Ep 104 | 5 Ways to Pay Off Debt Before Retirement

You’re ready to payoff debt and not sure if debt snowball or debt avalanche method is best. In this episode, I describe five (5) different strategies you could implement to become debt free. Listen in as I guide you through how to create your own debt payoff plan and be successful in becoming debt free before retirement.

What You’ll Learn: 

✅ Why does your debt continue to grow even with the efforts you’ve put in to paying it off?

✅ Choose the best strategy that fits you, your personality, and your goals best.

✅ Learn  how to achieve success by honing your focus and clarifying your “why.”

Resources Mentioned in Episode

Episode 007: Emergency Fund - The #1 Way to Eliminate Debt FAST

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Transcript

Welcome to today's episode about strategies for getting out of debt. And then we're also going to talk about  which one to choose and why. Before we get into that the first thing we need to do is understand debt. And for today's episode, not necessarily just debt in general, but your debt. 

The first step to being able to get rid of debt is to stop creating debt.  Think about that for a minute. If you don't have any strategies in place for stopping this debt creation, and we'll talk about it in a minute, but  you go to debt, you go to the use of debt for a lot of different situations.

And unless you have an alternative for that,  then you're not going to be able to get out of debt. We need to stop creating debt to be able to get out of debt.  I want you to think about the debt you have right now and I want you to think about what created your debt.  And what I mean by that was what, what cost you to use that credit card or go get that personal loan or whatever the item may be.

It may even be a car. a HELOC, any of those things. What was the driver of that debt?  Meaning what reason did you have for using that?  Thinking about those things. If we are  using them in a time of emergency,  if you go back and listen to my episode about emergency funds, you'll understand a little bit more about how we need to create that. 

I believe having an emergency fund will help stop debt.  When I say that in that episode, it is specifically for those expenses where we know they're going to happen at one point in time in the future. Being able to have that money, that pool of funds to pay for it is very important as opposed to using a credit card or a HELOC or any of those things.

We can be prepared.  The next thing in understanding your debt is do you know your debt number? And what I mean by that is do you know how much debt you owe?  Do you know what that total is as a full sum? And when I say a full sum, I'm talking about mortgage, credit card, personal loans secured loans, everything into one large number.

The next thing you need to do is to break that number down. And especially if we're going to look at creating a strategy for getting out of debt, we need to know those specifics of each and every debt. We need to know what the balance is, what the payment amount is, what the interest rate is, how long is it going to take us to pay that off at the amount listed? 

Did you know that credit cards are required to disclose that? If you have not seen that on your credit card, I want you to go look for it. It will tell you if you pay the minimum payment at this interest rate, how many years it will take you to pay it off. It's going to be close to what you're it's going to take to pay off your home.

Educate yourself on your debt. Make yourself aware of all of the terms, all of the situation, all of the circumstances. The next thing that you need to do before we move forward in creating a plan to get out of debt is to understand what you have tried prior.  And what I mean by this is what have you tried that worked.

Knowing what was successful, even if it was only successful for six or nine months. Noting what derailed you will help you focus better on creating a more feasible strategy this time.  Think about it, the attempts you've made, what worked, what didn't work, and just be honest with yourself. Okay. There's no judgment here.

This is just trying to find out what works good for you or what didn't work. And as we move forward, it will make more sense into being able to choose from these strategies.  Again, awareness around our debt as a whole and as individuals. If you have reached this point, and if you're getting ready to sit down and create the plan.

If you don't know your debt number, make sure you do that now. Make sure you inventory them individually and together. Just create that awareness around that amount. Sometimes this helps. with motivation and sometimes it does not. So don't let yourself get too caught up in it, but also just know that this is a reality.

This is a situation. And now I'm going to share with you the five strategies for possibilities to help you get rid of that debt. Okay?   Some of these strategies you may have heard, some of them you may not have. And then we're going to talk about how. And why you would choose each one  for your situation.

Personal finance again, and I've said it before as a personal what one person does and does not mean another person should do and we can learn from others, yes, but we have to feel right about it in our gut. As you listen to this, if you're like, Oh, that would never work, there's four others.

So just realize that. The first one made popular by Dave Ramsey is the snowball method.  This is paying off debts from the lowest to the highest. This is perfect for individuals who need help with consistency, who need help with motivation because it brings in small wins, having that instant gratification or more quickly that gratification will help keep your momentum going.

If you're somebody that is like, I don't know if I can do this,  this one is probably best for you.  If you feel like you have a lot of little debts you have a couple store cards, you have a couple credit cards, you have a car loan, any of those types of things, and you're like, I just have too many, this would be also another great one for you to, for you to choose to help start whittling away. 

Strategy number two. This is the avalanche method. This is taking the highest interest rate to the lowest interest rate. Remember up above when I told you to inventory not only the balances, but the interest rates, that this is the reason why. This one is best for those who are just done with debt or so motivated by an end goal. 

That they just want to get out of it the quickest and least amount of interest paid. That is what motivated some you're not going to see a quick win. You're going to go with the highest interest rate first. it will take a while. But you're driven by something else than just the paying off of a loan .

This will save you interest rate costs. But if you're somebody who wants to see a more quick win, then the prior method is best for you.  Alright, moving on to number three. This method is called the Robert Kiyosaki method. He made this one more popular where he takes the highest payment amount to the lowest payment amount minus mortgage.

Don't include your mortgage in this one  as he has a lot of theories behind that. And that is a discussion for another day. You're going to start with your highest payment amount and then throw all extra. With that and continue your way down. This is great for those who feel like they don't have a lot of extra monies.

Maybe you only have a hundred bucks a month. This one would be really good for you and you would start seeing some progress.  Number four, the debt that brings you the most anxiety. Or makes you angry. Basically the debt that has the most negative emotion.  Maybe you did a store card and you went crazy that day and you're like, I just was so stupid.

Why did I do that? Then that would be a debt you hate the most. Or if it came with an emotional trauma or a situation where the credit card was the only option to pay to get out of a bad situation. If you have one of those debts and maybe you're looking at your debts and you go, I don't feel like that about any of them, then this one's not for you. 

If you do have any emotions about any of your debts, and you relive it every month you pay it, or every time you see it or think about it, then that is one you're going to want to prioritize.   The last strategy, again like I said, if you've listened to my budget methods, This one is a customized.

This one means you might go with the lowest balance first, and then you're going to go to the highest payment amount. Or then you feel like, ah, well now I really hate this one. And you're just kind of creating your own priority list.  So as I say that word priority, that is  basically what all of these strategies are doing.

They're prior prioritizing one debt, over another, paying it off, and then choosing the next priority debt. When you made your inventory of debts up above,  if you are not liking any of these strategies, I would just think about them individually.  And as a whole, because sometimes you need to see the whole picture.

And I was working with a client. He had two credit cards and a vehicle loan.  And we had discussed on two different occasions about which one to pay off first. And he had two different ideas at two different points because they were about a month apart when we were talking. So sometimes priorities change, and that's okay.

But as you're doing this and as you're choosing your priority debt,  you need to write down the reason why. Your future self will appreciate. And understand what you were thinking 6, 9, even 12 months ago. Why did I choose this one? And have it written down with your reason why will help you understand and also remember. 

So as you're working to pay this off and motivation starts getting low,  you can come back to your reason why. Why did you prioritize? Why was this? one you wanted to pay off first and just helping you stay in tune with what, sometimes when we set to play make a plan or like, okay, I'm going to do this.

And this is step one and you jump in and you're doing it. And then you're like, why am I doing this? Remembering that, you know, keeping that going is very, very important.  Why would you prioritize one debt over another? I know we talked about it a little bit. As I discussed each of those strategies but here's a couple other ideas.

If you need an instant win, choose the lowest balance.  The smallest one, throw all your extra money at it. Keep the minimums on all of the rest and you'll pay it off.  That momentum, move on to the next one.   You can do it. You can do it. If you only have 100 to put towards debt,  You'll want to focus on the highest payment amount, so paying minimums on all the rest and the highest one gets all extra money thrown at it.

Hopefully it's a hundred, hopefully it's a couple more. Look at your budgets to see how much extra you have.  Maybe you're that individual that doesn't know.  If you don't know if you have extra money to go towards debt, you're going to want to jump back to my budgeting method episode, create you a budget.

Understand income versus expenses equals what and that leftover what is what goes to debt. However, again, I want to emphasize that you need to understand what is creating your debt. and stop it  because if we're unable to stop it, we will never be able to get rid of it.  I hope these strategies are helpful basically your plan is going to look like whatever you choose.

Whether it's the lowest balance to the highest balance and you're going to write it down or if it's a strategy of your own, one through five, I don't know how many, debts you have, and just write a plan out for each one. And as you pay off the first one, all of that amount and the extra goes to the next one.

And then we just keep, so it's definitely a snowball regardless if you choose the snowball, because everything collectively together goes to the next priority debt. So think about your debt.  review your debt,  then, then make a priority. Is it a priority of, I need an instant win, so I'm going to look at the lowest balance?

Is it, I want to not pay as much interest as I know this is going to cost me. So I'm going to start with the highest interest. Is it the one that you are like, I just can't believe we did that and racked up that credit card for that. So that's the one.  And then write it down. Paying off debt is just like anything else in money is it's going to take time.

So remembering to write down your priority, remembering to write down what it is you get when that debt is gone.  There is a light at the end of the tunnel. Basically there is a rainbow on the other side.

It'll be hard, but consistency and patience  and remembering our why's, our why we chose the one we're focused on, and the why we're doing this so that we can have what in the end. I wish you the best. If you need any help, if you have any questions, please jump over on Instagram, DM me there. I would love to chat or schedule a free call.

I'm open to answering any questions and help you make a plan from there.