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ICFE eNEWS #16-10 - April 11th 2016

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 do."

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

  • 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.
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 pay less.

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?
Ask Mr. G
Jim Garnett, The Debt Doctor
AskMrG Consulting, LLC
2216 SW 35th Street
Ankeny, IA 50023

Paul S Richard PhotoICFE eNEWS is available FREE upon request by visiting our Web site and filling out the contact form, and selecting "Yes" for "Add to Mailing List. Please pass this eNEWS on to your peers and interested others and invite them to subscribe for free. Also, visit the ICFE's new Web site: StudentDebtHelp.org

Sent by:

Paul S. Richard
President - Executive Director
Institute of Consumer Financial Education (ICFE)

About the ICFE:

The Institute of Consumer Financial Education (ICFE) was founded in 1982 by the late Loren Dunton (creator of the Certified Financial Planner (CFP) designation).  The ICFE is dedicated to helping consumers of all ages to improve their spending, increase savings and use credit more wisely. 
The ICFE is an award winning, nonprofit, consumer education organization that has helped millions of people through its education programs and Resources. It publishes the Do-It-Yourself Credit File correction Guide, which is updated annually. The ICFE has distributed over one million Credit/Debit Card Warning Labels and Credit/Debit Card Sleeves world wide.

The ICFE became an official partner with the Department of Defense/Financial Readiness Campaign in June of 2004.The ICFE was an active partner in the California Student Debt Resource Awareness Project (CASDRAP) which resulted in a new web site: (studentdebthelp.org).  CASDRAP disbanded in 2010, shortly after the web site project was completed.  In 2011 the ICFE assumed the single sponsorship of the (studentdebthelp.org) web site and is now responsible for its content and operation.

The ICFE is also an on-line help for consumers who spend too much.  ICFE's spending help was featured in PARADE Magazine in the Intelligence Report section. The money helps and tips are from the ICFE's Money Instruction Book, our course in personal finance.

Visit the ICFE's other web sites at: www.financial-education-icfe.org and studentdebthelp.org.  Both sites helps consumers and students with mending spending, learning about the proper use of credit, budget and expense guidelines, how to set up and implement a spending-plan and also how to access financial education courses and how to teach children about money. Other ICFE services include: Ask Mr. G,  a free eNews, and an online resource center for students, parents and educators, plus financial education learning tools and a book store.

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