Monthly Archives: October 2008

The Debt Destruction Technique: Destroying Debt One at a Time

Posted on October 30, 2008 | 3 Comments

Like any large undertaking or goal in life you need a plan. A pilot would never take an airplane from Miami, Florida to London, England without a specific plan in place to get there. Neither should you go ahead in life without having goals and plans – especially if you have a goal of financial freedom in mind.

If you’re in debt currently, debt didn’t just happen to you overnight. It was a process that took time and involved specific action steps which eventually resulted in the debt you’re now facing. Just like how you got into debt is the way you’re going to get out of debt – with a specific process.

One of the most important steps for you to take in order to overcome your debt is to organize all of your debts together in a pile. This means grab all of your loan paperwork, mortgages, credit card bills and any other debt which must get paid. Take a look at that pile and realize this is what is keeping you from a future of financial independence – and removing this pile of debts from your life is your key towards achieving that future.

Take all your debts, write a detailed account of them, and find out which debt to pay off first. The way you will do this is by creating a form for yourself with the following information from each of the debts that need to be paid – this will be your Debt Destruction Technique (DDT):

Name of Debt: This is the entity that you owe this money to.
Balance Total: This is exactly what you owe total for that particular debt.
Minimum Monthly Payment: This is the minimum amount that needs to be paid for this debt per month.
Payment to Debt Ratio: You get this number by dividing the Balance Total of the debt by the Minimum Monthly Payment. For example, if the Balance Total is $6,000 and the Minimum Monthly Payment is $500, then the Payment to Debt Ratio for this debt is 8.33.
Debt Importance: You get this number after you complete the above 4 steps for each of your debts. The Payment to Debt Ratio will guide you in selecting the Debt Importance for each of your debts. The higher the Payment to Debt Ratio the lower the Debt Importance and the lower the Payment Debt Ratio the higher the Debt Importance. You number each debt 1, 2, 3… until you have a Debt Importance for each debt you have. The debt with the lowest Payment Debt Ratio among all of your debts is number one in Debt Importance for you.

Start paying off your debts, starting with the debt with the #1 Debt Importance. Remember The 10% Debt Reduction Plan? In that article we talked about saving 10% of our gross monthly income and using that as our financial bodyguard. Now we’re going to put that money into action. Take that financial bodyguard money and add that to the minimum monthly payment of your debt with the highest Debt Importance. Make the minimum monthly payments on all of your other debts – do not create any other debts. Keep this process going – moving down to the next Debt Importance debt as you pay each off – and you will free yourself from your debts. Don’t let yourself be worried too much with the interest rate of each account. The Debt Destruction Technique will eliminate debt so quickly for you that the interest rate won’t matter as much as it does for those people who constantly just make minimum payments each month. The way the Debt Destruction Technique works is by using positive momentum in your favor – you see your debts disappear so fast that you get pumped and want to keep it going.

Once you’ve paid off your debts, take that 10% of your gross monthly income and invest this money. Whether you’re looking to start real estate investing, stocks, or some other investment, this will be key to reaching true financial freedom. Free yourself from your liabilities and gain assets. Don’t work for money; let money work for you!

Do you remember the old pesticide DDT (Dichloro-Diphenyl-Trichloroethane)? It was a chemical used in the second half of World War II to control the mosquito population that was spreading malaria and lice transmitting typhus. The use of DDT, helped dramatically reduce the incidence of both cases. DDT was later found to be too powerful, affecting other wildlife. But our DDT, the Debt Destruction Technique, will be purely focused on obliterating your debt – resulting in absolute freedom.

The truth is that people in what seems like hopeless debt situations are basically giving away money. If you’re paying $3000 a month in debt payments, you’re losing that money. It’s cash that’s going to be gone for eternity – all to pay for stuff that we think we need. I’ve seen people lose thousands of dollars in a matter of minutes at the casino, pay hundreds of dollars in bills for alcoholic drinks at nightclubs in South Beach, and overreach themselves by purchasing homes and cars that they truly cannot afford. But they do these things because they think they need to do these things – whether due to peer pressure, lack of financial education, or poor spending habits.

When doing this plan of using 10% of your gross monthly income and applying it to your highest Debt Importance debt you’re going to feel good when you finish off a debt. Real good. In fact, you may even be tempted to use that cash to treat yourself to something nice, because you know, you paid off a debt and why not? Resist the temptation! Do something else to reward yourself – maybe taking a trip to the beach, going to the museum, take a nice walk, etc. In the Debt Destruction Technique you must use your 10% and apply it towards your debt each and every month until all of your debts are paid off. Then you take this cash and apply it for investing purposes. You need to understand that the only way you can have the freedom and security of financial independence is by paying off all of your debt. This is the only way to escape the vicious downward spiral of the debt cycle.

By paying your debts using the Debt Destruction Technique, you’re taking money that you’ve pledged to your creditors and debtors and eventually you’ll have this money back, available for investments that will take you to financial freedom! Instead of wasting this money on bills and interest, you’ll be able to invest in your future. With the power of real estate investing and compound interest, there’s no doubt you’ll eventually have the opportunity to become net worth millionaires and more – you just need sound strategy and sensible discipline. Think about that – people can go from the brink of bankruptcy or beyond all the way to becoming multi-millionaires. The path is simple – it just takes desire and discipline, but it can be done!

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Focus on Profit: Accepting Counter-Offers and Trusting the Seller

Posted on October 23, 2008 | 1 Comment

Negotiation is one of the biggest keys to success in real estate. It’s also the skill that’s going to make you the most money you could ever hope to make per hour in a traditional job. Think about it this way: If by negotiating you can save $5000 in half an hour when buying investment property, then you just made what would be equal to a hourly wage of $6000 an hour. I challenge you to think of any career that can pay that much! This is why expert-level negotiation skills are critical for success in real estate investing. Some other investors may have more capital than you have. Some other investors may have more networking connections than you have. But if you have master-level negotiation skills you have an advantage over 90% of the people you’ll find in business and investing.

When making an offer on a property, the most likely scenario is that you’re aren’t going to get your first offer accepted. Of course, there’s always the chance that the seller is going to accept the first offer. But usually you’ll be receiving a counter-offer shortly.

I’m going to break off from the traditional negotiation mindset right here – and there’s going to be some sales gurus disagreeing with me on this one. A lot of sales trainers and real estate investing instructors teach that when negotiating you should have a “Scorched Earth” approach. This means that you go for broke – you negotiate everything and you squeeze everything you possibly can out of the deal, no matter what. Including items like the rusted mower in the backyard, negotiating the stinky sofa and including it in the contract, etc.

I disagree with the traditional negotiation mindset of getting everything possible no matter if the deal goes bad. It’s a matter of mindset and priority. Your mindset should be to get this deal done quickly and fairly. Your priority should be on getting the best price and terms possible for the circumstances available to you. Get a great price and terms and just buy those items yourself afterwards! If you’re getting a great deal on the investment property (good rule of thumb is at least $25,000 of profit) then do the deal and forget the other junk around the house. Don’t get your priorities switched around and end up losing a profit of $25,000 over silly negotiations that amount to $3,000.

When making an offer on a “hot property” (one that will sell fast due to great price) and you get a counter-offer that’s acceptable, then you’re going to usually want to accept the counter-offer. Of course, you’re going to want to run the numbers and make sure you’re getting a great profit. But if you are, and you have good terms even with the counter-offer, then go ahead and accept the counter-offer. The worst feeling in the world is to have wanted to do something but because you hesitated you lost out on the opportunity. Real estate investing is the same way. When an opportunity presents itself – like a great counter-offer on a hot property – accept the deal and keep your profits coming.

When negotiating, remember you’re dealing with human beings, not some sort of emotionless negotiation robot! People have emotions and don’t like to be made fools of! If you’ve negotiated a great sales price, but you continue to hard negotiate trying to squeeze out an extra $1,500 for bathroom repairs, for example, the seller may likely become upset and will angrily cut off all negotiations with you. Another investor comes along with a good attitude and a nose for profits and will snatch that property right from under your nose. When you get a deal that’s going to get you good profits, just sign the deal right there and get it done.

Just like some sellers may get upset by hard-nose negotiation strategies there’s going to be some sellers that may get upset by a seemingly “untrusting” nature. During your real estate investing deals, you’ll inevitably come across individuals that are “handshake people”. You often come across these people when you begin to do owner-financed deals, such as no-money down investing deals. They often refuse to sign a written contract for items such as financing. They may say things like, “I’m a man of my word, we don’t need a contract.” It’s a big risk to just shake hands on the deal without a written contract. What if they sell to someone else a day later? This is when your gut and intuition come into play. Do you feel this person is faking you? Then do as much as possible to get it in writing or just back out of the deal and let someone take the risk. Do you feel this person is genuine? Then don’t press them on a written contract if the terms and price are good. Most of these “handshake people” would be insulted if you press them on signing a contract. Of course I’ll always advise you to do everything possible to get the contract in writing, but if you feel it’s the only way to get the house closed, you may have to take the risk. 99% of the time, you’re going to want a written contract of everything. At the very least, send this person an email stating, “Just to confirm that we agreed to do ________ yesterday.”

These items I’ve touched on with you are common in real estate investing. One of the great joys of investing is that we are in close contact with people on a regular basis, but that in itself brings along its share of challenges. Just keep working your negotiation strategies, work with people as partners and not as adverseries, and investing will pay off huge dividends for you.

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The 10% Debt Reduction Plan

Posted on October 20, 2008 | Leave a comment

Let’s face it: There’s almost no way to realistically pay off all of your debts by consistently just paying the minimum monthly payments.

However, if we can pay the minimum monthly payment on all of our debts and also add some extra money to help pay them off, we’re going to see results.

Here’s a proven debt reduction plan that’s going to give you results if you consistently place it into action. It does require some discipline but you’ll see that the positive momentum from the way you’ll be reducing debt will give you fantastic results.

First step you’re going to want to do is to take a detailed look at all of your debt and add up the minimum monthly payments together. You need to know where you’re at right now in terms of debt. Yes, it can be scary to find out exactly how much money you’re spending monthly on just your debt. But you need to have this information in order to get a firm grasp of the immensity of your financial challenge. Notice the word I used; challenge. You have to think of this like a competition: you vs your creditors. Are you going to let this debt take over your life? Or are you ready to implement a debt elimination plan that’s going to reduce and eventually eliminate your debt from your life? If you’re ready to take this step, even if it means some sacrifices in the short-term, then get ready to look forward to a life in the future with financial freedom.

My debt elimination system is followed by adding 10% of your monthly gross income to the minimum monthly payments you make to creditors.

For example, let’s say you make a monthly gross income of $5,000 and you make a monthly minimum payment of $2,000. By using this system of adding 10% of your gross monthly income, you will now pay $2,500 total ($2,000 minimum + 10% of $5,000 which is $500).

One of the most important points to take away from this is that you don’t want to just add this 10% to the whole minimum payment you have to make per month. You want to strategize this by using this 10% ($500 in our example) on the debt that you can get rid of the fastest. This has a psychological benefit – you develop positive momentum of reducing your debt, you feel good about one less debt on your back, and you see results fast. Quick results mean you’re going to much more likely to stick with this quick debt-reduction strategy.

This 10% is a magical number. This 10% is your financial bodyguard. Just like how multi-billionaires and celebrities have a bodyguard, you now have a financial bodyguard working hard to fight off your creditors. This 10% will not stop until it gets the job done, which is eliminating your debt. As long as you keep feeding that 10%, you will destroy your debt – utterly and completely.

Yes, when I say gross income I do mean gross income and not net income. You might ask what’s the exact difference between gross income and net income. Gross income is what your total personal income is before taking taxes or deductions into account and net income is your total personal income after deductions, credits and taxes are factored in.

This next option is only for dire financial cases. If you absolutely cannot pay 10% of your gross monthly income to your debt payments, then at the very least devote 10% of the total of your minimum payments to pay off your debts. So, in our example, you would pay the $2,000 minimum monthly payment plus an extra $200 (10% of $2,000). This is only for a short-term period until you get your finances in check. As soon as possible, switch over to the 10% of your gross income debt payment plan we outlined earlier in this article.

Like any battle, you need to have a plan in place to attack the enemy. In this case, we’re taking the offensive on debt. You can’t just keep paying the minimum monthly payments on your debt and expect them to magically vanish or hope that you somehow hit the lottery. You have to take action. I’ve given you a plan to attack your debt directly. It’s up to you to work the plan.

Try my debt reduction plan and let me know how it works for you!

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