Step 2 - Develop a Cash Flow Engine
Module 6: Ways to fix your Cash Flow
Okay. Now we come to a breaking point. If you’ve done your spending plan, and if you’ve taken an appropriate amount of payment to service your debt obligations, and as long as you’ve got some positive cash flow left, then, Congratulations!
You can now exit this module and move in Step Three of Directing Your Cash Flow Engine toward your debt.
However many of you are just breaking even. Some of you quite honestly have a negative cash flow and are not able to develop a positive cash flow. We need to look for a way to fix the cash flow so that you can actually succeed and stay in the middle-class.
There are three ways to do it.
You can earn more money.
You can spend less.
Or you can use a debt elimination tool.
There are elimination tools to accelerate your ability to get out of debt. However, each of these tools come with a set of pros and cons, and we need to evaluate each tool and the pros and cons of each tool to determine exactly the right tool to use.
The most important thing we can do though, is to develop positive cash flow every month on a consistent basis. Even though there are some negatives associated with some of these tools, you’ll find the overall it will be worth it. Otherwise, you’re just doomed to bankruptcy every seven years, and start over again, and bankruptcy every seven years, and start over again in bankruptcy every seven years. So it just doesn’t sound like a very pleasant alternative.
So, let’s take a look at each of these tools. Let’s figure out which tool is necessary for you to be able to develop monthly cash flow so that we can actually get rid of the consumer debt.
On this slide we have an overview of the tools that are available. The first bar is the minimum payment tool, which represents what amount of money it would take to take care of a fixed amount of debt; let’s say $20,000. That is the amount of money that it would take to satisfy the debt on a regular monthly minimum payment basis. Because we need to develop a positive cash flow in order to continue to move along financial success.
The next bar involves traditional Credit Counseling. In traditional credit counseling, through some savings, you actually can get out of debt for less money.
The third particular bar deals with Debt Resolution, or what we call Debt Settlement Plans. With those you can actually get out of debt at even less total cost, with the associated pros and cons.
The last step is Bankruptcy. Bankruptcy has actually two types for families. There is Chapter 13 and a Chapter 7 bankruptcy. Unfortunately, you don’t get to choose which of those two. The decision is based on your financial situation and what the courts do. They will decide whether you’re in a 13 or seven.
So let’s take a look at each of these tools and figure out which tool is necessary for you to be able to develop the monthly cash flow. We have created separate modules to specifically address the Credit Counseling and Debt Resolution tools.
So that we can actually relatively compare the costs to eliminate consumer debt, the first bar represents paying the minimum payment amount that would for example service $20,000 of balance.
The next bar involves traditional credit counseling. As you can see, traditional credit counseling can generate some savings so that you actually can get out of debt for less money. You will have almost the same payment as you have now, but due to creditor concessions more of your payment goes towards the balance and less goes towards finance and other bank charges.
The third bar deals with debt resolution tool on the same balance. As you can see, with lower monthly payments you can actually get out of debt at less total cost with the Associated Pros and Cons of this tool.
The last step is bankruptcy and under bankruptcy there’s actually two types for families. There is the Chapter 13 and a Chapter 7 bankruptcy. Unfortunately you don’t get to choose which of those two is selected. It is determined by the courts based on your financial situation. With the Chapter 13 plan you still must make regular monthly payments similar to the Credit Counseling and Debt Resolution but you make the payments through the court system.
So take a look at each of these tools and see which tool might be the best fit for you because we need to develop a positive cash flow in order to continue to move along toward financial success.