The Safest & Quickest Way to Become Debt-Free
by Garrett B. Gunderson with Dale Clarke The Counter-intuitive Formula Your Financial Adviser Doesn’t Know Hint: It’s not about your loan interest rates, nor is it just about socking away more money by cutting back or even just about saving money on interest. As a financial advocate to professionals, I deal with this issue frequently with the business owners we work with. You want to get out of debt so you can reduce your risk, increase your cash flow, and have greater peace of mind, right? Unfortunately, in a zealous effort to get out of debt, too many people make critical mistakes that increase their risk and make the process much slower than it has to be. It’s not just a matter of prioritizing which loans should be paid off first. It’s also a matter of minimizing your risk throughout the process. Here’s the fastest, safest, and most sustainable way to do it: 1. Build Savings First. It doesn’t make any sense to start paying extra on loans until you have at least three months of income, and ideally six months, in a liquid savings account. If you have no cash reserves, what happens when you pay down your loans but then experience an unexpected cash flow crunch? You simply increase your loan balances again or even worse, miss payments and hurt your credit score, therefore getting charged more for future loans and you can miss opportunities to lower your interest rates. So before you even get started with paying down debt, build your cash reserves first. This puts you in a much safer and more sustainable situation. Don’t worry if you are wondering where that money might come from, details to follow, read on. 2. Raise Your Insurance Deductibles. Once you have cash reserves you can raise your insurance deductibles and extend elimination periods, which decreases your premiums, an extra benefit of having money in savings. This increased cash flow can then be used to strategically pay down debt. I recommend using your home, auto, and liability insurance to primarily cover catastrophic losses. With higher deductibles (again, assuming you have cash reserves to cover small losses) you’re less likely to make claims, which prevents increased premiums. The larger principle here is that when you approach debt elimination the right way it affects almost every other aspect of your finances. This is a more comprehensive approach that takes every factor into consideration, rather than looking at your debt in a vacuum. 3. Restructure Your Non-Deductible Debt by Rolling Short-Term, High-Interest Loans into Long-Term Tax Deductible, Low-Interest Loans. Again, the goal is to minimize your interest payments and maximize your cash flow. Then you can attack your remaining debt strategically, using your increased cash flow to eliminate one loan at a time. Another benefit of this strategy is that it improves your debt-to-income ratio, which then improves your credit score, which can then be used to negotiate lower interest rates and will result in increased cash flow. Having a better credit score also gives you more negotiating leverage. You can look into a streamline refinance on your existing mortgage. You can call your credit card companies, for example, and tell them you’re considering canceling and switching. They may be inclined to make their interest and terms more favorable for you, especially if you have a higher credit score. Assuming you have enough home equity and after improving your credit, refinance your mortgage and roll as much of your non-deductible loans (credit cards, auto loans, etc.) into it as possible. The tax deduction will also increase your cash flow. CAUTION: Do NOT do any of this if you’re undisciplined and your spending is out of control. If you’re just going to charge your credit cards back up again, you’ll just sink deeper into debt. 4. The Secret Sauce: Cash Flow Index. Here’s where the rubber hits the road. After minimizing your payments and maximizing your cash flow, you’re now prepared to focus on one loan at a time, thus creating the “snowball effect” until you’re completely debt-free. Most financial advisers and pundits will tell you to pay off your loans with the highest interest rates first. My advice is to ignore the interest rate and use my proprietary Cash Flow Index to determine which debt to pay off first. To determine your Cash Flow Index, take all your various loan balances and divide each of them by their respective payments. Whichever one has the lowest number is the one you should pay off first. For example: Home Loan Balance: $228,000 Interest Rate: 7% Monthly Payment: $1,665 Cash Flow Index: 137 ($228,000 ÷ $1,665) Auto Loan Balance: $16,500 Interest Rate: 8% Monthly Payment: $450 Cash Flow Index: 37 Credit Card Balance: $13,000 Interest Rate: 12% Monthly Payment: $260 Cash Flow Index: 50 Student Loan: $107,000 Interest Rate: 3.9% Monthly Payment: $650 Cash Flow Index: 165 In this example, it seems to make sense to pay of the credit card first because it has the highest interest rate. But the Cash Flow Index reveals that the auto loan should be paid off first. The trick is to pay off debt that gives you the greatest cash flow with the least investment. A high Cash Flow Index means your loan balance is high relative to the payment, while a low Cash Flow Index means your balance is low but with a high payment. Knock out those high payments first and you free up cash to work on other debts. In this case, by paying off the auto loan first, you free up more monthly cash, which can then be applied toward the credit card balance. Paying off the auto loan first means you can pay off both faster than if you started with the credit card. 5. Address the Risk Factor. Again, this strategy isn’t just about paying off debt faster and saving money on interest—it’s also about reducing your risk. Banks and other financial institutions tell you to pay off debts that lessen their risk
How to get out of debt without giving up your life
Strategies on paying off debt faster, paying banks less interest, and having some fun along the way. by Garrett Gunderson The key to getting out of and then staying our of debt isn’t just about working harder and limiting your spending; it starts with the proper mindset. To dig a bit deeper, the root of debt comes from consuming more than you produce. It is critical to be clear about purpose and how to produce in order to stay out of debt. One must always produce more than they consume. Without discovering where there may be a scarcity mentality or limiting beliefs, debt will be a constant companion. Once you have recognized and have begun to conquer the scarcity mentality around money, then you’re ready for the tools that can help you with being efficient on paying off and understanding your debt. One of the most effective ways to approach debt is to use the Cash Flow Index. The CFI is a scoring system to help you identify the efficiency of each of your debts. This scoring system will allow you to pay off the most inefficient debts first and then allow you to prioritize the order to maximize paying off your debt. Here’s how it works. Take the balance of the loan and divide it by the payment of each debt. The resulting number is the CFI rating. The lower the number, the less efficient the debt is and the sooner you should pay it off. To pay off debt as quickly as possible, pay the minimum on all debts except the one with the lowest score. Then take all other available ‘pay down money’ and pay it toward the least efficient debt. Once it’s paid off move to the next lowest score and pay it off. Rinse and repeat. Each time a loan is paid off your debt-to-income is improved. This is the percentage of each dollar you earn that is required to be paid towards required loan payments. When this is improved, your credit score can be improved as well. With less debt load, lower debt-to-income, and a better cash flow scenario, it is time to get better interest rates. Talk to your financial institutions after paying off a loan. Refinance, replace, or restructure. Now with your interest savings, the same payment will go further with paying down principal. Create small rewards and celebrate the victories along the way. You will feel the progress, live better, and have more fun. This isn’t just about sacrifice and delay, it is about living! This is one small piece of our greatest area of expertise and result. Cash Flow! To learn the very strategies we have taught our members and saved an average of $2,484 per MONTH, check out the Curriculum for Wealth by going to www.freedomfasttrack.com/cfw.
Finding a Standard of Success
“How are you doing? How are your KPIs?” On a personal level, that question seems easy enough to answer. But when it comes to your practice, it’s not so simple. With so many factors in play — from patient visits to billing, from revenue to workflow — it can be a challenge to have everything go smoothly at the same time. Not only that, but it’s difficult to determine a proper standard by which to judge your practice performance. Ultimately, your bottom line depends on multiple Key Performance Indicators (KPIs) that together paint a picture of your business. A quick comparison of your KPIs to industry standards may also point to potential opportunities to increase cash flow, identify areas for potential growth, and even improve employee morale. One of the first KPIs to consider is Average Visit Duration. This is not merely the amount of time you spend with a patient, but also includes the time that you spend on billing, documentation, scheduling and other “overhead” related to that patient’s visit. For chiropractors, who tend to see many patients for brief visits, the Average Visit Duration highlights — once you subtract the time that’s actually spent on patient care — how much is wasted on the “busywork” of running a practice. Another KPI that’s a key concern is Annual Patient Visits (APV). This figure is derived by dividing the number of patient visits in a given year by the total number of patients seen during that year. An APV that is substantially lower than the industry average suggests that too many patients may be terminating their treatment before they complete it — and that could be seen as a compliance risk. On the subject of revenue, it’s a good idea to look at your Pay Per Visit (PPV). The PPV is the average pay for all of your services that you receive for one visit — including both the patient’s copay and the insurance reimbursement. In order to calculate your average PPV, just count all the payments you received over the course of one month, and divide it by the number of patient visits you had in that month. When comparing your PPV to the industry average, a lower number indicates that you are likely not getting fair reimbursement from insurance companies. And finally, if you take your APV and multiply it by your PPV, you get the PV, or Patient Value. This amount reflects the total payment for a single patient over the course of a year. In and of itself, a low PV doesn’t present an audit risk, but it does pose a different kind of problem: When your PV dips below a certain level, it’s your bottom line that suffers, and it becomes more difficult to stay in business.
Ripe for Success
Software solution promises to be the “secret ingredient” By Kathleen Casbarro Will Ben’s new tech solution lead to the perfect outcome? “So…?” Carmen asked with an upward lilt that made it into a question, “how’s the documentation going?” “Thanks for asking,” Ben said, dropping a kiss on her nose. “I think it’s going to be good. You know I’ve been going back and forth a bit on how to approach the need for greater specificity in our documentation.” Carmen rolled her eyes. “I’d noticed. But I can see why, too. It’s hard to know exactly what you need to do and what the consequences are likely to be.” “Turns out the new software we’ve been looking at has an internal auditing process. Basically, I think we can work with the coaches to find out just how we can use our documentation to build the right ICD-10 codes, and actually try it out and see how far we are from perfection.” “And if you’re not quite perfect, you’ve got some time to work on it.” “Exactly. We’ll be able to see what practices we don’t yet have in place. We won’t be taking a shot in the dark and hoping we’re on the right track.” Mike sniffed. “Is that sauteed mushrooms I’m smelling?” “Yes. Mushroom ravioli tonight, with a fresh marinara sauce and garlic bread. Just a little good home cooking.” “Very good home cooking. Can I help?” “Come keep me company while I add a little squeeze of lemon.” Ben followed Carmen into the kitchen, where their son was already sitting at the table coloring. “I really feel like things are coming together,” he told his wife as he ruffled his son’s hair. “Just having a clear plan and a clear goal makes all the difference.” Carmen beamed.Ben held up his hands in mock protest. “Are you about to tell me some special way in which this reminds you of pizza?” “Not at all.” Carmen busied herself plating the ravioli and ladling on sauce. “I could however say that it’s like having a great recipe and setting out all the ingredients, measured and ready, before you begin to cook.” She added a slice of toasted garlic bread on each plate. “That’s the way you get a perfect outcome. It’s not that you don’t have work to do, but you have it all laid out clearly, so success is easier.” “I’ll take that,” Ben smiled. Will Dr. Ben’s new tech solution lead to the perfect outcome? Everything that we have published about ICD-10 can be found on our ICD-10 page.
