We have identified what type of moneyaholic we are and now it's time to make changes! Let's first take a look at how we are financially. Let's look into the D.I.R.T. Debt to Income Ratio Trap. I call it a trap because our debt has trapped us. Our debt to income ratio tells us what we have more of. Do we have more debt than income, or more income than debt? Odds are it's the first one: we have more debt than income. There is the D.I.R.T.!
Credit cards are temporary money. They say, "You didn't have to do anything for me but sign your name." This is why it's so easy to spend. The trap is when the bill comes. It might have been free money at first but now it's taking our money to replace what we 'used'.
First thing to know about credit cards is that they're ALWAYS a loan. I know, they don't look like one. But, they are. The big print on the application GIVES you the money. The small print, down at the bottom of the page TAKES! And they will always take back more than your limit. This is the intrest. This is the trap.
My example: Let's look at my Discover card bill. My minimum payment equals the interest they are charging me a month. I am not paying anything to the principal (of the loan). In reality I am owing more after the payment is made. It's only about two or three dollars but, Cheap Add$ Up!
So now to the D.I.R.T. This is a project or homework.
1st- Gather up all your bills and pay stubs.
2nd- You will need writing utensils. Paper, pencils, eraser and a calculator.
We are going to figure out our dirt. Write down first: Need to live bills. (in order)
Mine:
1- Church. 10% of my gross income each paycheck. $ .00
2- Housing- Rent. $ .00
3- Phone- Cell. $ .00
4- Utilities- none.
5- Car payment/ bus pass. $ .00
6- Car insurance- none.
7- Gas/ bus money- $ .00
8- Groceries- $ .00
TOTAL= $ .00
These are normal monthly bills we need to live. We can change only a few. I have no car so there is no loan payment or insurance. But, I do have to go to work and I need a bus pass. If I don't have the total for the pass up front, I need bus money.
Now we move to the difficult. The bills that make us cringe. Unnecessary Debt!
List each credit card/ personal loan/ student loan bill and the minimum payment and the apr (% intrest) they are charging you. The intrest is how much they tack on to your bill every month. It's their pay check for letting you 'borrow' their money. 12% of a loan is the total payoff amount plus 12% on the dollar! If you have intrest that is 29% or higher it can be a huge amount in the end. Write them down in order from largest total payoff amount.
Mine:
Bank personal loan- $ .00 / intrest:
Discover- $ .00 /
Macy's- $ .00 /
Citi Master card- .00 /
Check City-$ .00 /
Visa- $ .00 /
Visa- $ .00 /
TOTAL= $ .00
To live total= $ .00
+
Unnecesary debt total= $ .00
TOTAL= $ .00
Now look at your pay check stubs. What is your net (take home) average per pay check? $ .00 What is more? Bills or Net income? How much DIRT are you in? Take the greater amount between the bills total and the net income. Subtract the lesser. Example: Bills (B) minus Net Income (NI) equals= $ .00 DIRT! If your NI is greater than your B then you're doing ok. You can actually start the GOOD run faster. We'll talk about that later. If your B is greater than your NI then that's where change HAS to come. And I'm not talking about Check City like I have done. I do not recommend that but, if you have I'll talk about that too. Now sit and breath. It might look bad but remember you're not in this alone. You have taken the necessary steps to start stepping out of the D.I.R.T.
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