RPF0595-Credit_Card_QA-Getting_Out_of_Debt_Paying_off_Student_Loans_Using_Cards_for_Business_Inventory
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00:00:30.620 | Welcome to Radical Personal Finance,
00:00:32.120 | a show dedicated to providing you with the knowledge,
00:00:33.820 | skills, insight, and encouragement you need
00:00:36.060 | to live a rich and meaningful life now
00:00:38.160 | while building a plan for financial freedom
00:00:39.760 | in 10 years or less.
00:00:41.600 | Today, we talk about credit cards.
00:00:46.600 | I didn't plan to do any more shows on credit cards
00:00:49.180 | for a while, but last Friday,
00:00:51.980 | I did a show on a credit card Q&A show.
00:00:54.640 | And in preparation for that show,
00:00:56.620 | I had written to my current students
00:00:58.880 | of my newest course called How to Borrow Money Safely
00:01:02.120 | and Never Pay Interest using credit cards.
00:01:04.320 | I'd written to those students and I said,
00:01:06.220 | I'll answer all your questions, so call into the show.
00:01:08.660 | So I did the Q&A show, the call-in show.
00:01:10.600 | And after the show, I was looking at my email
00:01:12.540 | and I found several questions that I just missed.
00:01:15.240 | I don't know how I missed them.
00:01:16.840 | I guess my email didn't download properly.
00:01:18.740 | Who knows, my fault.
00:01:19.900 | So I am today, I told my students I would do it.
00:01:23.780 | So today I'm following through
00:01:26.320 | and finishing another Q&A show.
00:01:27.980 | So I hope you've enjoyed these.
00:01:30.420 | It's been a great, I've enjoyed covering these topics.
00:01:33.920 | The things I haven't really seen addressed very much
00:01:36.500 | out in the world of personal finance
00:01:39.920 | and I hope you've enjoyed it.
00:01:41.160 | I've had a lot of great feedback
00:01:42.700 | from people who have put some of these strategies
00:01:45.740 | into action and that's what I love.
00:01:48.600 | The most important thing to any teacher
00:01:51.380 | is to see a student actually doing something
00:01:54.440 | with what they have taught.
00:01:55.780 | Here's a tip to those of you who are younger
00:01:58.520 | and who are older.
00:01:59.920 | The most powerful strategy,
00:02:01.920 | if you wanna be an effective student,
00:02:04.080 | the most powerful strategy for you to take as a student,
00:02:07.500 | be it in primary school, in secondary school,
00:02:10.960 | in upper university education, advanced education,
00:02:15.140 | is ask your teachers what their advice is,
00:02:19.140 | what they want you to do, and then do it.
00:02:21.340 | And then go back to the teachers
00:02:22.600 | and tell them how you did what they told you to do.
00:02:25.100 | What they told you to do.
00:02:26.800 | Because almost nobody does that.
00:02:28.700 | But if you do that, you'll quickly become the teacher's pet.
00:02:31.700 | Just like that.
00:02:32.740 | I mean, it's a can't lose strategy.
00:02:36.040 | If you actually do what your teachers recommend,
00:02:39.080 | you are such a weirdo, you'll be on their radar screen.
00:02:42.040 | Here's a part number two for those of us
00:02:44.680 | who are not students, or excuse me,
00:02:47.180 | those of us who are not formally enrolled
00:02:48.660 | in formal student teacher relationships necessarily.
00:02:51.880 | If you wanna bring yourself to the attention
00:02:53.920 | of an important business leader, a wealthy person,
00:02:58.160 | it's very simple.
00:02:59.720 | One, ask for advice on something that's actually relevant
00:03:03.840 | and specific to you.
00:03:05.600 | That advice can be as simple as,
00:03:07.560 | what do you think I should do
00:03:08.560 | with my money in this circumstance?
00:03:10.440 | Or what do you think, what book do you think I should read?
00:03:13.060 | Or what do you think I should be studying right now?
00:03:15.000 | Or what should I be paying attention to?
00:03:16.240 | I don't know.
00:03:17.060 | You ask for advice.
00:03:17.920 | One, ask for advice.
00:03:19.800 | Two, do what you're told.
00:03:23.960 | If you do what you're told,
00:03:26.440 | and then three, go back and tell the person
00:03:29.160 | that you did what they told you to do,
00:03:31.320 | you are such a weirdo,
00:03:34.480 | you will stand out on anybody's radar screen.
00:03:38.360 | So tip for you.
00:03:40.080 | Back to credit cards.
00:03:42.240 | I love to hear people taking advice.
00:03:43.760 | Let me give you an example.
00:03:44.640 | On the most recent Friday Q&A show,
00:03:47.600 | sorry, the most recent Friday credit card Q&A show,
00:03:50.440 | which was the second one ago,
00:03:52.760 | I had a listener, a student of mine who called in,
00:03:55.600 | and this student was asking about
00:03:57.800 | if they should refinance a portion of their mortgage debt
00:04:02.200 | onto a credit card in order for them
00:04:05.000 | to be able to remove the PMI,
00:04:07.520 | the private mortgage insurance,
00:04:09.000 | from their mortgage payment.
00:04:10.720 | Their calculation is if they were able to refinance
00:04:14.060 | that portion of their mortgage debt
00:04:15.400 | to get them down below that 80% loan-to-value ratio
00:04:18.160 | such that they could get rid of PMI,
00:04:19.760 | if they could refinance that over onto a credit card,
00:04:22.460 | it would save them about $1,500.
00:04:24.960 | Now, they were also working hard
00:04:26.240 | to pay off their credit card debt separately.
00:04:27.880 | And so we talked through the different strategies
00:04:29.680 | and options, and I recommended,
00:04:30.800 | yeah, I think it's a good idea if you can do it.
00:04:32.720 | Well, here was the feedback.
00:04:34.200 | Listener wrote in and said,
00:04:35.680 | "Joshua, thank you for the Q&A.
00:04:37.200 | "I got approved for two cards in about five minutes.
00:04:40.280 | "I increased my available credit by 50%
00:04:43.760 | "even after including the mortgage principal payment
00:04:45.940 | "to get rid of PMI.
00:04:47.600 | "I also found a better daily use card,
00:04:50.140 | "an Amex Blue, which gives me 6% back on groceries
00:04:53.160 | "and 3% on gas, up to $6,000 a year.
00:04:55.360 | "Thank you."
00:04:56.200 | Now, here's the cool thing about it.
00:04:59.720 | Number one, that listener is saving money.
00:05:02.600 | They're saving money two ways.
00:05:04.480 | Number one, they are removing the PMI payment
00:05:08.680 | from their mortgage.
00:05:11.280 | That's gonna save them 1,500 bucks.
00:05:13.240 | Number two, although they didn't tell me
00:05:16.000 | all the details of it,
00:05:17.040 | number two, they're actually gonna be saving money
00:05:19.960 | on interest because I bet their effective interest
00:05:22.780 | on these credit cards is cheaper
00:05:24.500 | than what they're paying on their mortgage.
00:05:25.940 | So they're saving a tiny little amount of interest.
00:05:29.620 | They're improving their safety and their security,
00:05:33.380 | and they're improving their credit score all at once.
00:05:36.020 | And when you put all of these things together,
00:05:38.100 | it's going to help them to get out of debt faster,
00:05:42.500 | to get their credit card paid off faster
00:05:45.580 | because they're spending less money.
00:05:47.160 | So $1,500 not spent on private mortgage insurance
00:05:52.160 | is $1,500 that can be spent
00:05:55.200 | on lowering credit card balances.
00:05:57.480 | And so that's what I call a win, win, win, win, win,
00:05:59.480 | or win, win, win, win, win, win, win,
00:06:01.040 | or however many wins you want to insert.
00:06:03.780 | Which brings me to my first letter
00:06:06.800 | that I wanna talk about with you
00:06:09.160 | that's not specifically related
00:06:10.720 | to a question from a student first.
00:06:12.920 | Listener writes in and says,
00:06:13.760 | "Joshua, been a listener for a few years now,
00:06:16.320 | and I've truly enjoyed your podcast and your ideas.
00:06:18.400 | Two things I'd like to share though.
00:06:19.800 | First, I'm a little disappointed in your recent class
00:06:21.920 | regarding the benefits of credit cards.
00:06:23.800 | I didn't purchase the class,
00:06:25.280 | so I haven't heard all of the material.
00:06:27.600 | All of the points you made
00:06:28.760 | and the portions you shared on the podcast are legitimate.
00:06:31.800 | However, the last thing Americans need
00:06:34.440 | is a reason to use credit cards.
00:06:37.040 | There's more than enough debt in this country.
00:06:39.880 | I didn't realize it at the time,
00:06:41.440 | but when my wife and I carried credit card debt,
00:06:43.840 | it stressed me out and it stressed our marriage.
00:06:46.560 | I have to go with Dave Ramsey on this one
00:06:48.080 | and argue that debt is generally not good for your health.
00:06:51.960 | I'm not angry, I'm just surprised that you took this angle
00:06:54.760 | and felt like I should give you that feedback."
00:06:58.240 | Now, this is a great letter,
00:06:59.680 | and I know that I have no problem with it.
00:07:02.160 | I responded to my listener very clearly,
00:07:04.600 | and it's not a problem in the least,
00:07:07.040 | but I've received other communication.
00:07:08.400 | I know that there's a good chance
00:07:09.400 | that you've probably thought exactly the same thing.
00:07:12.760 | Just a couple of quick comments.
00:07:14.960 | Number one, I tried to be clear,
00:07:17.600 | and I try very hard to be clear,
00:07:20.640 | that there are people who should not
00:07:22.720 | take my credit card course.
00:07:24.240 | And those are people who don't have a credit card,
00:07:27.800 | don't have credit card debt,
00:07:29.560 | and will never, ever, ever have a credit card
00:07:33.680 | or go into debt.
00:07:35.880 | Now, if that is you,
00:07:41.280 | you are not wrong,
00:07:43.040 | but you are very rare.
00:07:46.640 | I repeat, if you don't owe any money,
00:07:51.320 | you don't have a credit card,
00:07:53.400 | you will never borrow money in the future,
00:07:55.440 | you'll never get a credit card or any other form of debt,
00:07:58.440 | no matter what,
00:08:00.400 | you are not wrong,
00:08:01.640 | but you are very rare.
00:08:05.720 | I encourage you, maintain your convictions.
00:08:09.600 | It's going to be very hard for you to get into trouble.
00:08:12.880 | I can design a few circumstances
00:08:16.040 | in which things will not work out as well for you
00:08:20.880 | as they might for other people,
00:08:22.080 | but I could also design other plans
00:08:24.520 | that would help you to avoid them.
00:08:26.200 | For example, I was working with a client the other day,
00:08:28.960 | and we were talking about asset protection planning,
00:08:32.160 | and I was talking about equity stripping.
00:08:34.120 | And one of the valuable ways
00:08:37.200 | of doing asset protection planning
00:08:40.480 | is to remove equity from certain assets,
00:08:45.240 | especially assets that are not otherwise protected,
00:08:48.080 | in order to reduce their economic value
00:08:52.200 | or to reduce their attachableness by a creditor.
00:08:55.360 | There are three overall basic asset protection strategies.
00:08:58.800 | One is exemption planning,
00:09:00.080 | two is asset titling,
00:09:01.120 | making sure that all your assets are titled
00:09:02.480 | on some form of protective entity,
00:09:03.800 | and then number three is equity stripping
00:09:05.440 | or encumbering an asset with debt.
00:09:07.360 | Now, that's a very useful tool
00:09:10.760 | in the hands of a good planner to say,
00:09:12.920 | "Hey, here's an asset that is exposed
00:09:14.800 | "to the claims of creditors.
00:09:16.480 | "Let's encumber this asset with debt
00:09:18.760 | "so that if a creditor were to attack this asset,
00:09:23.360 | "there would be no equity for them to get.
00:09:25.400 | "And then let's take that equity
00:09:27.160 | "and let's move it over into another space."
00:09:29.480 | I was working on this the other day.
00:09:30.760 | And the point is, in this strategy,
00:09:34.240 | you can say, "I'm not gonna borrow money."
00:09:37.600 | But at the end of the day,
00:09:39.360 | if you're not going to strip that equity off the asset,
00:09:42.320 | you've got to use some other plan and some other approach.
00:09:44.560 | And you can usually do that.
00:09:46.360 | So I commend to you
00:09:50.280 | that if you're not gonna borrow money, great, I support that.
00:09:52.760 | I encourage you in that, but you're very rare.
00:09:55.240 | Now, the next thing is to know this.
00:09:59.920 | Ignorance of how things work
00:10:04.720 | is not necessarily a virtue.
00:10:06.480 | For example, I recently, I shouldn't even,
00:10:11.740 | I should be a little circumspect about that.
00:10:16.920 | Let me put it this way.
00:10:18.560 | I read things about things that I will never do,
00:10:23.120 | but I still wanna know about them.
00:10:27.280 | I still am interested in them.
00:10:29.600 | And I still feel like the strategies
00:10:31.480 | or the ideas are applicable.
00:10:34.240 | And so that's one of the things
00:10:36.120 | that I always hold to with education.
00:10:38.000 | Ignorance is not, it's not a virtue.
00:10:42.580 | Just because I know how to screw my creditors out of debt,
00:10:46.680 | out of all the money they've lent me,
00:10:49.440 | doesn't mean I'm going to do that.
00:10:51.580 | But I also need to know how the systems work
00:10:55.400 | so I can be protected no matter the circumstance.
00:10:58.120 | Because people who are ignorant
00:10:59.720 | are usually spit up, chewed up,
00:11:05.120 | and spat out to die in a financial system
00:11:09.120 | that preys upon them.
00:11:11.340 | One of the things I'm most hoping can happen
00:11:15.920 | from this newest course that I built
00:11:18.240 | is that you will take the information that you are learning
00:11:21.160 | and you will go and help that person
00:11:24.240 | who will never listen to me.
00:11:26.780 | Most people will never listen to me,
00:11:29.060 | but you can go and you can help them.
00:11:30.700 | And you can help them to be on the defense
00:11:32.900 | because here's the reality.
00:11:34.500 | Most people bumble into credit card debt.
00:11:37.180 | They don't have a clue what they're doing
00:11:38.660 | and they get eaten up and destroyed
00:11:41.260 | because they don't know how to defend themselves.
00:11:44.020 | Please let that not be you.
00:11:45.580 | Now let's answer some questions
00:11:46.820 | and here's some info for you.
00:11:48.860 | We begin with a question from
00:11:54.620 | from Mario.
00:11:56.780 | Mario writes in with a question.
00:11:57.860 | I'm going to simplify, he gives a lot of data.
00:12:00.100 | Hold with me, I'm gonna simplify the data
00:12:01.860 | for verbal audio math.
00:12:04.420 | Mario's working with some clients who live in Florida
00:12:06.980 | and he's trying to help them.
00:12:08.560 | They owe a total of $7,200 of credit card debt
00:12:11.860 | across three cards with 11 1/4% interest,
00:12:15.020 | 24 1/4% interest, and 24 1/2% interest
00:12:19.180 | dividing with the different payments.
00:12:21.660 | They're making minimum payments,
00:12:23.580 | but maybe just a little bit more.
00:12:24.900 | They also owe $16,000 on a car
00:12:27.180 | where they owe more money on the car than it is worth.
00:12:33.180 | They owe $16,000 on the car.
00:12:35.980 | They're paying a 7 1/2% interest rate, $306 a month.
00:12:40.420 | So they owe more money on the car than it is worth.
00:12:43.900 | They also have a mortgage on their house of $144,000
00:12:47.820 | with a 3 1/4% interest rate
00:12:49.620 | and an equity loan on the house with a $60,000 balance
00:12:53.340 | and a 3 1/4% interest rate.
00:12:55.820 | And they're earning about $6,000 per month.
00:12:59.140 | The challenge is that their expenses
00:13:00.820 | are the same as their income,
00:13:02.460 | so it's difficult for them to pay down the credit.
00:13:05.680 | And then Mario clarifies that this family owns,
00:13:10.020 | they own two cars.
00:13:11.800 | One is paid off and of course the other has the debt
00:13:14.740 | and it's carrying extra debt,
00:13:16.220 | an extra $2,000 from the car that is already paid off.
00:13:18.660 | So his question is, are there any other credit cards
00:13:20.820 | or things that can help them to lower their interest
00:13:23.580 | so they can focus on paying faster
00:13:25.420 | and avoiding more interest on their credit cards
00:13:27.620 | while they're paying off their debt?
00:13:28.780 | So here is the answer for a household like this.
00:13:31.100 | So for way of review, three credit cards,
00:13:33.540 | 7,200 on the credit card, $16,000 of debt on the car
00:13:36.740 | and a mortgage and an equity loan as well.
00:13:39.260 | Now the credit cards have the highest interest.
00:13:41.980 | They are at 11 1/4% and almost 25% interest.
00:13:46.180 | A total of about $4,500 of the debt is at 25% interest.
00:13:51.020 | That is insane.
00:13:52.380 | And then the car of course has 7 1/2% interest.
00:13:54.940 | So here is what you need to do in a situation like this.
00:13:58.860 | The problem is they're earning as much as they're spending
00:14:03.860 | and because their expenses are the same as their income,
00:14:07.020 | they're not making progress.
00:14:09.980 | And that is a terrible place to be.
00:14:13.580 | To feel like you're not making progress is brutal.
00:14:16.940 | There's an old kind of self-help success quote
00:14:19.620 | that success is the progressive realization
00:14:22.980 | of a worthy goal or that's the progressive realization
00:14:26.320 | of a worthy ideal.
00:14:27.220 | I think it's probably Orson Swett Marden
00:14:28.540 | or someone like that who initiated that.
00:14:30.700 | And I think that there's a lot of value in that,
00:14:33.140 | that success, the feelings of success
00:14:36.580 | are largely based upon the fact
00:14:38.100 | that you know you're making progress
00:14:39.700 | in a positive direction.
00:14:41.460 | And so it's fine to be in debt
00:14:43.660 | if you feel like you're making progress
00:14:45.300 | in a positive direction towards that freedom.
00:14:47.420 | But if you're not making progress,
00:14:49.140 | it feels really brutal to be totally stuck.
00:14:52.980 | It feels really miserable to not make progress.
00:14:56.540 | So when you're in a situation like this and you're stuck,
00:14:59.720 | you've got to say, what can I do to get unstuck?
00:15:03.900 | So what are some options?
00:15:05.740 | Well, you first need to analyze your income.
00:15:08.440 | Is there something that can happen
00:15:10.580 | or is likely to happen with my income
00:15:13.180 | that will help me to be unstuck?
00:15:14.980 | Am I on track for a promotion?
00:15:17.740 | Am I on track for a bonus?
00:15:20.220 | Are we expecting some kind of windfall?
00:15:23.300 | Is there something that I can do
00:15:24.740 | to significantly increase my earnings?
00:15:28.540 | See, if you could just make a 20% change in earnings
00:15:32.540 | by working extra, taking an extra job.
00:15:36.000 | So instead of $6,000 per month,
00:15:38.500 | you're earning $7,200 per month.
00:15:41.780 | That's an extra $1,200 that is freed up
00:15:45.620 | towards these goals.
00:15:48.460 | Now we only have $7,200 of credit card debt.
00:15:52.620 | So if we could increase earnings
00:15:54.060 | and go from and put that full $1,200 towards the debt,
00:15:58.620 | in six months, we could have the credit card debt knocked out
00:16:01.820 | that would save a huge amount of money and interest
00:16:04.140 | to have that gone in six months.
00:16:06.100 | And then at that point in time,
00:16:08.900 | you can continue on the car payment,
00:16:10.180 | probably have that knocked out in another six months.
00:16:12.220 | So the first thing I would look at is to say,
00:16:14.660 | can I increase income?
00:16:16.700 | You have to increase income as much as possible.
00:16:20.300 | So can I increase income?
00:16:21.720 | If you can increase income by working more hours
00:16:26.300 | at your current job, taking overtime, taking side work,
00:16:30.300 | figuring out how to some way to create more income
00:16:33.260 | that will help you get unstuck.
00:16:34.900 | And as long as you have a timeline as in,
00:16:37.500 | hey, we'll be unstuck out of this in six months,
00:16:39.740 | you can gut through and make progress.
00:16:43.060 | Now, the second thing you can do is decrease expenses.
00:16:46.180 | Reality is you don't have to spend $6,000 per month.
00:16:49.500 | $6,000 per month is $72,000 per year,
00:16:54.700 | which is about $20,000 more,
00:16:58.980 | yeah, $20 to $25,000 more
00:17:02.500 | than the median household income.
00:17:05.420 | So you could moderate in a few areas.
00:17:09.540 | And some of the least painful moderation might be
00:17:14.620 | the cuts that don't result in big public changes.
00:17:19.620 | You can cancel your TV.
00:17:21.660 | You can change your grocery buying habits.
00:17:24.100 | You can figure out how to save money.
00:17:26.140 | You can temporarily cut some expenses
00:17:28.900 | without any big public changes.
00:17:32.460 | If you could cut $1,000 off of your,
00:17:35.540 | well, let's just stick with the 20%.
00:17:37.420 | If you could make a 20% decrease in your expenses
00:17:42.420 | and drop down to $4,800 a month,
00:17:46.740 | which I'm so sure you could do.
00:17:49.060 | If you could make a 20% decrease in expenses,
00:17:51.980 | we could all make a 20% decrease in expenses,
00:17:54.220 | unless you're living on $400 a month.
00:17:56.140 | You could all make a 20% decrease
00:17:59.940 | and drop you to $4,800 a month.
00:18:01.740 | Then that will free up an extra $1,200 a month
00:18:08.100 | to pay towards debt.
00:18:09.260 | Now, the cool thing is this.
00:18:11.420 | Let's say you do both of those.
00:18:13.060 | You've now freed up $2,400 per month.
00:18:17.900 | You've increased your income by 20%
00:18:19.980 | and you've cut your expenses by 20%.
00:18:24.100 | Well, now in that situation,
00:18:25.420 | you've only got $7,200 of credit card debt.
00:18:28.060 | If you can apply $2,400 of that,
00:18:30.340 | then in three months, you're out of credit card debt.
00:18:33.700 | And at $2,400 a month,
00:18:35.460 | a $16,000 car loan is paid off in six and a half months.
00:18:40.460 | So let's say it takes you three months
00:18:43.500 | to be out of credit card debt,
00:18:45.420 | and then it takes you an additional five months
00:18:48.660 | to have your car loan paid off.
00:18:50.100 | Well, now eight months from now, today is October.
00:18:53.620 | So by June of next year, you're out of debt,
00:18:57.260 | except for your house.
00:18:58.780 | Now that's powerful.
00:19:01.940 | All it requires is a 20% increase in income
00:19:06.260 | and a 20% decrease in expenses.
00:19:09.280 | Now, perhaps in your situation,
00:19:13.020 | you can't do those relatively easy things
00:19:17.060 | of increasing your income or decreasing your expenses.
00:19:21.560 | Perhaps you are caring for your frail and elderly parents
00:19:27.280 | and two disabled children.
00:19:29.760 | And most of your expenses are for medical equipment
00:19:32.560 | and medications for your frail and elderly parents
00:19:35.280 | and for your children.
00:19:36.560 | And you can't afford to hire caregivers,
00:19:38.960 | and so you can't afford to work more,
00:19:40.840 | and your job is the only one that works for you.
00:19:44.040 | So now you can't increase income or decrease expenses.
00:19:47.440 | Well, what would you do then?
00:19:49.200 | The only solution here is to sell the car.
00:19:51.660 | You have to sell the car.
00:19:53.160 | Because the credit card payments
00:19:54.360 | are relatively negligible
00:19:56.480 | in terms of the total monthly amount.
00:19:58.800 | The interest stinks,
00:20:00.220 | but the monthly amount is not all that much.
00:20:02.820 | Usually the way that credit card payments work
00:20:07.000 | is you will pay 1% of the balance
00:20:09.580 | plus your current month's interest charges.
00:20:12.520 | So assuming you're current on everything,
00:20:15.280 | one of your cards has a $2,600 balance.
00:20:18.220 | So we know that 1% of a $2,600 balance is going to be $26.
00:20:23.120 | And then we got to figure out
00:20:24.440 | what the interest payment will be.
00:20:26.160 | Well, we would do $2,600.
00:20:28.080 | And on this one, the interest payment is 11.25%.
00:20:31.080 | So that's $292 per year,
00:20:36.440 | but we would drop that into monthly,
00:20:38.000 | divide it by 12, and that's $24.
00:20:40.200 | And so the payment on that card
00:20:42.760 | is going to be 1% of the balance, $26,
00:20:45.000 | plus $24 of interest in this month.
00:20:47.560 | So that's going to be 50 bucks.
00:20:49.800 | And then the other cards, again,
00:20:51.120 | let's do one of the cards that has a $3,800 balance.
00:20:55.040 | So we know that 1% of the balance
00:20:56.480 | is going to be $38 for the principal balance.
00:20:58.800 | And this card, let's do $3,800,
00:21:02.480 | has a 20, let's call it 25% interest.
00:21:05.520 | So 25% interest is $950 per year.
00:21:09.040 | Divide that out to monthly, it's $79 in a month
00:21:12.160 | for this month's interest,
00:21:13.220 | if you're paying that much interest.
00:21:15.440 | Now you add this all together and it's significant.
00:21:18.480 | It's not insignificant,
00:21:20.080 | but it's not the only thing.
00:21:21.600 | So what do you do?
00:21:23.000 | Well, you can work with the credit cards.
00:21:25.920 | I would sell the car, because if you sell the car,
00:21:28.800 | you free up $300 a month.
00:21:31.400 | And there's cars just about everywhere.
00:21:36.920 | Now, you owe more money on the car than it's worth,
00:21:38.760 | you have to borrow more money,
00:21:40.440 | but I would personally try to sell the car
00:21:41.880 | and live on one, one car.
00:21:43.980 | Many families could get by with a little bit of thought,
00:21:49.040 | a little bit of planning, many families could get by
00:21:52.080 | with one car and occasional Uber rides.
00:21:56.620 | Uber and Lyft and et cetera,
00:22:01.640 | these services are so inexpensive now
00:22:03.840 | that really using them occasionally
00:22:08.340 | for a can't miss meeting or a morning
00:22:10.560 | when we've got to go in opposite directions
00:22:12.840 | is very reasonable.
00:22:15.000 | And if you could free up with one decision to sell the car
00:22:18.080 | and you can free up that $306 a month,
00:22:21.160 | that would be so valuable.
00:22:22.600 | Because with one decision,
00:22:26.360 | you can move massive amounts of money
00:22:28.480 | over to the credit card and getting rid of the credit card.
00:22:31.440 | And you can always buy another car.
00:22:33.160 | Now, what car would I not sell?
00:22:34.480 | The only reason I wouldn't sell a car
00:22:36.400 | is if that car were somehow very important to your family,
00:22:40.340 | as in it's the only minivan that you have
00:22:42.700 | and you have four children.
00:22:44.280 | Or if you had done something like purchased that car new
00:22:47.200 | and it's well suited for you for the next 10 years.
00:22:50.680 | It's not just some mediocre, normal car,
00:22:53.320 | you bought it used, you could replace it very easily.
00:22:57.040 | Rather, it was a brand new car, it was carefully selected,
00:22:59.480 | it was a good deal when you bought it.
00:23:00.960 | And if you just have it for a few more years,
00:23:03.720 | it'll serve you for another 10 years.
00:23:06.240 | If the car is uniquely valuable,
00:23:07.760 | then okay, we'll work on another plan.
00:23:10.440 | But I think a lot of times,
00:23:12.760 | if you just sell the car and use the one car
00:23:14.720 | that you've got that's paid off
00:23:15.760 | and supplement it with an occasional Uber ride,
00:23:18.800 | my opinion, that's one of your easiest decisions to do,
00:23:21.800 | to free up your cashflow.
00:23:23.480 | And then don't ever buy another car like that.
00:23:25.740 | The thing about a car is, for you to own a $16,000 car,
00:23:29.880 | you need to be earning $160,000 per year.
00:23:32.380 | So your car is already, I mean, it's not stupid,
00:23:36.360 | but that's the way I got there was with that 10% number.
00:23:40.720 | Anyway, I would sell the car, but cars are easily replaced
00:23:43.840 | unless it were uniquely valuable,
00:23:45.040 | you bought it new, et cetera.
00:23:46.160 | Okay, fine.
00:23:47.160 | Now, to the credit cards,
00:23:48.520 | what do you do with the credit cards?
00:23:49.760 | Well, depending on the credit score,
00:23:51.840 | you wanna start by applying
00:23:53.320 | for as many new credit cards as you can.
00:23:56.160 | There is no reason for you
00:23:57.580 | not to make new credit card applications.
00:24:00.140 | So you wanna apply for as many new credit cards as you can.
00:24:04.520 | And you want to refinance this debt
00:24:06.880 | as much as you possibly can.
00:24:08.700 | So the easiest credit cards to get
00:24:12.600 | are going to be credit cards
00:24:13.720 | that will offer you a 0% introductory period.
00:24:17.080 | So you apply for a new 0% introductory credit card.
00:24:22.600 | And then you move all of your household spending
00:24:25.020 | that is possible over onto that card.
00:24:28.080 | And then you divert all of that excess income
00:24:33.160 | over onto your other credit card.
00:24:36.560 | I don't care whether you go with the lowest balance
00:24:38.620 | or the highest interest rate,
00:24:41.060 | just do whatever's gonna keep you focused and moving.
00:24:43.400 | And your goal is to increase your available credit
00:24:45.680 | as much as possible
00:24:47.080 | so that you can refinance all of these cards.
00:24:50.840 | Now, if you can do a balanced transfer card
00:24:52.560 | and you get approved for a balanced transfer card,
00:24:54.360 | go ahead and move to that.
00:24:56.160 | The key is to get your total available credit
00:24:59.320 | as high as you possibly can
00:25:01.600 | and to keep your total debt owed as low as you possibly can.
00:25:06.600 | And so there should be no reason.
00:25:11.440 | As long as you've paid previous credit cards consistently,
00:25:14.680 | there should be no reason
00:25:15.800 | to be paying interest rates of this high.
00:25:17.840 | Now, here's the key.
00:25:21.520 | I've just discussed four different ideas and strategies
00:25:27.560 | that can be applied.
00:25:28.680 | Strategy number one was increase income 20%.
00:25:31.480 | Strategy number two, decrease expenses 20%.
00:25:34.320 | Strategy number three, sell the car.
00:25:36.200 | Strategy number four,
00:25:37.600 | focus on refinancing these credit cards
00:25:39.840 | to lower interest rates.
00:25:41.040 | And let me add some math to credit card number four,
00:25:43.600 | or strategy number four.
00:25:45.080 | Total interest payments right here,
00:25:49.200 | $2,600 at 11.25% is $292 per year.
00:25:54.200 | We've got a $3,850, let's do it, $3,800 debt at 24.
00:26:01.400 | Let's call it 25% interest, $3,800 at 25% is $950 per year.
00:26:09.880 | And we've got a debt of $737 at 25% interest,
00:26:14.880 | which is $184 per year.
00:26:19.240 | If we add 184 plus 950 plus 292,
00:26:24.240 | we wind up with total annual payments of $1,426.
00:26:28.720 | That is the annual interest on these cards
00:26:32.040 | if they're not being paid down.
00:26:33.360 | And currently, this person
00:26:35.320 | is just paying their minimum payments.
00:26:37.040 | That means on a monthly basis,
00:26:38.800 | we have $118 per month of interest on credit cards.
00:26:43.480 | If we can make these changes,
00:26:46.720 | you can move $118 off of the balance sheet,
00:26:51.000 | sorry, off of the income cashflow statement,
00:26:53.080 | off of the cashflow statement
00:26:54.040 | because of eliminating the credit card interest.
00:26:57.000 | That saves $118, which can be put to principal repayment.
00:27:00.880 | If you can do that through refinancing,
00:27:02.840 | through 12-month and 18-month 0% offers,
00:27:05.640 | that will save a significant amount of money.
00:27:08.400 | That's $1,426 over the next 12 months
00:27:11.400 | that can be applied not towards credit card interest,
00:27:13.800 | but towards lower amounts, sorry, lower balances.
00:27:18.560 | If you can get rid of the car,
00:27:19.960 | that's $306 per month of payment that can be gotten rid of.
00:27:24.200 | Now, if you can get to one car quickly,
00:27:27.560 | and if you owe more on the car than it's worth,
00:27:29.680 | then you'll need to take out an additional credit card
00:27:31.720 | or a personal loan.
00:27:33.520 | If you can't borrow more money on credit cards,
00:27:35.360 | which you should be able to, especially if you're current,
00:27:37.920 | but if you can't borrow more money on credit cards
00:27:39.840 | and you take out a personal loan of some kind with somebody
00:27:42.480 | to have enough money to pay off, to sell the car,
00:27:44.880 | pay off the difference and pay off the debt,
00:27:47.880 | you can do that however you want.
00:27:49.760 | But if you can get rid of that, that's $306 per month.
00:27:52.680 | And then if you can make a 20% increase in your income,
00:27:57.440 | that's $1,200 per month,
00:27:58.840 | and a 20% decrease in your expenses,
00:28:01.240 | that's $1,200 per month.
00:28:03.360 | Now, if you add all these together,
00:28:05.120 | we've got $1,200 times two, 2,400,
00:28:09.240 | plus $300 per month, plus $120 per month.
00:28:12.880 | That is now $2,820 per month of difference.
00:28:17.240 | The power of getting out of debt
00:28:20.360 | is when you make a plan for $2,820 per month,
00:28:25.400 | instead of a plan of $50 per month,
00:28:30.680 | by doing all four of those things simultaneously.
00:28:35.960 | So fast forward, our total debt here was
00:28:39.920 | about $7,000 of credit card debt.
00:28:47.320 | Well, if you can make over the next month or two,
00:28:51.480 | these changes, you can have the credit card debt paid off
00:28:54.600 | in two or three months.
00:28:55.960 | You would have the car debt eliminated
00:28:59.000 | as quickly as you can sell the car,
00:29:02.920 | as quickly as you can save the money
00:29:04.880 | or borrow the money and sell the car.
00:29:06.680 | So let's call it six months to have all this stuff done.
00:29:09.800 | Now you've got $2,820 freed up.
00:29:12.680 | That's again, the $118
00:29:14.160 | that you're not spending on credit card interest,
00:29:15.960 | the $306 a month
00:29:17.280 | that you're not spending on your car payment,
00:29:18.960 | and the $2,400 a month
00:29:20.360 | that comes from a 20% increase in income
00:29:22.080 | and a 20% decrease in expenses.
00:29:23.880 | And you turn around and you apply that
00:29:25.360 | to the $60,000 home equity loan.
00:29:28.640 | And that is now paid off in
00:29:31.240 | (keyboard clicking)
00:29:34.240 | 21 months.
00:29:36.240 | Now at that point in time,
00:29:40.480 | you are debt-free except the primary mortgage on your house,
00:29:45.360 | which you're paying 3.25% on
00:29:48.360 | with $144,000 balance.
00:29:51.400 | It's probably fine to keep that
00:29:53.800 | and just to save money like crazy.
00:29:55.800 | So now if you do all four of these things,
00:29:59.600 | a couple of months from now, you're out of credit card debt.
00:30:01.720 | A few months from now, you're out of credit card debt
00:30:03.560 | and car payment debt,
00:30:04.480 | depending on the order that you approach it.
00:30:07.280 | Less than two years from now,
00:30:09.120 | you have the home equity loan paid off.
00:30:11.760 | And you have a rate of $2,800 per month of cash available,
00:30:16.760 | which if you start saving is $33,000 of cash in a year,
00:30:22.200 | which means one more year
00:30:25.320 | and you can go and buy the $30,000 car.
00:30:29.000 | Now along the way, you'll probably get another car
00:30:30.560 | and you'll adjust these things a little bit.
00:30:31.960 | But the point is, if you put these strategies together,
00:30:35.120 | that's where the power is.
00:30:36.440 | And if you focus on aggressively
00:30:38.880 | putting these things into practice,
00:30:40.200 | increasing income, decreasing expenses,
00:30:42.360 | aggressively paying down debt,
00:30:43.960 | making these big lifestyle moves,
00:30:46.080 | you'll save a lot of money, get out of debt pretty quickly.
00:30:49.160 | Now another student of mine writes in and says,
00:30:50.800 | "Joshua, I purchased and listened to the course first."
00:30:52.640 | Thank you, it's great information.
00:30:54.400 | "I'd like to do the live call-in tomorrow,
00:30:57.920 | "but I have to work."
00:30:58.960 | So here's my situation.
00:31:01.120 | My credit score is about 608.
00:31:02.400 | I have 99% on-time payment, 65% utilization,
00:31:05.160 | 12 years length of credit.
00:31:07.200 | I have a total of six credit cards
00:31:08.480 | with a total line of credit of $14,950,
00:31:11.760 | total debt of $9,979,
00:31:14.760 | with an APR between 12.5% and 29.99%.
00:31:19.440 | I have a plan to have the credit card debts paid off by July,
00:31:22.560 | but I wanna confirm if I'm on the right path,
00:31:24.560 | as well as ask questions regarding student loans,
00:31:27.080 | both old and new.
00:31:28.800 | I have older student loans
00:31:30.480 | that I had from my associate's degree completed in 2004.
00:31:34.240 | I had to put it into deferment for 10 years
00:31:36.200 | due to a horrible financial situation
00:31:37.920 | with my now ex-husband.
00:31:39.560 | We filed bankruptcy in 2009,
00:31:41.400 | and I have been rebuilding my credit ever since.
00:31:43.800 | I began making payments on the student loan four years ago.
00:31:46.880 | I have been working on finding a better job
00:31:48.680 | for the past year or so,
00:31:49.720 | and discovered that while my work experience
00:31:51.640 | is fairly extensive,
00:31:52.920 | prospective employers won't look at me
00:31:54.600 | without the bachelor's degree.
00:31:56.280 | So this July, I finally made the decision
00:31:58.480 | to go back to school to get my degree,
00:32:00.400 | business project management degree.
00:32:02.520 | Since I'm now enrolled,
00:32:03.560 | I put my existing loans and auto debits into deferment.
00:32:07.280 | I'm taking advantage of this
00:32:08.440 | by using the funds that were allocated to those payments
00:32:10.760 | and putting them toward paying off my credit cards.
00:32:13.520 | I'm on target to have the credit cards paid off by July.
00:32:16.600 | The question, once that's done,
00:32:18.400 | what do you recommend regarding those new student loans
00:32:20.400 | that I'm amassing with my current school?
00:32:22.320 | $2,400 per quarter.
00:32:24.320 | I estimate completing my degree by May of 2020,
00:32:26.840 | and my existing old student loans,
00:32:28.680 | a scary amount of $38,000 at 7%.
00:32:31.960 | I'm actively seeking a better paying job
00:32:33.720 | and not waiting until I finish my degree,
00:32:35.800 | but I have my expenses reduced
00:32:37.280 | to be within my current income.
00:32:39.120 | Per your course, I will also be applying
00:32:40.560 | for additional credit cards to improve my utilization ratio.
00:32:43.760 | Thank you in advance for whatever guidance you can offer me.
00:32:46.680 | Now, in this particular situation,
00:32:49.000 | I don't see any major changes
00:32:50.800 | other than what is already done.
00:32:52.160 | Well, the first thing is,
00:32:53.160 | you have to cut those interest rates down.
00:32:55.480 | You have to seek to refinance those credit cards
00:32:57.280 | actively and aggressively.
00:32:58.760 | If you have credit card debt,
00:33:00.080 | you should always be continually seeking to refinance them.
00:33:02.600 | And that's a constant, ongoing,
00:33:04.600 | incremental method of improvement.
00:33:06.680 | If you focus on this every couple of months,
00:33:08.960 | you apply for new cards,
00:33:10.360 | every few months, you see what else you can do,
00:33:12.600 | you can make incremental improvements,
00:33:15.080 | and incremental improvements matter.
00:33:17.320 | For example, you currently owe about $10,000.
00:33:19.560 | You may get approved for a new credit card
00:33:21.200 | of $1,000 this month.
00:33:23.880 | Well, move $1,000 over from 30% interest to 0% interest,
00:33:28.880 | and then use that freed up cashflow
00:33:31.800 | to pay down the other balances.
00:33:33.720 | And then as your credit score goes up,
00:33:35.840 | you then again, do it again.
00:33:37.160 | So it's an ongoing process
00:33:39.800 | where you may do $1,000 this month,
00:33:41.760 | another two or three months from now,
00:33:43.040 | maybe another $4,000 you can get.
00:33:45.240 | And to the point where six months from now,
00:33:47.040 | you can have cut your total debt from $10,000 to $6,000,
00:33:50.520 | and that all that $6,000 is at 0%.
00:33:54.640 | And that is a big savings when it gets to interest cost.
00:33:57.880 | So 10%, sorry, $10,000 at,
00:34:00.960 | let's say an average of 22% interest here,
00:34:03.680 | is $2,200 per year, or $183 per month.
00:34:08.280 | So the value is if you understand
00:34:09.560 | how the refinancing game works,
00:34:11.000 | and if you can remove those interest payments,
00:34:12.860 | that's an extra $183 per month
00:34:15.480 | that you can apply towards paying off the credit card debt.
00:34:18.300 | So what about the student loans?
00:34:19.900 | I wouldn't make any changes
00:34:21.080 | with the student loans at this point in time.
00:34:22.560 | They're in deferment while you are in school.
00:34:25.480 | And so I would keep them in deferment
00:34:27.400 | until you have the credit cards paid off.
00:34:29.720 | What I would do is actively and diligently
00:34:32.640 | increase your total available credit,
00:34:34.960 | and actively and diligently increase the amount of money
00:34:37.900 | that's available to you on credit cards,
00:34:39.820 | so that if, when you get out of school,
00:34:42.840 | and you get yourself into a position
00:34:44.960 | of where you're working consistently,
00:34:47.840 | and your income is high, et cetera,
00:34:49.440 | that if you want to refinance them
00:34:51.720 | from student loans onto credit cards then,
00:34:53.840 | then you have that option.
00:34:55.740 | I don't think this is a super high priority.
00:34:58.080 | And the thing that you have to be careful here
00:35:00.560 | is the numbers are gonna be tough.
00:35:02.320 | The ratio of the total amount of student loans
00:35:06.960 | as compared to your current borrowing ability is out of whack.
00:35:11.080 | So you currently owe $38,000, and that's at 7% interest,
00:35:15.200 | and you're accumulating a new quarterly amount of debt,
00:35:19.040 | of $2,400, and if you're estimating
00:35:21.080 | completing your degree by May of 2020,
00:35:23.280 | let's call that with now in 2018, let's call that,
00:35:26.200 | let's call it seven quarters.
00:35:30.040 | So we're talking about $2,400 times seven
00:35:33.200 | of another $17,000 of student loan debt.
00:35:36.600 | When you add that $17,000 on top of the $38,000
00:35:41.200 | that you already have, this is a significant amount
00:35:44.480 | of student loan debt, that's $55,000.
00:35:47.120 | So for you to be able to successfully
00:35:48.800 | and effectively refinance this debt,
00:35:50.920 | you would have to massively improve
00:35:55.200 | your available credit over onto credit cards.
00:35:57.840 | And I would be very careful, and I would not,
00:36:01.320 | it seems very dangerous to me to try to do
00:36:03.680 | huge chunks of that, because if you were to get yourself
00:36:06.320 | in a mess, and you weren't able to float that debt
00:36:09.600 | using the 0% credit card game,
00:36:11.840 | you could have very problematic situations.
00:36:14.840 | If you were to go from 0% to,
00:36:17.680 | and you're unable to refinance it 'cause you owe too much,
00:36:20.240 | onto 12, 15, or 30% debts,
00:36:23.880 | that would be very, very problematic.
00:36:25.800 | So what would I do?
00:36:26.800 | I would focus on keeping those student loans in deferment
00:36:30.640 | so that I can not pay those.
00:36:33.800 | So I would keep those in deferment.
00:36:35.040 | I would pay off the credit cards as quickly as I can
00:36:37.200 | under your current plan.
00:36:38.440 | And then I would stop borrowing more money on student loans
00:36:43.360 | in order to minimize the total exposure to student loans.
00:36:45.800 | And I would just pay cash for school expenses.
00:36:48.600 | That's important to do to make sure
00:36:50.840 | that you're doing a good job
00:36:52.040 | of managing your actual expenses.
00:36:54.200 | One of the big dangers of debt of any kind,
00:36:57.320 | credit cards, student loans,
00:36:59.640 | it can easily facilitate excessive borrowing.
00:37:04.640 | Credit cards are the most dangerous
00:37:06.560 | with regard to excessive borrowing,
00:37:08.360 | but student loans are also dangerous
00:37:09.920 | because instead of bargaining with the school
00:37:13.100 | for a lower tuition payment,
00:37:14.200 | instead of choosing a cheaper school,
00:37:16.360 | instead of moving from this college to the other college,
00:37:19.400 | 'cause you can cut your costs down to $1,000 per quarter
00:37:21.920 | instead of $2,400 per quarter,
00:37:24.060 | there's a tendency to just to borrow more money
00:37:26.000 | on this idea that, well, in the future,
00:37:27.680 | I'll have more income because I'll have this degree.
00:37:30.520 | Well, here's what's better.
00:37:31.960 | So if it's good to have student loans
00:37:34.340 | and a higher income in the future, here's what's better,
00:37:36.960 | to have a higher income and no student loans.
00:37:39.680 | Because then instead of spending the first few years
00:37:42.000 | after your degree,
00:37:43.240 | using all that excess money to pay for the schooling,
00:37:45.880 | only then to finally get a little cash in your pocket,
00:37:48.760 | you can have no debt
00:37:50.040 | and have all that cash in your pocket.
00:37:53.760 | So I would work on paying some cash down as time goes on.
00:37:58.760 | The only distinction to that
00:38:00.780 | would be if you don't have any cash currently,
00:38:02.320 | I would marshal cash.
00:38:03.720 | Now, if you decide to refinance some of your debts
00:38:07.580 | over from student loans over to credit cards,
00:38:10.800 | I would be very careful
00:38:12.200 | and I would only do that only in small chunks.
00:38:14.580 | So maybe if you wind up owing $55,000,
00:38:18.520 | maybe you do this in chunks of $7,000 at a time.
00:38:21.820 | So you refinance 7,000 bucks over to a credit card,
00:38:26.240 | use that 0% while you're accumulating the cash
00:38:28.900 | to pay it down.
00:38:29.840 | Once that's paid off, you do it again.
00:38:31.640 | The student loans are valuable because they are stable,
00:38:34.840 | they're at fixed interest rates,
00:38:36.220 | and you can put them back into deferment if you needed to.
00:38:39.120 | If you faced a financial crisis,
00:38:41.280 | you could put them back into deferment.
00:38:43.000 | So the power is when you understand
00:38:44.740 | the risks of the credit card game
00:38:46.420 | and the risks of the student loans,
00:38:48.920 | and then you use them together.
00:38:50.280 | And I would do it in chunks at that point in time.
00:38:52.680 | Last question for today's Q&A call
00:38:54.300 | comes in from another student, Joshua, he writes in,
00:38:57.280 | "Joshua, I just purchased your credit card program
00:38:59.560 | "for my personal growth,
00:39:00.840 | "and I hope to help my small three-member staff
00:39:03.080 | "with the information too.
00:39:04.000 | "Maybe we can change lives together.
00:39:05.880 | "I'd like to call in tomorrow to discuss
00:39:07.320 | "how I use credit cards for my small business.
00:39:09.540 | "We spend two to $4 million per year
00:39:12.120 | "on inventory through credit cards,
00:39:14.360 | "and there have been some real ups and downs along the way.
00:39:17.400 | "Twice we have had to close an account
00:39:19.080 | "and make a payment plan with a carrier.
00:39:21.360 | "We currently are in a better place
00:39:23.080 | "and enjoy paying the card off several times a month.
00:39:25.860 | "I hope to hear your thoughts on some good practices
00:39:27.900 | "for a small company to maintain the growth of inventory
00:39:30.640 | "by spending while not burying ourselves in debt."
00:39:34.540 | Thank you.
00:39:37.320 | This situation is one that some people have access to,
00:39:42.320 | and it's a powerful opportunity for you to consider.
00:39:46.780 | So number one, you must, must make sure
00:39:53.360 | that you never, ever again in your life
00:39:58.560 | are ever even a moment late paying your monthly payment.
00:40:03.560 | You must never have a day when you're a moment late
00:40:06.800 | paying your monthly payment.
00:40:07.700 | So use the instructions in the course
00:40:10.120 | to establish the infrastructure
00:40:11.520 | that makes sure that you're never late,
00:40:14.920 | because you must have the best possible credit score.
00:40:19.920 | You have, with this much spending, legitimate spending,
00:40:25.000 | you have huge options to use credit cards
00:40:28.280 | in a powerful way for your own benefits.
00:40:34.120 | But you've got to make sure you don't screw it up
00:40:36.680 | by messing up your credit score.
00:40:42.400 | Now, here is what's cool.
00:40:44.140 | There are very few untaxed fringe benefits available
00:40:50.240 | in today's world.
00:40:51.440 | But one of the best ones is credit card points.
00:40:57.040 | And in your case, you should use what I have taught you,
00:41:02.820 | what I have to teach you,
00:41:04.200 | but you should also go out and make sure
00:41:05.880 | that you become an absolute expert at the points game.
00:41:09.860 | And by points, I mean, the practice of applying for,
00:41:14.700 | applying for credit cards in order to take advantage
00:41:19.260 | of mileage bonuses and mileage offers.
00:41:22.120 | Where when you go and you take out the new credit card
00:41:23.960 | and they give you 40,000 miles,
00:41:25.820 | if you have, you know, a few thousand dollars of spending
00:41:28.560 | on the card within a certain period.
00:41:30.760 | The biggest problem that people face in that world
00:41:34.660 | is figuring out how to get enough spending
00:41:36.900 | on their credit card in order to make
00:41:39.100 | those minimum payments.
00:41:40.220 | Sorry, in order to make those minimum spend requirements.
00:41:43.060 | Because many people struggle, if they require,
00:41:46.700 | they apply for a new card that gives them
00:41:48.060 | 50,000 airline miles.
00:41:50.060 | And they apply for a new card and they have to spend
00:41:52.300 | $6,000 within the first two months.
00:41:54.260 | Many people struggle to do that.
00:41:55.940 | There are, in my opinion, two basic reasons
00:41:59.020 | why people struggle to get the spending necessary first.
00:42:02.600 | If you're committed to frugality,
00:42:04.800 | then minimizing expenses is gonna be a better move for you
00:42:09.800 | than getting bonus points.
00:42:12.760 | Just if you're just talking about household spending.
00:42:15.600 | You know, many families could cut their expenses
00:42:17.560 | significantly by a couple thousand bucks per month
00:42:20.440 | if they wanted to, to save money and build wealth.
00:42:23.720 | But then that makes you feel like,
00:42:24.560 | well, I'm not maximizing the bonus points.
00:42:26.800 | So first, is frugality is always your first step.
00:42:30.340 | The second thing is it's hard for many families
00:42:32.900 | to get the payments onto a credit card
00:42:35.020 | for their big expenses.
00:42:37.260 | It's one thing to put your groceries and gas
00:42:38.980 | on a credit card, but come on, groceries and gas
00:42:41.180 | is a thousand bucks, 1,500 bucks for many families.
00:42:44.780 | Meanwhile, the big expenses, as in mortgage payments
00:42:48.180 | and car payments, those are hard to get
00:42:49.940 | onto a credit card.
00:42:50.820 | It's possible sometimes, but hard to do.
00:42:53.220 | And if you do, you wind up paying extra fees
00:42:55.820 | through using some of the intermediaries
00:42:57.580 | which will take a credit card payment
00:42:59.780 | and send out the money.
00:43:00.940 | So it's hard to get those expenses there.
00:43:02.880 | But if you've got two to $4 million per year
00:43:06.260 | and your vendors will take credit cards
00:43:08.460 | for that inventory, and you can do that,
00:43:12.940 | I mean, this is a golden opportunity.
00:43:16.700 | You should be accumulating millions of miles per year
00:43:21.380 | and huge numbers of cell phone points
00:43:25.660 | because, sorry, hotel points, which are the easiest to get.
00:43:28.860 | Yes, you can consider the cash back, et cetera,
00:43:31.380 | but you should be accumulating miles and hotel points.
00:43:34.540 | Now, what's cool about miles and hotel points
00:43:36.700 | is the benefit of them is not taxed to you.
00:43:40.500 | And this applies if you are an employee
00:43:45.020 | and you're working for a company
00:43:46.220 | and you're getting airline miles and hotel points,
00:43:48.920 | even though it's your business's card.
00:43:51.500 | And if you own the business yourself, this is wonderful
00:43:54.620 | because you can take deductions on the debt
00:43:56.860 | if you had to even, even if you owed interest
00:43:59.380 | and you took your business interest deduction.
00:44:01.420 | But even if not, you're still being able to deduct
00:44:03.100 | all the cost of the inventory as your cost of goods sold.
00:44:05.860 | And then you get these extra tax-free fringe benefits.
00:44:09.680 | There is no reason, if you have this kind of business,
00:44:11.700 | there is no reason that you and your family
00:44:14.060 | should not be taking multiple exotic vacations per year
00:44:19.060 | with first-class airfare around the world,
00:44:22.780 | first-class five-star hotel stays.
00:44:25.820 | You should also be doing this for your staff.
00:44:27.860 | With two to $4 million of spending,
00:44:30.780 | you have plenty of available spending
00:44:34.200 | to accumulate huge amounts of airline miles
00:44:37.460 | and hotel stays for them
00:44:40.020 | that you can transfer to their account so that they can go
00:44:42.700 | and take advantage of these stays
00:44:45.100 | so that they can go on exotic vacations
00:44:47.680 | as part of the fringe benefit of working there.
00:44:50.420 | That's wonderful because it doesn't cost you a dime
00:44:53.100 | out of your pocket.
00:44:54.220 | It's not taxable income to them.
00:44:56.280 | And it's a very valuable fringe benefit
00:44:59.540 | that they and their families will really enjoy
00:45:01.780 | and it'll increase your employee loyalty.
00:45:03.820 | And then, you know, if you still have more left over
00:45:09.780 | after you've taken care of your employees
00:45:11.900 | and your own family,
00:45:13.420 | you can use these for your own goodwill
00:45:15.100 | within your extended family.
00:45:16.520 | You can use these airline miles for others.
00:45:20.020 | I would probably be cautious.
00:45:22.220 | You could sell them to family members at a discounted rate,
00:45:25.260 | but what I would probably do is just keep it all
00:45:27.860 | with non-financial transactions.
00:45:29.980 | Gift the miles to their accounts,
00:45:32.100 | let them book tickets using your frequent flyer accounts
00:45:35.460 | for their family vacations and hotel stays,
00:45:37.820 | gift them to them, but I would not,
00:45:40.620 | and then let them, you know,
00:45:42.060 | reimburse you in some other way
00:45:43.460 | that's not a financial transaction.
00:45:45.840 | Let it just be a gift and get your benefit in other ways.
00:45:49.500 | You have a golden opportunity here.
00:45:52.320 | When you can put millions of dollars per year
00:45:54.860 | of spending onto credit cards,
00:45:57.300 | you owe it to yourself, your family, your staff,
00:46:01.000 | to become a master of the mileage game
00:46:04.640 | and of the hotel stays game.
00:46:06.600 | There are plenty of good teachers who will help you.
00:46:09.380 | There are plenty of good courses and membership sites
00:46:12.740 | where they get you the best deals,
00:46:14.240 | get on Flyertalk, get on all the forums,
00:46:16.280 | make sure that you know what you're doing,
00:46:17.900 | because the fact that you have a business
00:46:20.100 | where you can buy inventory and such with this is,
00:46:24.940 | well, it's truly wonderful.
00:46:26.740 | So I think you've got a huge opportunity.
00:46:28.580 | Just make sure that you keep your credit score high,
00:46:30.860 | make sure that you think about what you're doing,
00:46:32.100 | make sure that you manage the business,
00:46:33.360 | that you're not spending excess money,
00:46:35.060 | not buying excess inventory, but look forward,
00:46:39.020 | one of the fringe benefits of your business,
00:46:41.080 | look forward to many years of first-class airfare
00:46:46.540 | and exotic hotel stays,
00:46:49.380 | thanks to your vendor's willingness
00:46:52.500 | to accept credit cards for payments instead of checks.
00:46:55.940 | Now, I guess the last point I think would be appropriate.
00:46:59.460 | Always see if you can negotiate a cash discount.
00:47:01.820 | I think that it's well within many vendors' interest
00:47:06.100 | to negotiate a cash discount,
00:47:08.340 | because they're paying the processing fees.
00:47:10.760 | So don't forget about also minimizing your leverage.
00:47:13.940 | If you can cut, let's say, half a million dollars
00:47:16.460 | of your inventory costs go and are paid in cash
00:47:19.820 | instead of with credit cards,
00:47:21.340 | and that lowers your expenses by five,
00:47:24.700 | you can negotiate a 5% cash discount
00:47:28.820 | on that half a million bucks, that's $25,000.
00:47:31.780 | So if that $25,000 should basically be pure profit,
00:47:36.660 | 'cause we're saving a pure expense,
00:47:38.660 | that $25,000 should put some extra profit in your pocket
00:47:42.500 | and then make up the miles
00:47:43.620 | with the other million and a half of spending,
00:47:45.480 | make up the hotel stays
00:47:46.420 | with the other million and a half of spending.
00:47:48.060 | So don't forget about the nuts and bolts
00:47:51.420 | of always making sure
00:47:52.260 | that you're spending the lowest amount of money,
00:47:53.700 | paying the lowest cost, et cetera,
00:47:55.540 | even though you are getting those benefits.
00:47:57.460 | I don't think even as valuable as the airline miles
00:48:00.380 | and the hotel game can be,
00:48:02.140 | you still don't wanna pay very much for it.
00:48:04.180 | And I think if you can negotiate cash discounts,
00:48:07.220 | that'll always be a better move.
00:48:09.100 | And it's good for you to practice doing that.
00:48:11.740 | So go for it and I hope that the course serves you.
00:48:15.600 | Thank you all so much for listening.
00:48:16.680 | I hope that you've enjoyed this Q&A.
00:48:18.200 | If you haven't purchased the credit card course yet,
00:48:19.920 | I'd encourage you to do it.
00:48:21.080 | Go to radicalpersonalfinance.com/creditcardcourse.
00:48:23.360 | 39 bucks is the cost.
00:48:25.760 | Again, radicalpersonalfinance.com/creditcardcourse.
00:48:28.720 | You will save potentially hundreds or thousands of dollars
00:48:32.440 | and also set yourself up very, very well.
00:48:37.040 | And credit cards, if you know this stuff,
00:48:38.760 | let me give you one more example,
00:48:40.040 | actually two more comments that I need to add.
00:48:42.940 | Forgive me, I didn't have these on my outline.
00:48:44.300 | One, last week I neglect or in a previous Q&A,
00:48:49.300 | I took a question from a listener
00:48:50.860 | who was talking about closing credit cards
00:48:53.340 | to avoid annual fees.
00:48:56.180 | And I had a couple of listeners that wrote in
00:48:58.460 | with some suggestions on that.
00:49:00.260 | So if you have a credit card with a company,
00:49:04.060 | and especially this happens
00:49:05.100 | if you're playing the mileage game,
00:49:06.620 | you've applied for a Premier card
00:49:09.820 | and they'll waive the annual fee for the first year
00:49:12.000 | and give you a 30, 40, 50, $60,000 mileage bonus
00:49:15.280 | for taking out the card.
00:49:17.240 | But then the next year you're looking at a $300 annual fee.
00:49:20.240 | If you close that card,
00:49:23.120 | the problem is you'll lose that available credit.
00:49:25.920 | That lowers your overall credit,
00:49:27.040 | that increases your utilization ratio,
00:49:29.720 | that'll lower your credit score,
00:49:31.160 | that'll shorten up the length of your credit history.
00:49:33.720 | So if you keep that card open, it'll improve everything.
00:49:37.400 | There's no reason to close it
00:49:38.800 | except for that $300 annual fee.
00:49:40.900 | Well, many, what listeners told me,
00:49:44.060 | and I didn't even think to cover it,
00:49:47.220 | but if you call a credit card company,
00:49:49.440 | you can often call them and either A,
00:49:52.360 | they may give you another promo year on the fee,
00:49:55.440 | or they'll downgrade you
00:49:57.180 | to another one of their credit cards
00:49:58.940 | that doesn't have an annual fee.
00:50:00.680 | So you keep the account open, you keep the history going,
00:50:03.080 | you keep the positive reporting of all those things
00:50:05.020 | to the credit bureaus,
00:50:07.020 | but you are able to do so without paying that annual fee.
00:50:11.800 | So if you have annual fees, check on that.
00:50:13.800 | Now, here's what's cool about having excess
00:50:16.680 | or larger amounts of debt.
00:50:18.320 | One of the questions that I received
00:50:20.200 | from a student in the course,
00:50:21.600 | they had a rental property
00:50:24.320 | and they had a partner in the rental property
00:50:26.440 | and their partner wanted to cash out of the rental property.
00:50:30.440 | And so this particular student
00:50:32.400 | had in excess of six figures of available credit,
00:50:35.440 | they were gonna put about $75,000 of debt
00:50:38.380 | onto the credit card
00:50:39.940 | so that they could cash out their partner from the property.
00:50:43.860 | Now, that is an example of a good use of credit cards,
00:50:48.860 | because as long as you have other cash
00:50:52.380 | and a significant credit score
00:50:54.100 | and a significant available credit,
00:50:55.500 | so you don't run the risk of the credit cards
00:50:58.140 | cutting you off, lowering your credit limits,
00:51:00.020 | I gave them some specific advice
00:51:01.860 | of how to minimize those risks, they're substantial,
00:51:04.360 | but you can do things like using an unsecured debt
00:51:07.240 | like a credit card to cash out a partner out of a property,
00:51:10.620 | you wind up being able to give the partner
00:51:12.820 | the money that they need,
00:51:14.300 | you keep the property,
00:51:15.420 | the property is unencumbered by a secured loan
00:51:18.700 | and you're able to borrow the money at low rates,
00:51:21.760 | unsecured debt,
00:51:23.180 | there's so many cool things available for you.
00:51:25.420 | So that's just an example
00:51:26.860 | of how students are applying the concepts.
00:51:29.880 | If you're getting out of debt,
00:51:31.180 | I can help you get it faster.
00:51:32.320 | If you think in the future,
00:51:34.020 | you might ever borrow money, we can do it safer.
00:51:36.240 | Safer and cheaper is the goal.
00:51:38.020 | So go to radicalpersonalfinance.com/creditcardcourse,
00:51:40.500 | sign up to buy the course,
00:51:43.340 | I think you'll be glad you did.
00:51:44.620 | Try it free for 30,
00:51:45.500 | I mean, sorry, not try free,
00:51:47.380 | try it for 30 days.
00:51:48.380 | If you review the content,
00:51:49.860 | take you about four hours to watch all the videos,
00:51:51.460 | listen to all the audio.
00:51:52.580 | If you don't like it,
00:51:53.420 | you don't think it was worth the money,
00:51:54.540 | just ask for a refund, no big deal.
00:51:56.300 | Thank you for listening
00:51:57.140 | and I'll be back with you very soon.
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