Did you know you can measure a perfect debt storm much like you can measure hurricane, just like the measurement of hurricanes a perfect debt storm as five categories of severity. From a mild debt scenario to a highly destructive category five debt scenario? Where do you find yourself, it is important to know your category, I'm going to help you determine your category and give you a game plan specifically for that category. The goal is to get you back to category one as soon as possible. Also go through how to set up your own debt consolidation schedule. You can do this whole process better yourself.

This part of the course pulls everything together. You know, I have a saying in my financial planning practice and it goes like this. Know where you are, so you know where you're going. Know where you are, so you know where you're going and in it, it's all about planning, planning and you get but you got to know exactly where you are today. So you can build on it and know where you're going. The same thing applies to being in debt.

You've got to know where you are, so that you know what could be coming ahead of you. You know, it's it's all about the perfect financial storm as to do with debt. What most people do, and we'll talk a lot about this. Most people ignore the problem most people don't are not realistic about what they have. Most people are accumulating slowly, slowly accumulating debt to the point that it becomes a real problem. And the thing I always say about debt is this debts not a problem.

Until it's a problem. When it becomes a problem. It becomes an overnight nightmare. And I like to use the metaphor of a hurricane in a financial na in a storm. Because with a hurricane, a hurricane can start out as a category one which is the mildest of hurricanes. And overnight it can be a category for a damaging destructive hurricane.

And in a in a the path of a storm is is not predictable. Same thing can happen. When you have a debt situation, it can spiral out of control. So what's really key is to know where you are, so that you know where you're going. And what I've what I've come to, to, to, what I've come up with is that there's actually five categories of debt. What we're going to do today is we're going to talk about what category what each one of those categories look like.

And we're going to help you figure out what category you're in. And what I compare the five categories to, is the same thing, the way that they measure hurricanes, you know, category one is the the lower miles per hour, as far as wind goes very dangerous, but it's not going to produce a whole lot of damage, do some damage, then category two is extremely dangerous winds. And then you start getting into category three, four, and then catastrophic is the category five, same thing goes along with the five categories of debt. Number one, the first category is a little bit different because it's not as destructive. But it can spiral into a destructive situation, but you're a piece number two, you're pushing, you're starting to build the debt, you're starting to get up into the credit limits, and it's a warning. And then the category three is what I call a pre crisis, you've pushed it to the limits.

Then category four is you're in crisis mode. And then number five, category five, you're in catastrophic mode. And it's so easy. And as we'll talk about, it's so easy to be in category one, everything's okay, you can get in category one, and then find yourself in a category four, category five situation. The whole idea is to to identify today, where you're at, and then figure out how to get into category one to where you don't have a problem. So let's talk about the categories and what this looks like category one is very little debt, or it's manageable debt or it's no debt.

And you know, you're not you're not concerned about The amount of debt that you have, and you get a look at it from the standpoint of, you know, having debt is not a bad thing. Now, there's some financial experts that will tell you that Yo, you don't want to have any debt at all. You don't want to have, you don't want to use credit. What I've always found wrong with that is that number one, debt can be a good thing, which I'll talk about in a minute. But we're in a finance based society. What that means is that your credit score is very important to have a strong credit score, you got to have some credit activity.

So having debt is not a bad thing. I look at it from the standpoint of good debt, bad debt, good debt is debt, that you have a low interest rate you have and you're on a game plan, you know, what's going to be paid paid off, your mortgage would be good debt. A car loan can be a good debt, it just how its structured, its structured to not be a problem. Now if you have if you've accumulated debt, now, maybe not so much because you're in category one, but if you've accumulated five $6,000 worth of debt, you're high interest rates, you're paying minimum payments and have no idea when it's going to paid off. That's not good debt. So category One, but it's where you want to be.

And ideally, you'll be in a situation where you won't have any debt at all. gameplan for category one, stay on top of your credit report with a monitoring system. And this is so very important to do. Because this is where it then let me give an example of how, how it could spiral out of control. Let's say that you're in category one, you're not monitoring your credit reports. And what that credit, credit report monitoring is simply, you have a company that's watching the three credit reporting agencies that holds your credit report.

And what's going to happen is someone tries to identity theft occurs and someone tries to open up an account in your name, then they're going to notify the credit reporting agency, and then that company is going to notify you Hey, there's there's someone checking your credit. And so you're always caught the first line of defense against identity theft, is monitoring your credit reports. But let's say you don't have that. Let's say you have good credit, maybe a little bit of debt, but you got it under control and What ends up happening is someone unbeknownst to you opens a credit account in your name, they charge $5,000 on it, you still have no idea. You're oblivious to it, you're not checking your credit reports, then they default, which means they stop paying. And then that debt in your name is sent to a collection agency.

And the next thing you know, you're getting a call from the collection, a collection agency, and they're telling you that, hey, you owe this debt. You say, hey, it's not my debt. And you can't, you're gonna have a tough time proving it at this point, because it's gotten so spiraled so far out of control. Next thing you know, they're putting collection notices on your credit report. Next thing you know, you're being sued for a debt you didn't even create. Next thing you know, you went from category one to category five, it can happen.

So that's why it's so very important to make sure that you have credit monitoring, monitoring your credit reports. Number two, use a debt management system in which monitoring your credit reports part of it and your scores using the boundary system we've talked about that is part of the course. And keep up with your debt inventory. We've talked about that in the course, too. You know what's interesting, and this is more of a category two thing. But if you have any debt at all, you want to make sure you know what the structure of that debt is.

I can't tell you how many times I've had conversations with people that I have counseled in my office. And I'll say, Well, tell me a little bit about your debt. Tell me what your payments are, what your interest rate is, what's your balance? They have no idea. It's one of those things where I think once you've accumulated debt, and this is more so down, down, the further down the categories, and then category one, but I want to go ahead and mention it. So once you're in debt, it's just kind of a human nature thing to ignore it.

It's kind of a human nature thing to say, yeah, you know, I'll take care of it later. This is not going to be a problem. I'm able to make the minimum payments, and kind of not really understanding the significance. We got to have a dead inventory. And then never miss a payment. Now, this one's this one.

Critical and especially today, the way credit, the new credit cards are drawn up. If you miss a payment on most of the new credit cards today, they can actually consider you in default. In default, if you're late with a payment, they can consider you in default. What that means is they consider it a bad account. And they're going to demand that you pay all the money right now. Now, just that one missed payment, you're in category one, you're great shape, just that one missed payment if those events took place would send you in category three, just like that.

If they got a debt collector and balled up category four, if they sue you being category five. So this is why it's so very important that even if you're in good shape, you still want to make sure that you're staying on top of it and getting things done the right way. But I think it comes down to commit to living a debt free life if you're if you're in category one, you're close to it if you're not already there. So extremely important. Category two larger than average amount of debt and making minimum payments. Now, this is that situation where you started to accumulate debt, you still have room on the credit limits, and you're continuing to accumulate debt.

One of the things I talked about on the band boundary planning system, which is a system that manages your, your spending gives you a effective spinning plan is that if you overspend on an any month, guess what that overspending goes, because you ran out of income goes on the credit card. And it's, it's easy just to kind of live life that way, as long as you got credit limits, as long as you can raise those credit limits. And this is where the process of category two is, you're starting to build those credit limits. And the problem is, is that once again, you're probably ignoring it, you're probably being unrealistic about it, and you're getting comfortable. That's one of the dangers the dangerous aspects of debt is that our credits use me is that you get comfortable with it because you've rationalized It's not that big of a deal.

Oh, it's a big deal. As you'll see, as we get down, and I would I do, I kind of put category two and category three together because they're there, they kind of run into each other. But category two builds to category three, and then you get maxed out, all available credit is used to come in, you're barely making the minimum payments. This is the problem is that those minimum payments are okay. until either they increase, they continue to increase the minimum payments. And you wake up one day and realize, wow, I can barely make these minimum payments.

Now, I talked about this being you're kind of on the edge of a mountain, you're pre crisis, you're looking over and you're barely doing whatever you have to, to stay out of trouble at this, if you are in category three, and you just realized that this is not bad news. This is actually good news because you're not in category four, category three, and let's talk about how a debt goes bad because if you're pushing it to the limit, you're also in a situation to where you you're probably at risk of defaulting on an account or you're probably at risk of missing a credit card payment. And you know that this is what ends up happening, you're paying in every month like clockwork, you miss it, you miss a payment, then you miss two payments. Now, after you've missed one payment, the lender, whether it's a bank, credit card company is probably going to be calling you at this point.

And they're gonna politely ask for you to pay and you're kind of you're on the front line of collections, then they send it back to their collection department, at the bank. Now, here's the problem with collection departments of lenders. They don't have to follow any laws. They're exempt from the the collection laws, and they can harass you. Now, they'll typically do this for 30 to 45 days, up to about 60 days. If they can't collect it.

Then the lender takes that debt and gives it to a third party debt collector who has to follow the laws. And they almost always don't, but they have to follow, they're supposed to follow the laws. And then that debt collector, third party debt collector starts to collect that debt. Now, if they give up, they give it back to the lender. Now the lender has a choice, the lender can either can either give it to another debt collector or they can sell the debt to a debt buyer, okay, the debt buyer would then Own your your account, and they would try to collect the debt. And what what the lender ends up doing since a $10,000 debt and they sell it to a debt collector debt buyer slash collector for $6,000.

Now, that debt buyer is going to try to collect maybe 11 or $12,000 from you. And that's, that's the thing about when it gets to that stage, those numbers get really trumped up so it's probably way more than you actually owe. always kind of keep that in mind. But that's how a debt goes bad once it gets to the debt collector stage. There Chances are, you're going to be dealing with that debt for a very long time, it's going to keep popping up. So once it gets to the debt collector, you're again, category four, if you're if you're in two or three, step one is create a boundary plan on effective spending plan.

This is so very important because I would suggest you can't get out of debt. Without an effective spending plan. You've got to know where you're spending money, you've got to know where you can get money to pay extra on that debt and get it paid off once and for all. Creative debt inventory, we talked about this, that's still very important, especially in a two and a three, you want to be realistic about your situation you want to be in to a point to where you know exactly what the payments are exactly what the interest rate and when you're going to pay it off, which leads me to step three, create your own debt consolidation program. This is super easy to do. And this is something that I'm going to go at towards the end of the program.

Monitor your progress with a good system while You're paying it down, you want to make sure that as as I said earlier, that you're not increasing the debt that you're decreasing the debt at all times. So monitor your progress, watch that debt go away. Now, if you're in category four, you got some problems, because that probably means that one or more accounts are in collections and have been charged off or in the process of being charged off. Now what I mean by charged off, is the lender said I give up, they sell your debt, then they write it off. And that's destined that is very damaging, damaging aspect to your credit scores. Well, this is where you are.

And now what you have to do if you're in this situation, is when I write about this, my book deceptive money is manage the debt collection process. You want to do your best to kind of put them off as best you can. Because here's the problem once you're in this situation. The difference between category four and category five is that you don't have legal problems, yet. What in in a debt collection process? The lender or whomever owns your debt.

And this is this varies by each state. It's called the statute of limitations period. And by the way, I'm not trying to play an attorney on I'm not an attorney, nor am I trying to play one on a teaching video, I'm just telling you the set up statue limitations period is the period of time that a lender or whoever owns the defaulted debt has the ability to take legal action as a means of collection. And what that looks like is they're trying to secure a they get you into court and they're trying to win a judgment against you. Once they have a judgment, then they have a lot of other different ways that they can collect that debt including taking money out of your bank account. You You want to avoid this at all costs.

In the back in the in the event that you get into legal problems because then the wheels, the wheel, actually the wheels fall off the car, the minute that you get into collections. And having said that, if you're struggling along in a category three situation, get an extra job, work part time, do whatever you have to do. Remember, it's just a season, because the minute you go into collections, the minute you miss a payment, you have big, big problems. And you want to avoid that at all costs. But it's all about debt collector management. It's all about doing your best to get through that statue limitations period in Texas, where I'm from, it's four years past, the first typically is past the first missed payment the way I think it stayed, they stayed in the law, the the event that triggered the debt to go bad, which is typically the first missed payment.

For years. You got to be able to get through some some attorneys I think interpreted what, six, six months pass the first missed payment plus four years but you get the idea. That's the dangerous time. Now once you get through that first four years, once you've gotten through that they have no legal power over you. So now is still reporting on your credit report because that goes for for seven and a half years past the first missed payment. But it's critical to get past this legal aspect of and that's why the debt collection process is so bad for you why you want to voice because of the legal ramifications of it.

One thing I want to talk about in just to remind you because you've probably up to this point, you've already watched the teaching course on debt collector management, don't put up with debt collector harassment, you got to know your rights. There's a wonderful set of laws that protects the consumer against debt collectors. And debt collectors continue to harass people day in day out, and consumers put up with it. You don't have to put up with it, you have rights and you have ways to fight back. So you got to know that and so make sure that you really do watch that video because it's an important one. A gameplan for category for the consumer can settle and pay off the debt with a lump sum.

Now, here's the thing this is the ideal situation. If you have a lump sum of money, you can negotiate with the debt collector. Remember, if they own your debt they paid. They gave pennies on the dollar for that debt. So they have some room to negotiate. And so if you've got a lump sum, say it's a $10,000 debt, you have $4,000, chances are you're going to be able to negotiate down to 4000.

If you're not a good negotiator, get someone negotiate for you. I've negotiated for a lot of different people. And it's easier for me to do it because I have no emotional ties to it. And I can negotiate effectively with the with the with the debt buyer, and get that down. So that's the ideal situation if you got the money. Number two, the consumer can make small or monthly payments.

Now. I've had people contact me and say, Hey, listen, how do I you know, get a payment plan set up with a debt collector? Well, you don't. It's ideal, but it's very rare that they're going to do this. They're in the business of not tracking payments and all that kind of thing. They're in the business of getting a lump sum.

Payoffs and they're not interested, in fact I've watched is some debt collectors have set it up, put a person on a, a payment plan, three or four months in the consumer realize the debt balance was even higher, and they weren't tracking it and it's just it's just a mess. I don't know that I've ever come across a debt collector that said, Hey, we're gonna put you on a payment plan, that would be the best way to do it. But I don't think I've ever come across that. option three the consumer stalls to buy time. And this is the statue limitations. You can continue to talk with the with the lender, tell the debt collector tell the debt collector, you can't pay, continue conversations, maybe the debt collector gives up and sells it to another debt collector who knows but you know, keeping conversation going, even though it can be kind of a hassle, if you can stall off that time period and by some time that can go to your advantage.

And then and also So I once a debt collector, I don't really have a reason for this. But this is something I've observed. Once a debt continues to get sold, meaning the debt collector gives up and they sell the debt, the lender sold the debt First, the debt collector sold the debt. Second. Once that happens, I it's really interesting, the chances of getting sued sued, I think go down every time they sell it. I've just kind of watched it's not that that's the norm.

But that's been my experience. Option five, the out of the box option is settle with your savings. Now what I mean by that, if you're able to successfully stall off the put off the debt collectors, if, or if you've, if you know that you're in debt you're going into debt collection is so very important to continue to put money back into a savings account, build up that lump sum savings, if you're able to put them off two or three years and you have two or three years of savings, you can take that in Take option one and negotiate and get through the debt. category five, it's happened, they filed the lawsuit, you're considering bankruptcy, and you've got a real real mess on your hands and you're paralyzed with fear. That situation seems hopeless. This is a tough situation to be in.

And I got to tell you, if you if you go Oh, but I'm in a category to know that you can be in a five. This is this is the the downside of accumulating a lot of debt is that the legal system can catch up with you. And through a lawsuit through trying to secure a judgment. If you're in this situation. What I've always advised is to get an attorney now you might go That's obvious. A lot of people don't do anything.

I would say the vast majority of people and I don't have a, you know, a percentage, but I would say 80 to 90% of the people who get serve legal papers, ignore it. I've never understood why but they just think they don't want to face it. And what ends up happening is that you don't show up for the case in front of the judge and the judge. Awards, the debt collector, the debt buyer, the lender, whomever it is, is suing you. They award them the judgment. And now they've got all kinds of different ways to collect against you.

It's what you want to avoid. So think of it this way. If 80 to 90%, or some percentage the majority of people ignore judgment, ignore lawsuits, legal matters. Is the lender more than likely to deal with the person who has the attorney? And I gotta tell you, I've done a lot of case examples where I've had told someone to get an attorney and they they got an attorney and they faced the situation was able to get it resolved without going to court. Now, not that, that's a guarantee that's going to happen.

But regardless, you definitely want to seek the services of an attorney to at least send a letter and say that they're representing you and kind of see what the next step the next steps are. Now, a debt consolidation plan, what I'm going to take you through Through his several slides of how to set this up, and it's super easy, very easy. At the end here, I'm going to take you through several different slides that I'm just going to tell you to pause. And you can read and study because there's a lot of detail on it, you're just basically seeing where the numbers are going. But the first thing you want to do, this is a great example of a debt inventory. You've got the interest rates, you know, how many months are left, at the very, at the very bottom, it's, it's going to take you 65 months to get out of 65 months to get out of debt.

Here's all the credit cards, the cars, every all your debt, there's the balances, there's the monthly payment, and there's the interest rate. Now, this monthly payment of 1153 is critical to the success of your own debt consolidation plan. And this is a powerful concept because I believe you know, I've talked about the Debt Solutions business, another teaching course, as part of this program and you know, debt consolidation is not what they advertise. This is your own debt consolidation plan. Now, let me ask you a question. Look at these interest rates.

They're very high interest rates. How long do you think if you did this debt consolidation plan, which means you committed to $1,153 a month until it was all paid off? How long do you think it would take you to get all at it completely out of debt 50 6065 months. If you went with the debt consolidation plan, it will take you 30 months, I've showed this to so many people, they've come in and just desperate hope and have no hope. And I said, put them through the process of the debt consolidation plan. And they were shocked that they only took it the amount of time it did.

And the thing about it is you got to look at it's just a season and obviously if you can add to that $1,143 then That's even going to be better. But this is how it works. It's very, very simple. The way that it works. First of all, you're going to commit to making the $1,153 until it's paid off. So this is all of your credit cards.

And this is a total of 1153. These are the months. Once you say you're paying your car off, and you get down here to month six, and you've paid it off, you take that $420 that you were paying, and you add it to the next highest interest rate card. It's critical because remember, we're committing to $1,153 a month, it's critical that you that you go not to the lowest, lowest debt amount. That's what some people say it doesn't work as well go to the highest interest rate that you have, and start in add that payment. So if we take 420 and add it 61 it's $481 and that And then you pay that until and that pays off, then once you pay that off, you take that $491, and you add it to the next one.

Now I have this actually broken down with explanation of taking you through it. I don't necessarily want to go through the explanation of it, because I don't think it's totally necessary. But for those of you who are really interested in numbers, I want to kind of walk you through it and show you what this looks like. And this is an explanation of what I just showed you. The 420 plus 261 is 481. And then, here's the next slide.

And what I would advise you to do is just pause in each one of these these slides to where you can get aggressive grasp the numbers, all we're doing. And this is a little bit more complicated because it's just saying that the $491 you owe $207 left and what I'm illustrating for you will on the next slide is the difference between that and where it goes. And if you The bottom line is though you want to make sure you There's continuity with the $1,153 a month. And this is a breakdown of how that in pause right now, and look at that. And then what you're looking at, you're looking at as as these are paying off, here's the number of months going down weren't the 18th month and you can start to see the progress. Once again, the $1,153 is a consistent each month, you're just taking once you pay off a note, and you have that extra money, you're putting it on the highest insert.

This is not rocket science. It's really easy to understand, but it's critical that you that you follow the steps. And then this is the full explanation of what that that happened. We just did. Let's just pause here and take a look at that. And then we're down once again.

You see this this slide Then there's the explanation of that, like I said, for most people are not going to want to see this. But we went ahead and ran the numbers out just so that you can see it. If this doesn't change the simple concept, I'll let you pause here for a second. And then we're still going still paying. Take a look at that for a second. And then there's the explanation of that.

Let you pause for a second. And as you can see here, that this this pays off, this pays off, this pays off, all of these go and added 1153 you're staying consistent. You're down to month 27. And then month 30 you're paid off and what a great number that is, which is zero, and you're completely out of debt. It's all about having a strategy Mitt to a strategy. Be realistic about the debt, know where you are so you know where you're going and make sure you get it paid out, get this debt situation taken care of one of the things that I that I've discovered in working with people is that it's all about getting an education.

It's all about understanding what where you are, what to do, that if you take the steps, you get serious about it, you can lead a debt free life.