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Frequently Asked Questions

Will your program work for me with my income or debt load?

Lenders lend out money based on what are called "ratios," which essentially compare your income to your debts or your income to your monthly payments. What this means is that, if you have a small income, they will lend you a comparatively small amount of money. If you have a larger income, they will lend you a larger amount of money. But the ratio of that loan, or credit card credit limit, or financed amount on a car compared to your income will be the same, whether your income is high or low.

For example, if your income is say $30,000 a year, a lender might offer you an $80,000 mortgage. A credit card company might offer you a $1,500 limit on a credit card. But if your income was $60,000 a year, that same lender might offer you a $160,000 mortgage, and the credit card company might up the charge limit to $3,000. The numbers get bigger, but the ratios of the incomes to the debt amounts are the same.

This means your income will generally be able to pay off your debts in about 5 to 7 years no matter what that income is, because your debt load will be proportionate to your income. Bigger income, bigger debts. Smaller income, smaller debts. The program will work for you in either case.

The only requirement is that you are at least able to make the minimum required monthly payments on all your debts each month.

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How can I pay off my debts and save for my children's education at the same time?

This is probably the most emotionally charged issue I deal with, but the fact is that — to a certain extent — you will have to choose between building a secure future for yourself and your children's educations.

What I did was to "help" my kids with college expenses, amounting to about half what it cost them to go to school. They not only worked some, but they took their classes very seriously, because they had personal dollars invested in them.

The idea that we "owe our kids a college education" was started by colleges, just like Hallmark creates holidays so they can sell more cards. What we do owe our kids is a realistic perspective on how life works. And, in life, no one gives you anything for nothing, so not getting a totally free education helps "educate" them for the reality that you have to WORK for everything of value you want in your life.

The bottom line is that — unless you can get your kids to sign a contract guaranteeing that they will take you in and support you in your old age, because you invested your retirement into their educations — I suggest you take care of your retirement first. Help them as much as you can, but don't sacrifice you for them.

That's the way I see it. Feel free to disagree. :-)

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Should I get a consolidation loan to pay off some of my debts, or should I just pay them off as they are now?

Debt consolidation can be a useful tool in your debt-elimination plan, as long as the newly freed-up monthly cash flow is used to accelerate the pay off of all your debts. If it's used to just buy more current lifestyle stuff and experiences, you haven't improved your life one bit.

And, I also recommend you cut up the credit cards you paid off or you'll be tempted to charge them back up again...leaving you far worse off than before your consolidation.

The important element you need is a debt-elimination PLAN. Consolidation is just a temporary monthly cash flow relief mechanism. It doesn't reduce your debt at all. You still owe the same amount of money...probably more if any fees were rolled into the new loan. The Transforming Debt into Wealth® system provides a solid, proven plan. If you use consolidation as part of a TDIW debt-elimination and wealth-building plan, it can be helpful. Otherwise it's likely just temporary relief.

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Should I tithe to my church while I'm trying to pay off my debts?

My wife and I tithe, and we contribute above our tithes to ministries, organizations, and individuals we feel led to help. We are happy to be a delivery system for God's blessings and support to His other children.

I believe tithing is an act of worship. Abraham tithed in Genesis 14 and his grandson Jacob tithed in Genesis 28, long before there was a Mosaic Law institutionalizing tithing.

I believe God inspired tithing as a way of taking our faith temperature. If we believe in God's providence at least enough to part with 10% of our precious money to worship Him, we do indeed believe. God knows that His greatest competition in this worldly world is not so much Satan as it is our materialistic nature. Asking for the first 10% of it is a clever way for God to regularly see where He stands in our lives.

But for many people the issue is that they cannot mathematically afford to tithe and make the monthly payments on their debts. This is a slightly more complicated situation to which I have given a lot of thought and prayer, and here's where it has led me. I believe that God expects us to meet our obligations and honor our commitments IF POSSIBLE (Matt 5:37, James 5:12). I interpret that to mean that, if we can at least make the payments on money we agreed (credit card application form) to pay back, we should do that. God expects us to honor that commitment.

If we cannot make the payments — our income is insufficient — we can then explore other options such as debt settlement or bankruptcy.

But let's get back to the tithe. I believe, based on the Bible, that God would want us to honor our obligations until we've freed up enough monthly cash flow to tithe AND make all our remaining debt payments. Once a person has reached that point, I would recommend they begin tithing while they continue eliminating the rest of their debts.

I realize adding the tithe in as soon as mathematically possible would evaporate their Accelerator Margin and they would have to begin building it anew, but this is where faith comes in. My faith tells me that God would honor their obedience to tithe and honor their commitments to their creditors, and He would grant them financial favor, making things go better than expected, so they can rebuild their Accelerator Margin and pay off their remaining debts faster than mathematics might project.

I also realize that the issue of faith is a highly personal one, but I'm frequently asked my "personal" position, so I'm expressing it here.

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Should I lease a car?

My entire money philosophy is based on a foundational belief...

There are two ways for an income earner to use their income stream:

In my way of seeing the world, leasing is renting. When I experienced the financial crash that led me to write my first book on the subject, I was leasing a Corvette for me and a big luxury car for my wife. Both payments caused us heartache when crunch time came.

My philosophy is that a car is "Transportation," not self-image, professional image, or anything else. Of course we all want dependable transportation that doesn't look like a refugee from a salvage yard. But you can keep yourself in good, clean, used vehicles that will give you years of service for $10,000 or less each...leaving a lot more of your income to build a life...because you're not wasting it on renting a lifestyle.

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Should I close my credit card accounts as I pay them off?

I recommend you do not close the accounts. The reason is that your credit score (FICO score) will actually be higher if you have open credit lines without balances on them.

Today your credit score can be a factor in much more than just qualifying for more credit. It is frequently used by employers considering you for a job, phone companies in determining your deposit for phone service, insurance companies assessing your "risk" likelihood for having an accident or getting sick, and a lot more. So keeping your score in good shape can still have value for you even after you're debt free.

The one discipline you'll have to maintain if you keep the accounts open is to cut up the new cards when your creditors send you replacements as your cut-up cards expire through the years ahead.

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How can I determine my Accelerator Margin if my income is inconsistent from month to month?

My suggestion for planning purposes is to average out your annual income into monthly chunks, so you can at least estimate how long it will take you to pay off your debts. Take last year's income (or this year's projected income) and divide it by 12 to come up with your average monthly income.

From a practical standpoint, you'll probably need to pour extra Accelerator Margin into your debt-elimination payments in the months when money comes in, and then back off to maybe just making your minimum required payments when cash flow is low. In fact, you should probably look at some ratio, like 75/25, where in a month when your income is high you use 75% of the extra amount for Accelerator Margin and put the remaining 25% aside in case you have a shortfall the following month.

I'd think that after a few months of this you'll be able to see what percentage you need to apply to your circumstances.

Your situation makes the TDIW process a little more challenging to manage, but it will still work for you.

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What do I do if my spouse/partner is not interested in cooperating with me in implementing your plan?

I'm not a marriage counselor, but the issue usually revolves around "right now" thinking versus "long term" thinking. You might want to have a discussion with him or her about your marriage's long term dreams and goals. How do you want your golden years to look?

Once the long term goal or vision is clear ask, "What steps do you think we'll need to take to get there?"

If that doesn't bring about a useful response, you might try, "Do you think we can continue using money the way we do now and get to this vision we share for the future?"

If he or she comes to a place where they too can see that continuing your current financial patterns will not get you to where you want to end up, then you could suggest they listen to the CDs as one possible alternative strategy.

If that doesn't work, I'd seriously consider suggesting to him or her that you visit with a counselor, because a relationship that's incongruent on the issue of money is one that can be a time bomb ticking away. Money disagreements are one of the leading causes of divorce, so it's nothing to be trifled with.

If your relationship is otherwise strong, you should need very little counseling. The problem many couples have is that they talked about a lot of things when they were courting...unfortunately, how they view and use money was probably not one of them. So they end up sharing income and expenses, but not a common philosophy on how they should be managed.

You have to get to as common a money philosophy as possible or you'll continue experiencing minor and potentially major conflict in this area.

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What about using mortgage debt to buy investment real estate?

My position on mortgages for real estate investing is that you can and should use debt to leverage a real estate investing business, but you should NOT mortgage your personal residence to buy investment properties. Real estate investing is a BUSINESS. It is not just a personal investing activity. If you want to invest in real estate, start a corporation or limited liability company (LLC) to house the investing activity.

Creating this business entity will build a legal wall between your personal finances and your investment properties, so that if anyone gets injured or for any other reason decides to sue one of your properties, they can only get to your business, not your personal assets. But be sure of what a real estate investing business should accomplish for you before you start down that road.

The purpose of any business is to flow cash over the legal wall into your personal finances. If money is flowing from the personal side into the business side, you don't have a business, you have a welfare program. The business should exist to give you life, you should not exist to give the business life. If, after the first 6 months to a year, you are supporting the business out of your personal funds, seriously consider shutting it down. It is diminishing not improving your personal financial life.

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What about just declaring bankruptcy?

Bankruptcy laws were principally written for the person who finds him- or herself in an untenable financial situation, through no fault of their own. Bankruptcy is for people who CANNOT make their monthly payments.

If you CAN make your monthly payments — even if that's all you can do — bailing out on your creditors because that's an unpleasant or restrictive circumstance is not what the law is for.

And if you CAN at least make your monthly payments, my Transforming Debt into Wealth® program will work for you. It will help you pay everything off as fast as it can be paid off. At that point you will have a substantial net worth, because all your assets will be YOUR assets. And your monthly cash flow will be YOUR monthly cash flow. That's the purpose of the TDIW system.

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Do I need to own a home for this program to work for me?

No, you don't need to own a home for the program to benefit you. If you do not have a mortgage, you should be able to get debt-free that much faster. Then, if you wish to buy a home, you'll have a cleaner credit rating/FICO score when you're debt-free, and you'll be able to more quickly save up a down payment, because most of your monthly income will be available for saving.

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How can I possibly pay off a 30-year mortgage in 5 to 7 years?

I have heard this question many times over the decade and a half I've been teaching my system. The mortgage companies live on making people believe it takes 30 years to pay off a mortgage, "because it's so big an amount you need 360 bite-sized pieces to be able to handle them on a monthly basis."

The truth is quite different. They want 360 payments, because that kind of amortization allows them to charge you total interest in the range of 1.5 times the amount of the loan. So you end up paying them back 2.5 times what you borrowed.

Let me try a simple example. Let's say you have a $100,000 mortgage with approximately a $700 P&I; payment. My system first helps you pay off all non-mortgage debt. When that's gone, we'll say you could typically add $1,300 a month to your payment (formerly car and credit card payments). That would mean you'd be paying $2,000 a month on the mortgage.

Now divide the $100,000 balance by $2,000 a month. The answer is 50. Fifty MONTHS to payoff. That's 4 years 2 months! Of course that simple math disregards interest costs, but because you're paying off the loan balance so fast, interest costs rapidly decline to insignificance. Of course we also disregarded the fact that, while you were paying off your cars and cards, you were somewhat reducing your mortgage balance, so it would be less than $100,000 when you began the $2,000 monthly payments.

But let's be conservative and say interest charges add 10 months to the mortgage payoff, it would still be gone in just 5 years.

The size of your mortgage is likely different than this example. But the size of your income would be proportionately different as well. It should work similarly.

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Should I cash in my IRA or other tax-sheltered retirement account to use the money for debt-elimination?

My standard answer on that is "No," especially for Baby Boomers or older. What I suggest is that you stop funding any investments (with the below exception) until you've paid off all your debts, and that you achieve that payoff using your monthly cash flow without depleting any money already saved up.

The one exception to the above is that I suggest you continue funding any 401(k) up to the amount your employer will match, but no more. If you're currently funding your 401(k) above the match percentage, reduce your contribution to the maximum match percentage and use the rest for debt elimination.

The problem with taking money out of a tax shelter is that you'll pay penalties AND taxes on the withdrawal. That's taking two steps backwards to take one step forward. You're better off just leaving that money in there and eliminating your debts monthly from your income. You'll probably sleep better too, knowing you haven't depleted your retirement account.

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What if my budget is so tight that I have nothing extra available to apply to debt-elimination?

The program does not require any up front or any extra monthly amount (Accelerator Margin dollars) to work. Obviously, having some extra to put into the process each month will get you out of debt faster, but you don't have to have it to start. When you pay off your first debt, what used to be its monthly payment will become your starting Accelerator Margin. And that will build, like a snowball rolling down hill, as each subsequent debt is eliminated, recovering its monthly payment.

Doing the plan with zero Accelerator Margin can take a couple years longer, but that's still a lot sooner than just making the regular monthly payments over decades.

And your budget may not be as tight as you feel it is right now. In the Transforming Debt into Wealth® course I show you many areas of life where money can tend to leak out of your finances...and how to plug those leaks so you can recover more monthly money to focus on debt-elimination. But extra money is not required to get started.

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How does your system compare to a bi-weekly payment schedule?

Biweekly mortgage plans can take several years off a 30-year mortgage, and save you several thousand dollars in interest. However, my Transforming Debt into Wealth® approach will generally take more than two decades off a 30-year mortgage, and save a typical household $150,000 or more in interest.

The reason is that a biweekly payment plan simply adds the equivalent of one extra payment a year. But the Transforming Debt into Wealth® plan adds a lot more. After all your other debts are paid off, which is typically what happens before the plan focuses on your mortgage, you will have recovered enough monthly payment money to be able to double, even triple your monthly mortgage payment. That kind of power chews up a mortgage's principal balance in just a handful of years.

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Shouldn't I pay off my debts in interest rate order...highest interest rates first?

The debt-elimination prioritization in the Transforming Debt into Wealth® system is based on what debts can be paid off the fastest. It puts those debts first, so that their monthly payments can be recovered more quickly and added to your Accelerator Margin. A growing Accelerator Margin is the key to paying off your debts quickly.

The TDIW system generally has you paying off debts so rapidly that interest rate is not a significant issue. The affects of interest rates are most onerous when you're making the minimum monthly payment, because the interest component of each payment is calculated on the remaining loan balance, which isn't going down very fast. But when you're paying down that balance in big chunks, the interest calculation has less and less unpaid balance to work with each month until it soon has nothing at all to calculate interest on.

However, if you have a couple debts that have similar balances, but one has a higher interest rate, you can certainly reverse their order and pay off the higher interest rate one before the other. If their balances are substantially different, don't switch them.

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Should I include my car lease in my debt-elimination plan?

You can contact your leasing company and see if there is any provision for accelerating the payoff of your lease. If not, your choice is to simply leave it out of your debt elimination plan, pay off everything else, and when the lease is complete BUY a used car to replace it (or buy out the car you've been leasing).

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What do you think of what's called an "Inverse Mortgage?"

I do not recommend the "inverse mortgage." It is a wolf in sheep's clothing. The bottom line is that it is nothing more than a multi-level marketing scheme disguised as a mortgage reduction plan.

Just put your mortgage into the Transforming Debt into Wealth® debt payoff plan and you'll get rid of your mortgage fast enough...and in a way that won't have any liabilities.

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Is it really a good idea to accelerate the payoff of my mortgage?

I've answered this question so many times that I'll use my response to a recent email inquirer here, because he covered every common angle from which people approach this decision. Here are my answers:

Your mortgage interest tax deduction, even if it's partly a business deduction, is not a good reason to keep paying interest. As I explain in the Transforming Debt into Wealth® program, for every dollar of interest you pay, you will save about 25 to 33 cents of income tax, depending on what tax bracket you're in. If you think that trading a dollar for a quarter is a good deal, you need more help than I can give you. J

When people tell you that you have a low mortgage interest rate, like 6%, just look at your monthly payment statement or coupon. See what percentage of your payment each month is interest. It's likely more than 90% interest! You would pay only 6% interest if you paid the entire mortgage balance off in one year. Otherwise, you are paying amortized interest that is front-loaded. But the bigger, more important issue is how much interest you are paying overall. For every $100,000 you borrow in a typical 30-year 6% fixed mortgage, you will end up paying back $216,000. That's the $100,000 you borrowed PLUS $116,000 in interest! That's 116% total interest! Not 6%. Forget about the percentage rate. Look at the dollars. That $116,000 would be much more valuable in YOUR investment portfolio than in your lender's investment portfolio.

It's not about how much of a balance your monthly payment is leveraging, it's about how much your $1,000 a month mortgage payment could grow to if you were investing it into something that was growing for you instead of for your lender.

Any arguments about how inflation will affect the "feeling" of your monthly payments is, quite frankly, financial hooey. It's smoke and mirrors being used to keep people comfortable with their debt load. The reality is that NO personal debt is good debt, no matter how much inflation might appear to reduce the value of the dollars being paid each month. Real wealth is OWNING things, not making payments on them.

The "Opportunity Cost" argument that you could better use the money somewhere other than reducing your mortgage balance is also hooey. The stock market has essentially run in place for the past three years, so — unless you're an exceptional stock picker — you would not have done better with the money yourself than putting it into your mortgage payoff. First of all, at 6% interest, you'll get a guaranteed after-tax ROI of 6% on your money by paying off your balance. Secondly you also realize the appreciation of the asset's value (the value of your home) during that time. That's way better than you'd do with any other "capital-guaranteed" investment, such as government bonds, CDs, or money market funds.

You've finally hit the real issue for most people — choosing between building their wealth or enjoying themselves with their income right now. That is the ultimate choice in building personal financial independence. The IRS does a periodic study to find out why most people end up financial failures, and the number one reason is "The inability to delay gratification." So, choose. Build your wealth, by transferring the equity in your home from the "Owe" side of your net worth statement to the "Own" side...or have some fun right now and just hope things will "work out."

They won't.

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