopping. Often you’ll want to contribute less, so you’d have more money in your pocket.

That’s why it’s important that you create a budget that allows you to invest each month. If you’re working for a company, you can set a percentage for the amount you’d like to contribute each month. Most people by default contribute 1% but aim to contribute 10% to 15%.

Be the judge for how much you can afford to contribute after covering important expenses. To stay motivated, use Personal Capital to view your net worth.

A benefit to contributing money to your retirement account is not taxed. For example, if you earn $100 and invest 10%, you’d contribute $10, then get taxed on the remaining $90. As of 2019, the most you’re able to contribute towards your 401K is 19K but this can change.

6. Consider Where to Invest Your Money

The most common way to invest your money is in stocks, but it’s not the only way. Here are other ways to invest:

Robo Advisors

Robo-advisors[4] are fancy algorithms that’ll choose the best investments for you. Sites like Wealthfront make it easy for first-time investors to invest their money. You’d input information about yourself and set your risk tolerance.

Then, set your monthly contribution amount and your robo-advisor would do the rest. Robo-advisors charge a fee to manage your money, but less than regular advisors.

Bonds

Think of bonds as “IOUs” to whomever you buy them from.

Essentially, you’re lending money and charging interest. Like stocks, not all bonds are equal. Some will be riskier than others depending on their rating.

Here are the different types of bond categories:[5]

  1. Treasury bonds
  2. Government bonds
  3. Corporate bonds
  4. Foreign bonds
  5. Mortgage-backed bonds
  6. Municipal bonds

Mutual Funds

Picture a group of people dumping all their money in a jar that’s managed by a professional. This is how mutual funds work. The fund manager manages the money looking to earn capital gains (interest.)

One of the best types of mutual funds is index funds. Since these funds don’t try to beat the market and instead follow it, they need less research. Because of this they often charge the lowest fees and yield the best long-term results.

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Real Estate

Yes, buying a home is an investment when done correctly.

Imagine buying a home and using it as a rental property. After repairing it, you receive a monthly surplus check of $100 to $200.

This may not sound like a lot, but repeat this process enough times and you’d earn a large amount of passive income. That’s why real estate is one of the best investments to not only retire but become wealthy.

But, it requires a lot of money to start and you should expect losing money along the way as you learn the process.

Savings Accounts

Your money can still grow in a savings account. Nowadays most online banks offer a 2% annual return. Although the average inflation is higher your money will be available when you need it.

7. Master Disincline to Dodge Short Success

Investing for retirement is a long-term strategy. That’s why you need to master delayed gratification. All this means is delaying short-term pleasure for something bigger in the future. Research shows that those who have delayed gratification are more successful.[6]

So how can you master delayed gratification?

By building your discipline.

Think back to what retirement means to you. A clear purpose will help you avoid withdrawing your money during a market downturn. It’ll help you contribute more towards retirement when you’d want to waste it instead.

Your journey towards retirement will be long, so reward yourself along the way. Choose a reward that’s relevant and meaningful, so that you reinforce positive behavior. For example, after contributing more towards retirement, treat yourself to dinner.

8. Aggressively Invest on This One Investment

I’ve mentioned several types of investments but haven’t covered the most important one.

It sounds cliche but here’s why you’re your best investment towards retirement. The more you know, the more money you’ll be able to make. The more good habits you adopt, the more secure your retirement will be.

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More importantly, investing in yourself is an investment that no one can take away. There’s no market downturn nor tragic circumstance that’ll wipe your knowledge and experience.

But, how can you invest yourself?

Reading books, blogs, and anything that’ll help you learn new topics daily. Listen to podcasts and audiobooks on your commute to/from work.

Save money to buy courses and hire coaches. I used to believe hiring coaches was a waste of money when I could learn the subject alone.

But, coaches see your blind spots and hold you accountable. Hiring the right coach will help you achieve your goals faster than you would’ve alone.

Retire Happy with Excess Money

The key to a secure financial future doesn’t only belong to financial experts.

It’s possible for you and I. What if you were able to retire earlier than most people and weren’t a financial planner? What if you were able to focus on what you enjoy doing the most while your money was working hard for you?

I know this sounds impossible now, but the truth is you’re capable of taking charge of your retirement. I’m not a financial expert but I’ve learned how to invest my money by reading books and learning from others.

Investing your money is scary. So start small and invest a small amount of your money with a robo-advisor. Feel your money drop and rise for a month or two. Then, invest more and keep this up until you’re aggressively saving for retirement.

One day, you’ll wake up with a net worth you’re proud of – confident about your retirement. You now know a few strategies you can use to invest in your retirement. Will you take action to retire happy?

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Featured photo credit: Matthew Bennett via unsplash.com

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