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Dealing with Debt

Lesson 4 from: Personal Finance for Artists & Freelancers

Galia Gichon

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Lesson Info

4. Dealing with Debt

Lesson Info

Dealing with Debt

What I'm sensing is people are getting a little bit bogged down with gosh I can't believe this is where I'm at and this is not a situation that I'm happy with so I actually think this is a really healthy part of the process because what they are doing and what you're doing is you're actually facing the reality and you're facing and and I've seen this trust me I have I had some really difficult conversations with my clients that were not happy about where they were because they haven't faced the numbers and they show up with me and I make them face the numbers and so they show up there like I don't make enough that's a big one I don't make enough and unfortunately it's the seminar next door we'll talk about how much you should make but I not going to talk too much about how to make more in that tent that is a separate topic but they don't make enough for their spending too much the big thing I see it a lot and so your first thought when you see it is you're not happy about that it doesn...

't feel good but good for you that you showed up just good for you that you're showing up in your facing the number let it settle in process it and you will make changes and you'll see those changes so right now you're just facing that this is what I've got and I'm not happy about it and I've got to make those changes and only you could make this changes I can teach you a lot and I will but I can't do it for you you have to do it just on the making the changes and having numbers that don't shift around and bubble around when you're a freelancer and things do sort of shift in bubble right stop photo says my biggest struggle in pricing is determining my variable income since I'm in my first year I don't really know what the cost will be for the equipment marketing, office supplies and things so that's like a a stat up question but as you think that's an ongoing thing is and that's a great great question and so a lot of times people will call me and say, oh, can you help me with my startup? Do you do business expenses? And I do on a personal note, I do some angel investing in women owned businesses and so I've definitely dealt with business started quest shins and while they are separate from really what we're discussing, they are completely relevant because if you are starting a business such as photography which can be a large financial investment where's it going to come from your pocket right? So I think again that is going to be a startup cost that maybe you do have to finance whether it's through credit cards or barring the money or savings, but again, no the number. So sit down and this is where I do with a lot of entrepreneurs who are raising money either through the sea or angel or small business loan, and they do not. I have a business plan, they don't have a profit and loss statement, they don't have a balance sheet, so especially if you do need to do start up costs, you've got to put those numbers together. So this is just a much more glorified budget, which we're going to talk about today. We'll definitely talk about tomorrow, but your best bet is really sitting down, writing here's the equipment I need, what can I buy over now? What can I buy now? What can I buy over the next six months over the next twelve months? Can I finance it? Is a twenty thousand five thousand what kind of projects do I need to get? And I've worked with photographers have a wonderful photographer I've worked with in connecticut, and he and I have talked a lot about that, he says, well, when I get this job all by this equipment, so but again, you've got to know the number, so being really, really clear on what you can spend. Can I just clarify will we be talking a little lighter specifically about student line and how to deal with what can be quite a oppressive massive number handy having a section on that right now way are going to talk about student loans and I am not a student loan expert I'll just put that out there and I think someone people who specialize in student loans that's all they do so I can during the break I've got an expert or two that I can suggest but again you're so you know so what I cannot help you with is well if you call sally mae and you get this you know that's probably not something I'm going to help you with but again it's just like any other loan or any other debt that you've gotta pay off in a month places so what we're first going to tackle is credit card debt because it's a crippling crippling thing and I've been there I've had credit card debt what ones? Well, what was one of the first questions that I had when I started my business is my path my dad but then I have a three thousand dollar bill that just doesn't go away pay it off and then a few months later is three thousand dollars so I think I'm doing good I'm got projects, maybe I'm making six figures but that three thousand dollar bill does not go away so I kept hearing that over and over you're not gonna like this you can on ly reduced your credit card debt by changing your spending this's a really famous person said that all you got so really think about we're definitely gonna talk about debt for this next segment but also think about how can I change my spending because why did we get into debt? Because we spent more than we had we don't live within our means or we had a really big expense that we weren't accounted for, so I'll never forget my from florida grew up there and I moved to new york twenty years ago, right? I just graduated college moved to new york right away and you know, I really never lived in a cold climate and I was so excited I was leaving hot steamy something in florida loved it but just couldn't wait to move to new york move there in january and then the summer came and all sudden it was hot and I didn't have an air conditioner seems like such a simple thing we're in florida everybody is a recognition just you take for granted I lived in this old old studio apartment that didn't have an air conditioner and I remember I went down to this company and they put in the air conditioner and it was five hundred dollars this is twenty plus years ago and I didn't have that I didn't have that saved I remember then I thought, ok, I need to change this this is crazy a that I need to buy an air conditioner I thought nobody should have to buy an air conditioner but now I know that that's a way of life. But then second of all, I thought this is crazy that I have to put this on my credit card like I need to change my own money habits and remember that lesson that I got into debt, if you will in graduate was a small amount, but I do. I did have that over many years, but I thought I need to have more of a safety net. I need to have a savings account for this and how do I do that? I'm changing my spending so I will just start with if you do have credit card debt, stop using your cards, pay cash only go back to cash it's not necessarily the long term approach you want, but think about it is the easiest way for me to change my habit you know it and that's that's something to think about with your money is don't make it so hard trying make it as easy for yourself so if not having your credit cards available, whether it's putting them in the freezer leaving them at home locking them in a drawer, cutting them up if that's what you need to do then do it there's nothing silly about it there's nothing stupid about that so funny, whenever I talk about debt the conversation gets really quiet you know, the energy changes like I've noticed the energy has changed big time but that's why we're taking care of it initially we're getting it over with so we can and then I get no I just want to put that out there and I know this could be a tough part of the conversation don't get down tackle it head on so one of my great stories is that when I first started working with individuals I worked with this wonderful woman and shed a lot of credit card done she did have income but we sat there and we said okay, based on your death I think she had twenty, thirty thousand dollars of credit card debt we went through her budget and she could afford to spend eight hundred dollars a month to paid off and it will take her six years I'm just making up some numbers ah lot of people say six years to pay off your dead oh my god she actually looked at that and she said great, I have a plan and I realised that again it's not about the time it's not about the money it's about having a plan she thought ok, eight hundred dollars a month I can do that let's find that because she had an income she's like I'll make the changes she was committed to showing up so if you have credit card debt, if you've got student loan debt, come up with the plan around it and maybe that's the one thing you do from this course but have a plan around it so start by going back to cash only what if, as I think a lot of people do you run things through the card because you get miles and jointly oh, I love that question I love it, I love it what it's like is there why to use the absolutely absolutely what I would suggest with cash only is just well, first of all, you shouldn't be using your cards if you truly have credit card debt because you're actually doing yourself a disservice by continuing to use the cards. So maybe you want to use a debit card, which we'll talk about, but if you want to use your cards because you want to keep track of your spending and you want the miles and I get it, I mean I travel every year for free once a year and I only use my cards you still need to stop using the cards that you've done on, so if credit cards or your problem part of this using cash only is just changing your habit you showed up today because you want to see changes nobody made you come here right? Nobody made you come to this class nobody made you show up here even you there's a reason the two of you are here right besides that you're working for this company there's a reason there is so you want to see changes so I love I love that question it comes up all the time but make those changes so do something different maybe use a different car use a debit card but cash only for a month just try it if nothing else you'll just change the way you spend that's my goal so just some very basic points on dead I will definitely talk about debt consolidation but again the only way you're going to pay off your debt you're changing your spending so consolidate to as few cards as possible obviously to one card would be ideal. So call your credit card company and ask for a lower rate has anybody ever done that? I know I have did it work? Yeah course you did know you could do that you know there's a great great expression that you're at no now have you heard that expression? So if you ask for something, you'll get an answer but if you don't ask for it the answers now you right now so there was a great diagram and money magazine many years ago that talked about howto call a credit card company and it was just like it was it was that picture with all the crazy things because how many of you have tried to just even call the airlines or call anybody? I mean, you brought zero doesn't know it's like you just, you know, get a live person so I'd say pour yourself a big glass of wine or beer or lot whatever you know makes you calm down, call the credit card company and say, what can you do for me and don't forget that you are their client, they are making money off of you that is how they get paid year you're doing them a favor by owing them debt and paying a very high interest rate and call them up and if they don't give you the answer say can I talk to your supervisor? Can I talk to your supervisor? Can I talk to your supervisor? I'm having trouble with my credit card payments. I am thinking about transferring my balance someplace else, which means that they're going to lose a client that's how you have to think change your mindset and so maybe you'll go from eighteen percent of sixteen percent in terms of interest maybe we'll go from sixteen percent to ten percent but right now you have lowered your interest it doesn't happen as much, but maybe you can get a fixed payment like if you're really struggling with your payments because they don't want to lose you maybe they want to loose some a few, but on the whole they don't want to lose you as a client and I think that's how you have to think so call them and ask for the business call them and say I need a lower rate I need to change my payment I need you to work with me if not, I'm going to take my business for how many of you on the flip side have gotten a job or worked with someone where you were the client and said, well, if you don't do this, I'm going to take my business elsewhere and you make those changes, so think about it like that stay away from teaser rates and some just not a fan of these rates where zero percent for a period of time and then it jumps up to fifteen, sixteen percent because what you're doing, if that's really how you're managing your credit card debt is you're not dealing with the problem. You're just transferring your balance from one car to another so which we'll talk about a lot after after the next break is more importantly, what you're doing is you're actually hurting your credit in the long run by continuously transferring your your balance and then more importantly, what I see is world busy especially if you're trying to start your own business or have your own business we're all busy do you really have the time to constantly every six months or every three months look for a new card and then transfer your bounds from one car to another I don't I'd rather focus on getting new clients I'd rather focus on getting more money for my clients we're looking for business that I like rather than constantly calling credit card companies and transferring bounce from one to another you questions in the chat about credit card debt stories films is asking what is a good rate on a credit card j test how can we avoid consolidation fees and a blue bamboo seattle how do you transfer credit card debt? Can you elaborate? Okay let's start with the first question good rate the good rate so the average credit card rate gosh ranges from eighteen to twenty seven percent a year that's a lot of money dwight, I don't think I have brought the numbers here actually did this at a seminar that I did a few days ago if you had a thousand dollar debt balance and you paid just the minimum and you had an eighteen percent interest rate it would take you nine years to pay it off thousand dollars thousand dollars doesn't sound like a lot of money does nine years yeah so the average credit card raid eighteen to twenty seven percent is what's out there an ideal one is less than ten percent so even five percent but I think around ten percent now I'll be honest with you my personal credit card rate is twenty five percent but that's because I have a card that I love and I don't carry a balance on it so if you don't carry a balance the rate doesn't matter because you're paying it off every month but if you are carrying a balance you want to keep it below ten percent so in terms of the credit cards and this next slide bankrate is an amazing consumer finance site they have many, many, many tools and such but their best tool is really just the credit finding credit card's low interest rate credit cards and in fact using a debt calculator so this is a case that if you have a seven thousand dollar debt eighteen percent interest rate and you pay three hundred dollars a month to pay it down it's going to take you almost three years and fifteen hundred dollars in interest so we thought was seven thousand is really eighty five hundred so running these numbers can be just really overwhelming yes but more importantly these air the numbers the numbers don't lie so eh I think it'll just get clear on wolf I do eighteen percent but then if I lower to ten percent what does that change? It'll change this number and then can I up this three hundred to four hundred or five hundred? Have you heard of a website called bill cutters dot com I have many iran said that they heard on another creative life class that bill kind of start come will try to re negotiate all of your recurring bills to get low prices, right? So in terms of no, so this is great. So a few that that's actually great point, so very often if we have a lot of credit card debt and we just can't pay it off it's just too much we've gotten into it for dealt with adult calculators, which like if you're at a place where you're like okay, I've looked for money, my budget, I cannot find it it's too much it's crippling me. My credit score has gone down because I've got so much dead and you need to go through a credit consolidator. So this is working with an organization that is simply for gives your dead and there should be a last resort for you, but maybe that's where you're at what you want to do is go through the n f c c dot org's, the national foundation for credit counseling on they are a government agency that will find a local one in your area that will hopefully charge you the lowest fees in terms of credit consolidators so start with the nfcc dot or ge and they'll recommend one I'm not familiar with bill cutters or actually ari myself course on the art of less doing and the bill cutters don't deal with credit card companies but but when we talk about budget it probably could come in there because what they do is they call the company maybe it's like an electric company or uh whatever your standard bills are they negotiate a lower he and they just take half of what you say great so that's how it works okay, right so that could be great then I guess in terms of credit card debt there are a lot of credit consolidators that really the negative part of a credit consolidators, eh? You do have to pay something fees and then be the extra could really hurt your credit because the first thing they tell you to do stop paying your credit cards which that just that can really hurt you for the next seven to ten years are we at some point going to talk about the important of your credit score and why okay stegman tax break? Yeah, yeah, I mean they're very directly related, but they're also not so that's why I wanted to first talk about debt and debt can be negative and definitely you've got to figure out a way to pay it off but again this's how do you figure it out? You find that three hundred dollars a month and you stop using your card so you get the lower interest rate. What were the other questions I know only covered one of we have one here and twenty three just discussing their on an income based repayment plan on it was talked about how hopeful it is says if I wasn't in this plan I couldn't afford to live I don't even have my own place, which is my six month goal. My biggest problem is I have forty seven thousand two hundred and seventy seven in student loan debt yes and all my stray and a half and credit card debt and then there was a movie then there was a school put it all on credit card and I only might nineteen thousand dollars a year, okay, I don't think that that's a tough situation I mean, I I I can honestly say that I cannot give you like a ton of advice to get past that, but what I can do so you've got to pay off the credit card debt so you've got three thousand three and half thousand you've got to figure out a way pay that off, so be credit card debt free as soon as you can, so find that money in your income the student loan debt if you can consolidate it because it will get you a lower interest rate and it's a one time thing that you could dio and then also, if you can defer it or gradual repayment, which might make it a bigger amount. But if it lets you save some money and focus on earning mohr for the next six months. But in six months you can re evaluated or after you've paid off your credit card dead. Then you can put it back to a standard repayment. The other two questions that will get luke back to. How do you translate? How can we avoid consolidation fees? And then the third one was how do you transfer credit card debt? Okay, so how do we avoid consolidations? I was this consolidating credit card. Yeah. Okay. So I you know, again, it's. Why? That I would say that I would rather you find a permanent lower rate credit card one time. Find something at seven or ten percent and that's it versus these teaser rate cards that are constant about consolidating because they do charge you forty dollars, fifty percentage sometimes. So this is the place where you're gonna find most credit cards. There's also cardweb, which is another website, so your best bet is to look for a credit card at bankrate er, cardweb, and chances are, if your credit scores fairly good, which means, and we'll talk a lot about that in just a few minutes. If your credit score is fairly good, you're probably getting offers in the mail can you could negotiate, you can call and say I want to transfer, but I don't want to pay fees, but you could also go on bank rate and look for credit cards that don't have feels like I pay an annual fee. I have a high interest rate, but I pay off my balance and I get it benefits for it, so I don't mind doing that, whereas I spoke to someone recently, you said, I don't want to pay one fee with my credit card, and I want a low interest rate, and I don't care if I get benefits so that's a priority for so everybody has different needs and credit cards, and gosh, you're so money we have. I think this is quite controversial. We'll look in australia, this is quite controversial, but maybe it's not here. So, caroline, a couple of other people, I don't know why she isn't mentioning bankruptcy, really, it could be better than credit consolidation and has a few other people that have asked whether you're actually going to talk about bankruptcy, I I'm probably not going to talk about bankruptcy. I you've gotta own, you're dead, you know? You got into debt, I've been in debt, I've had student loans, so I got my mba in finance. I graduated with about seventeen thousand dollars in student loans from it. I owned it, I paid it off. So bankruptcy, I think, you know, I'm not a bankruptcy expert and I have worked with people who've had bankruptcy. The problem with going through bankruptcy is what I see is the after effect is it's hard to get a mortgage? It's hard to get a business loan? So why are you in that place for bankruptcy? And I would say, just stop and take a second and say, why am I in this place? Is it because I wasn't conscious of my money and I just kept spending or I wasn't earning? I think if you got into it because of hardship because you got laid off and maybe you're in an area where you couldn't get a job or if you got divorced and you're in a relationship that really messed up your credit? I mean there's a few situations where it's an exception. But I think on the whole that should be your absolute last resort owned the debt that you got into and I know it is controversial and it's probably easy for me to sit there and say you've gotta own it but I've had dead and I've paid it off I've had credit card debt and student loan debt and nobody paid it off for me and just like what you're talking about in terms of your habits so any of these sort of nine one eleven scenarios you know you might find yourself back in if you're not really addressing the issue that got you there in the first place you know what? Maybe if you can I mean there's so many places to get loans from maybe you borrow loan from your family too pay off the debt and then you pay them off for the next five or ten years and you know, I worked with a lot of clients for a period of time who were working for a corporation and would borrow from therefore one k and they say to me is that okay? And I'm like well, financially it is because here's the reason why, but first of all you are hurting your retirement but second of all, how do I know that? Okay, so you pay back the four oh one k loan that five years from now you're not going to go do that again which is what I see I've had ten, eleven years now of working with individual people on their finances, and this is what I see. I see that very often, if we don't change our habits, we make the same mistakes over and over, we continue a we continue to borrow money, we continue to not be accountable for money, we continue to not take charge of our spending on we don't change our habits. So again, think about why you're here think about the bigger picture and, you know, these are some really unfortunate situations of people who are not earning a lot of money and have a lot of loans and a lot of debt, and I definitely feel for you and I've worked with a lot of people in that situation, and how did they change? They change because they did change their spending. So for those of you that have called in, you can change your spending right now. That's me, you could do, and I mean through bill cutters that's great that you could do that, but regardless, you're in charge of that. We're going to talk about that. Today so number one you can change your spending you can go out there and be like, oh my god, this is a reality check I need to make more money and maybe I cannot make it and what I'd like to do right now but then I will get a part time job doing something else I have had many jobs trust me way all have but I've got to pay myself to take charge of this debt and then if you really needed last resort then goto nfcc that would be my first choice versus bankruptcy I don't want it forgiven in the sense of like okay, great you took on this money you have not taken responsibility for it but more just say you know can you work with me and talking to the credit card companies and coming up with a payment plan that I can afford and that's really what it is consolidator will do so using the debt calculator and then so here's an example the calculator so kept linger dot com backslash tools, money dot com and smart money and smart money is the wall street journal website. So for example, five thousand dollar credit card bill eighteen percent interest rate you pay one hundred twenty five dollars so you're paying one hundred twenty five dollars excuse me that's the minimum payment but you're paying two hundred dollars a month it's going to take you a little less than three years and thirteen hundred dollars fourteen hundred dollars in interest so again and maybe you're thinking ok, I can do two hundred dollars a month so while I don't want you to pay thirteen hundred and interest the two hundred a month you khun dio and then that's a part of your goal and that's manageable so while I get it that you might want to use the card for points and such let's think about the bigger picture about creating inhabit making changes there so the homework her energy will change soon I promise the homework is over the break if you have dead start by running these different scenarios on how long it'll take to pay off your debt and how much you gonna ford and if the scenarios don't work that obviously you can look at nfcc you could talk to accredit consolidator but you have choices don't just sit there and wait for the action to happen to you so go online look at these different scenarios cut up your credit cards if that's what you need to dio find a credit card that works better for you call the credit card company sit down and figure out how much do I really need to find the money to pay off my dad be really clear about that it's not the big number like wow I need five thousand it's like no I need to five hundred dollars a month. Where can I find an extra five hundred dollars a month? Forty seven thousand dollars in student loans is incredibly daunting. I get it. I see that number all the time, but six hundred dollars a month is manageable. So where can I find six hundred dollars a month to pay off my student loan on my credit card and really think about what can I do to change the reason I got in here? And maybe this is a reality check that I have got to earn more money to pay off this debt.

Class Materials

bonus material with purchase

Day 1 Presentation
Day 2 Presentation
Day 3 Presentation
Monthly Spending Plan Worksheet
Weekly Spending Plan
Budget Worksheet
Emotional Side of Money Checklist
Mutual Fund Checklist
Personal Finance Checklist
Retirement Planning worksheet

Ratings and Reviews

Kieu Truong

I love how approachable and welcoming and easy to understand this course has make financial terms and situation sounds. I love Galia and she makes I really feel calm and comfortable learning from her. Great!

Danielle Allen

This class was an eye-opener for me. I love the way Galia makes you feel comfortable thinking about as well as talking about your financial picture. I also appreciated her many examples and actionable steps for planning.

Shannon Borg

Galia is AWESOME! I love how down-to-earth she is (hence the name of her business!). I learned so much, and am going into a new year with a totally different outlook on my money. Now I have a plan, goals and much less anxiety about the whole process! Thank you, Galia!

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