Smart and Simple Ways to Pay off Your Debt Fast (No Gimmicks, Just Common Sense)

As a financial planner helping middle class families, I sit with a lot of parents that are very stressed out about debt. Right now, a lot of my conversations are starting with how do we pay off this high interest rate credit card debt, student loans, car loans, personal loans. I am seeing it more and more. The average credit card balance in the United States right now is over $6,300 and the average interest rate is over 22%. that makes it very difficult to get out of this burden. But there is a way out, and it doesn't include gimmicks or get-rich quick fixes or shaming. In this video, I'm going to walk you through some common sense, proven strategies to help you pay off your debt faster, smarter, and with much less stress. I hope you find this one helpful. Let's get to it. All right. Step one, it's something that I talk about all the time, probably in every single video that I create, and that is turning the lights on in your financial life. You need to start tracking your spending, tracking your net worth. It's the only way you're able to make decisions going forward is by knowing where you currently stand. So, start by going back over the last three months. You could create a spreadsheet. You could use financial apps to pull in the data from your accounts and categorize everything. But you need to look back and see where your money goes. Make a list of all of your recurring expenses, your fixed expenses. That might be your mortgage payment, your car loan, your rent, things that are constant every single month. Then list out all of your variable expenses like groceries, eating out, spending money on your kids, things that are not the same every single month. And then create another column for what we call syncing funds for things that only happen maybe once a year, twice a year. So like for example, your car insurance payments or when you travel and go on vacation, maybe you're only doing that over the summer. come up with the amount in all of those categories and then divide it by 12 so you see how much you need to budget for each month for all of those costs that aren't recurring every single month so you can put that money aside for it. This is really the first step. You need to understand what your numbers are. As you're going through this exercise, put an asterisk next to things that you could cut out or that you could actually reduce. Things like going out to dinner. If you have credit card debt and you're paying 25, 30% on it and you're going out to dinner three nights a week, then that is obviously something that you could cut out in order to attack this debt. Getting out of debt is a mindset. You need to get super focused and have everything going towards paying off this debt or else it just becomes very hard to get out of. And I see with many families and couples that I sit with, it's not a top priority for them at the moment. you know, they think to themselves, you know, I have this credit card debt. I have this interest payment that I have to make every month, but I'm able to do it. I might continue charging on the card and the balances are starting to creep up and I am getting stressed about it, but they just assume that it's a part of life when in reality it is not. You cannot become wealthy. You cannot reach financial freedom if you are constantly carrying balances on highinterest credit card debt. And then number two is to come up with a plan. And the two most popular plans that exist out there are the debt snowball and the debt avalanche. Now Dave Ramsey, he made the debt snowball very famous and I really love that plan. It is a great way step by step to pay off your debt. So what you do is you list out all of the money that you owe people, right? Starting with the smallest balances all the way to the largest balance and you start attacking that smallest balance. You go for a quick win. You put everything that you can towards paying off that smallest balance. So, for example, if you have a credit card that you owe $1,200 on, and that's the smallest amount of debt that you have, you put everything towards doing that. You continue making the minimum payments on your other debt, but any extra money that you could throw at the credit cards, it's all going towards that first one. And then you snowball once you pay that off. Now, you take all your excess money and you go ahead and you attack the second debt. I do love this plan. So many people have gotten out of debt using it, and I do think that it's great. The other one is the debt avalanche. And the only difference with this one, instead of attacking the smallest debt first, you are attacking the debt with the highest interest rate. So, for example, if you have a credit card with $1,200 on it that is currently at 10% and then you have a credit card with $10,000 that's at 22%, then you attack the $10,000 credit card at 22% because you want to get that out of your life because you're paying so much interest. So, the debt avalanche, it will save you more on interest. But the debt snowball, it'll give you momentum. you'll get that quick win by knocking the first one out in the shorter period of time and then continuing the momentum. I personally do like the debt avalanche better, but it really does depend on the difference between the interest rates and the difference in the balances. Like if you owe 50,000 bucks on something that is 22%, it's going to take you a very long time to pay that off and you're not going to get the momentum of the quick win. Where if you focus on the small stuff first and you start banging them out, it'll really get you going. But either way, just coming up with a plan is going to help you become successful in getting out of debt. And then step three is to start researching how you could actually reduce the cost of your existing debt. So now that might be looking for credit cards that have a promo rate with a 0% balance transfer. A good thing to do is to check your credit s score and see what your credit history is so that you could go ahead and see what opportunities might be available. If your credit is very low and you have many late payments and you're carrying a lot of debt, then this opportunity might not be available to you. But if you just find yourself in a situation where something happened in life and you're carrying a credit card balance, but you pay your bills on time and you have good credit, then this might be available to you. So doing a balance transfer, the things you have to be careful of is they're going to charge an upfront fee and maybe it's going to be 4% of the balance transfer. But if you're paying 22, 25, 30%, then in my opinion, it's going to be worth it. The other thing you have to be super careful about though is when you do a balance transfer, you cannot just go back to doing what you were doing before because then you're going to have this new card with the balance transfer and then you're going to you're going to start racking up on the old card again because your spending habits are not where they need to be. So you're just going to get into more debt and then when that 0% balance transfer comes off when it expires now you're going to be in a world of hurt. So you have to have a very specific plan to get out of the debt. But reducing the cost is just going to help ignite that fire. So, balance transfers are one good way to go. Debt consolidation loans could be another option. Again, you have to be super careful because there are shady characters out there that make promises that they just could not fulfill. So, you want to go to a reputable type of institution, financial institution, a bank for example, and see if there is an option to consolidate your loans at a much lower interest cost. Again, you have to be going into this with the frame of mind that I'm going to attack this stuff anyway. I'm not taking out a 5year loan and plan on paying it off over five years. I'm going to take out a 5-year loan and I'm planning on paying this thing off as soon as possible and I'm going to put everything that I can towards it. And then another option which, you know, I sparingly use with people, but sometimes it just makes a lot of sense, is a 401k loan. If you could take a loan against your 401k and wipe out very high interest credit card debt, it definitely could make sense. But you have to be super careful. When you take out a 401k loan, you are taking money out of your 401k. So, it's going to be out of the market. It's not invested anymore. So if the market continues to grow, you will not be able to participate in that growth. Also, if you leave your job, if you quit, you get fired, whatever the case may be, you are going to have to pay that loan back in a very short period of time. And if you do not, then things get even uglier because they will count it as a distribution. And if you're under the age of 59 and a half, then not only you going to owe taxes on that distribution, but you will also owe a 10% penalty. So you do have to be super careful taking out a 401k loan. You want to make sure that you have job stability, that you're not going anywhere. You're going to be there for the next few years as you pay this loan back. You want to see what the interest rate is and make sure that you're actually paying yourself back through the 401k loan. But if you fit into the box where it makes sense, then I just had a client that I did this with where I did recommend they take out a loan against their 401k and wipe out a large balance that they had on a high interest rate credit card. But in most cases, I am not recommending this option. All right. And then step four is to make a dollar commitment and budget like a lunatic. So what I mean by that when you go through your cash flow statement and you start looking at your income coming in and your expenses going out and you break down your fixed expenses, your variable expenses, the money that you have to put aside each month for one-time bills that are coming up. You need to see how much can I actually commit? What could I cut out? and what dollar amounts could I take and totally commit it to attacking the debt. Once you come up with that number, this is going to allow you to formulate a plan of how long it will take to actually pay off this debt, especially if you are able to reduce the interest cost, right? So, reducing the interest cost, cutting things out, and then taking that dollar amount and putting it towards either the debt snowball or the debt avalanche is really the only way that you are going to be able to get out of this debt. Now, one budgeting method that I really like is what's called zerobased budgeting. And you need a budget. WAB is famous for this where they pull in all your transactions. You could create a budget in there and you give every dollar a job. So, you want to give the job of paying off your existing credit card debt a large amount each month. So, every dollar gets a job. You're putting it towards something, right? and any money that's left over, that money's job is to get you out of this cycle that you're currently in of being in consumer debt. Another budgeting tool that people use and find very helpful is the cash envelope system. And it sounds very antiquated and old and you know for um 20 years ago, but it does work. So if you know exactly how much money you want to commit towards going out to dinner, spending time with your family, on travel, on things like that, then put cash in an envelope. when you run out of that cash, then you're done for the month, right? If you put $100 in the envelope for dining out for that month, if you use it in the first couple days, then that's it. No more. It does work. It is a good system. It keeps you very focused and it keeps you tracking everything. So, either one of those are going to help you get clarity into how exactly you are going to pay off this debt. And then step five is the mind shift. It's the focus. It's the intensity that you want to pay off this debt. It's thinking of anything you could do outside of the box to accelerate this. If that means selling old crap that you have in your house on eBay or getting a side hustle where you can make a few extra $100 a month to go ahead and pay off the debt, start focusing on these things. I love the idea of taking a list of all of your debts, writing them out with the interest rate next to it. So, the card that you have, the balance or the personal loan, the balance, the interest rate, listing them all out from smallest to biggest, and posting them on your workstation, on your wall, wherever you spend the majority of your time every day so that you're constantly focusing on this and thinking of it. And your life is going to be so much better on the flip side that it is so worth it. But it's painful. You know, there's no easy way. There's no gimmick. There's no simple way to just get out of debt, right? What you need to do is you need to figure out why you got into the debt in the first place and then come up with the solution. How do you actually save money every month and put it towards getting out of the debt? And once you figure that out and you do actually pay off the debt, then what you're able to do is take that money and put it towards a different goal, right? And that might be retirement savings, college savings, emergency fund, all the things that are going to make you feel more financially secure going forward for the rest of your life. And now create a projection. Like I do this using Right Capital, my financial planning software. When I'm working with clients, we will create a projection. Once we figure it out, income versus expenses, how much money can they commit? Is there any extra money that we could get? We start putting a projection together of a timeline. How long will it take to pay off the first card? How long will it take to pay off the personal loan, the car loan? How long does it take to get to the end of this? And sometimes it's discouraging. It might take, you know, 80 months, for example, before you're out of this debt. And that's a long time, right? But what it does is it really gets you fired up and going because now you have the challenge. Can I do it in less than 80 months? What do I have to do to make it in five years? You know, what if I want to pay this off in three years? What does that look like? But you need to start somewhere. And you need to have clarity so that you're realistic with all this because if you don't do anything, then it's just going to go on forever and you're always going to feel like you're behind and you're not saving for retirement and you're living paycheck to paycheck and nobody wants to live that way. So bottom line, you don't have to be stuck in debt. You just have to change the way that you're currently operating on a financial basis. And like I said before, it's not easy. But if you're intentional, if you focus everything on it, it is definitely possible that you could go ahead and do this in your own life. If you even want to shoot me an email and keep me in the loop and I could hold you accountable and tell me about your wins and what your plan is and how you're going to go ahead and do it, I promise I will respond to you. All right, everyone. That is it for this one. I hope that you found it helpful. Please check out schoolofpersonalfinance.com. Like I said, shoot me an email. You can find my email address right through my website there. And I will see you again in the next video.