13. Future-Proofing Your Finances: Avoiding Debt Traps

🎙️ Debt Traps: How to Avoid the Cycle & Take Back Control 💸

Ever feel like you’re stuck in a never-ending debt cycle? Whether it’s credit cards, car loans, or real estate investments, falling into a debt trap can be overwhelming—but there’s a way out.

In this episode, Tiffany breaks down the hidden dangers of debt, how to avoid common traps, and smart financial strategies to protect your future.

💡 What You'll Learn in This Episode:
✅ What a debt trap is and how to recognize it 🚨
✅ How small financial decisions can lead to big debt problems
✅ The difference between good debt & bad debt 💰
✅ How to build a realistic plan to pay off debt without feeling overwhelmed
✅ The two methods for paying off debt—Snowball vs. Avalanche ❄️🏔️
✅ Smart strategies to avoid lifestyle inflation and save more

💡 PLUS: How to future-proof your finances so you never get stuck in a debt spiral again!

If you're looking for a clear strategy to manage your money, break free from debt, and build wealth, this episode is for you!

✨ Listen now and start making empowered financial choices today!

📌 Resources Mentioned:
🔹 Rocket Money – Track Your Spending & Avoid Debt Traps
🔹 Einstein Matrix – Prioritize Tasks to Get Ahead
🔹 Dave Ramsey’s Snowball vs. Avalanche Debt Payoff Methods
🔹 Ramit Sethi’s Conscious Spending Plan – Spend Smarter

🎧 Next time you're on the go, just ask Siri to play the Energetic CFO Podcast!

💬 Love this episode? Tell Siri to leave a review on Apple Podcasts! ⭐⭐⭐⭐⭐

Transcript

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Welcome to the Energetic CFO Podcast, where we empower you to take control of your financial future. I'm your host, Tiffany, an advocate for financial literacy and business success. In this podcast, we'll explore a wide range of financial topics from money mindset and budgeting to building wealth and achieving financial freedom. We'll break down complex financial concepts into simple, actionable steps so you can apply them in your own life. Whether you're a new entrepreneur or a seasoned business owner, this podcast is for you. Join me as we dive into the world of finance and discover the tools and strategies to help you achieve your financial goals. Let's get started. Welcome back to the energetic CFO podcast. I'm your host, Tiffany Vogel. And I have to say, I am so happy. We are almost done with winter. I am ready for some warmer weather to be done with hoodies. I'm always ready for hoodie weather, but. I'm ready for that to shift again and be able to like wear short sleeves and go outside. And our kids just love being outside and it just, it makes our life so much easier. And we're in the process of reworking our backyard so that the boys can go out by themselves and play on the playground, play in the dirt because they love to do that. And just be outside without us, you know, directly supervising them. It's like a new era for us. We, you know, our boys are still pretty young, so we're allowing a little bit more independence and allowing us to go cook dinner without screaming kids, yelling at us that they need something. So it's a great day. And then we're going to add a baby into the mix and it'll be easy for a little bit. Cause you know, babies don't move and then we'll have another toddler. So it's just a cycle. But we're absolutely loving it and just ready. I'm ready to open the pool, but I know we're ways away from that, but I'm so excited to be here today. We're going to talk about debt traps today and just debt in general. And I know we've talked about like good debt versus bad debt on a previous episode. So if you missed that, go check it out. But I want to talk about debt traps. So first off, what is a debt trap? I view debt traps as something that You take out debt, and then you get to where you're not bringing in enough money to cover that debt each month. So then you have to use more debt to cover the payments on the debt, and it's just this nasty cycle. I mean, you see it a lot, like, in payday loans, where someone will get a payday loan, and the interest on those things is so stinking high, and they wind up having to get another payday loan to cover the payments on that one, and then they get to the point where they can't get out of it. And I think it's interesting because like we know that example, but then we don't see that it also potentially happens in grander pictures. Using lines of credit, using a heel lock on your house, using credit cards 0 percent store financing. There's so many ways to get debt now. And honestly, it's like so easy. I mean, I know. People who don't have great credit and are able to get car loans, but they're at 15 to 20 percent interest. And it's how do you get out of that? Like it's, it's difficult. And then if you have a situation where the car gets totaled and you have to get a new car and you don't have gap insurance, like it's just a nasty, nasty cycle. So I want to talk about future proofing your finances so that you can avoid getting into these kind of debt traps. And if you're in one building a strategy to get out of it. So when Eric and I were building up our real estate portfolio, we didn't have tons of cash to invest. We didn't need a ton of cash with the strategy we were using, but we needed some. So what we wound up having to do was like take loans on our 401k. And it worked, we were able to buy the assets and Some of them, we were able to pull more cash out of the property than we put in it. So we were able to use that to buy more properties and it worked. But the problem we found is that we wound up where we were always kind of behind. We were never able to fully get ahead and use true cash and not debt through the 401k or credit cards or whatever we were using. And it got nerve wracking and We got into these cycles of, as we're finishing on a renovation project, because renovations seem to always go over budget and over time, we would get down to the wire. And I don't understand how we always made it through. I don't know if God just had his hands on us because we always made it through. We never missed a payment or had to be late on something for our mortgage or anything like that. But we would get down to the wire and as soon as the refi closed, we'd get a massive check, but it just disappeared to go pay off all the debt we had accumulated. And it's a cycle we're still working our way out of. And the way we're working out of it is through building up more active income. So it could look like flipping more houses or growing the CFO business. Or we have another business idea in the works that we're playing around with that I will announce once it's solidified but it's so hard once you get in it and it's something we have lived and breathed where we're maxed out to the nines there's no strategy after that. Like, there's no solution other than more debt. And, I've, seen people take cash advances in my CFO work to pay off their credit cards. So they're using a cash advance on a credit card to make a minimum payment on three other cards. And the interest rates on that is crazy high too. So, yeah, I just want to talk through this. So if you're not in a debt trap, how do you avoid it? I think it's having really clear grasp on your numbers and knowing exactly how much cash you have in the bank, how much you need each month for your monthly expenses and how much you have available for investments. And that way you're using. Funds that you truly have to make investment decisions or hiring decisions or whatever the thing is in your business. I mean, it's in real estate. It's so interesting because, you know, you plan for a certain budget and then things happen. Contractors mess up and you have to pay someone else to fix it or the project goes long or, you know, you tear down a wall and find, here's a fun story for you. Our fridge was falling apart. It came with the house and it was a great fridge, but all the plastic pieces in the door were falling apart and we've replaced half of them. We didn't want to replace the other half. We have an even better, nicer fridge out in our pool house that literally was like to hold beer and popsicles for the kids. And. It's a nice fridge and I'm like, why are we fighting this little rinky dink old fridge when we have a really nice one that we own that's just sitting there. So Eric hit the breaking point, decided he was done. So he maneuvers the fridge out, which if you've ever moved a fridge. It's interesting. The way our house is designed, it was not made for, like, large appliances to be moved. So he had to, like, take the doors off of the fridge and, like, yeah, it was a hot mess. But he finally gets the new fridge in. It's great. We love where it is. We've completely reorganized the house. We love it. The problem is where the old fridge was, the waterline was leaking and we had no idea. So the floor is caving in and I'm like, we have tile, like actual tile, not like LVT. And I noticed that the floors are a little wonky. And like sometimes when you walk past where the fridge was, the tiles would kind of like crack, not crack, like break, but like you could just feel them like, pivot a little bit. And now it makes sense because the floor wasn't level because it was falling through because it was soaked. So we tapped the water line, got it closed off. Our kids decided one afternoon that they wanted to peel up all the tiles. So like half the tiles gone. So we have this damaged sub floor and half the tiles missing, which it's in their water table because I don't know if they thought that was a good idea. And we're, yeah, we put the trash cans over it. So it's not like a big issue. But we've had like a fruit fly infestation for probably months now. I in first trimester left rice in the rice cooker. For like probably weeks. I don't know how long it was and we got a fruit fly infestation from it. That was their food source and we have been trying to catch up from that. Well, they started using the water from this leak as their water supply. So once we figured that out, our four year old comes up and says, Hey, dad, This is where the flies are coming from. So we realized like there's a hole into the crawl space. There's water. So the fruit flies are living off of that. And like, it has been an ordeal. So I feel like Eric's like this crazy man, like Jumanji style, like attacking fruit flies, but it is under control. We are finally fruit fly free. Feels great. Cause we just felt so gross. Like, Oh, there were just flies everywhere. We now have this like hole in the floor that we need to fix. And we're working to fix the sub floor, get new flooring. So all of us to say, we've lived in this house for two years and had no clue that the water supply was leaking. So we didn't do the floors in the kitchen when we bought it. We bought it right when our second son was born. We're trying to do like the bare minimum on the renovations. So had we done the floors then, we would have caught it and it would have, you know, we would have fixed it. But honestly, I'm glad we didn't do the floors then, because that would have just been a bigger scope in a time that we did not need more work. But this house is great. We love it. But we're still finding stuff. So when you're doing a project, there's going to be things that pop up that you just don't expect. Like recently Eric found that our whole guest room was built with plywood on the floor. So he had to rebuild the floors there. So that long story to say, don't get fruit flies. And You never know like what kind of unexpected expenses are going to come up. So having cash reserves is really important and making sure that you aren't in a spot where you're spending exactly how much you make or working to increase your income. If that is where you are, I have eight levels of wealth building that I can share in the show notes. It's just such a helpful tool to help you figure out like, what's the next step for you financially. And we start with just knowing your number. So like having clarity on your personal P& L what's coming in, what's going out, how much money do you need to sustain your family for a given month or year? And it's interesting cause you have to account for the unexpected stuff. The one off stuff like Christmas and birthdays that come, you know, they're coming, but they only come one month a year. So making sure that you're accounting for all of that and your number as well. So having that clarity, then we get to paycheck to paycheck. So you're covering your expenses and you're just breaking even every month. And then we have the next level where we're starting to build some reserves and have a little bit extra. So before you buy things for yourself, That are, I think a big thing is wants versus needs. Do you need a new cell phone? Probably not. I mean, it's nice to have a phone that can get on the internet and do all the things, but if that's going to cost you a couple thousand dollars or probably a thousand, is it worth it versus getting an older iPhone or something that's refurbished? Do you need a car that has all the bells and whistles? Or can you get one that's 10 years old? Here's Eric's done an example of when he feels the itch to get a new phone, he'll go buy a new phone case because the phone case is 30 versus a thousand, but it makes him feel like he got something new. And one of the things we've done with our vehicles, we have older cars. I mean, I think we're 2011 to 2016. In our vehicle ages, so 10 years old, roughly a little bit older. But the ones that are closer to 2010 don't have a great navigation system in them. So we just installed some aftermarket screens by we, I mean, Eric and we can connect into Apple. What is the Apple CarPlay or Android auto? I'm an Android girl, so I don't know the Apple sign, but we'll connect our phones in that way and it gives us the features that having a new car has as far as that technology without having the monthly payment to go with it. So are there ways that you can get the things you want in a more affordable way? I am looking to redo my office and add some new furnishings in. And I wanted to get these giant salt lamps that are like 30 pounds a piece and started looking into it and I mean, we can make it happen. It's not a big deal, but also we have plans to travel in the future. And as our kids get older, I don't know that we're going to stay in this house forever. And if I want to move with my things. Having an extra hundred pounds worth of decor, it's not super logical for the kind of lifestyle that we're thinking. So instead I'm pivoting to either some smaller lamps or potentially like some bowls or something different to get the same feel that I really want in having these giant salt lamps, but doing it in a way that fits our future lifestyle and is more affordable. So having a really clear picture of what's a want and what's a need, and then potentially on the wants, can you do something in tweaking it in a more affordable way to scratch the itch that you have without having to pay the full amount? There's, in stoicism? I think that's how you say it. There's the hedonistic treadmill. And this is where, We are constantly seeking pleasure and luxury and you get to the point where, okay, I really want this new thing. So then you get the new thing and then you want the next version of the new thing and then the next version of the new thing. And you are constantly trying to hit the next level of comfort and personal satisfaction that you can't get out of the loop. And it's, I mean, it creates this, that's, I think that's how we get in the debt trap. Just constantly seeking the next level of comfort, the next thing we want. And the problem is when you buy a new car, it's so exciting for the first couple months, and then you gradually get used to it and it just becomes part of your normal life and you lose the appreciation for it. I bought a little Lexus convertible probably like a year ago now. And I, for some reason, I just love this car and I have not lost the joy every time I get in it. I'm just like so happy to be in it. I don't know if it's because like compared to the minivan you just, yeah, there's something different about driving a little two door car versus a minivan. And I think what it is, is when I'm driving the Lexus convertible, whether I have the top down or not, I am going to do something for me. For the most part, I'm going out to exercise. I'm going out to get a massage. I'm going out to, even if it's running errands, it's generally something for me and I don't have kids with me. So I think it's probably the feeling of, you know, when you get your driver's license for the first time and you're out in the car and you're like, I can go anywhere in the world, well, anywhere that's drivable. And like the sense of freedom you get from that. I get that every time I get in the So, how can you create that feeling with the things that you have instead of just getting caught in the Monday? So, I've been talking a lot about avoiding the debt trap. I think it's all mindset. And being happy with the things you have until you can afford to really make the purchase for the thing that's that next level. I think really having a clear understanding of interest rates. We, I mean, we have a ton of debt through the real estate. And it is insane to me. Our mortgage on our personal residence is like 7 or 8%. And the payment on it is so much higher than we had on our other house that was a 3 percent mortgage. And like, obviously, logically, it makes sense, but It like doubles the price that you're paying with that interest rate. And part of the debt trap is you're paying so much of your money towards interest, especially early in the loan. So when you buy a loan, that's amortizing. So that means a part of the payment goes to principal and a part goes to interest each month. When you're first making payments on that loan, 80 percent of that payment is going towards interest, and then roughly 20 percent is going towards the loan pay down. And as you get further down, and let's say it's a 10 year loan, so lots going to interest. Halfway through, you probably have like a 60 40 split. And then towards the end, most of it's going to pay down the loan. So when you're buying a new car every couple years and you're not paying it all the way off, you're just constantly paying money towards interest and not really tackling the balance of the loan. So the longer, if you do have debt, the longer you can keep it before you move on to the next upgrade, the better it's going to be for you. We talk about this in real estate circles. When you're buying a property and taking over the existing mortgage, there's a difference in a mortgage that's been around for three years versus a mortgage that's been around for 10 years or 15 years. Because the percentage of that payment is going towards the loan pay down. So, one of those nuances in finance that's not common knowledge. If you pull up an amortizations table, you can use chat GPT to do it and just enter in, you need five inputs. When is the mortgage, originated? How many months was it? That's gonna get your time factors. So that's one of the metrics. The original balance. The interest rate and the monthly payment and ask it to build an amortization table. If I missed anything, it'll probably ask you for the additional information, but get that amortization schedule and look at the ratio of loan pay down to the interest pay down. And you'll see, as you get further down in the years or months, you're paying more towards the loan. So it's really important to have clarity on that. The same goes for loaning money. Interest is such a powerful tool, and I think Einstein called it the eighth wonder of the world. When you are paying interest, it is hard to get ahead. But when you're earning interest and compounding, it is such a magical tool. The more that you can loan and be the bank versus being the borrower, you'll get further ahead in life. So how do we avoid getting into a debt trap? It's having clarity on the numbers, having an emergency fund, having a gap between your personal income and spend. And if you are in a situation where you're just breaking even each month, finding a side hustle or a way to increase your income in some way, or reduce your expenses. One thing we've realized is we eat out a ton. And I don't think we've really noticed it. So we've been working to just pivot a little bit. Like, we had a coffee hangout with a friend the other day, and instead of getting a 15 breakfast burrito, like, what the heck? When did breakfast burritos get that dang expensive? So instead of dropping an extra 30 on breakfast, we're like, let's just wait until we get home. Now, pregnant lady here, I got a muffin because I wasn't going to be able to make it that long, but You get the ideas, like just thinking a little bit ahead of, do I need to take a snack with me? And then making the decision to eat at home has been huge. I mean, we've cut our credit card bill by like 3, 000 and I don't think it's all eating out. I think we've stopped spending a ton on Amazon. Whew, it hurts when you look at that Amazon account and see what you spent for the year, but we just have made some small shifts. So we don't even really feel it. And we still go out for a date night and things like that, but we're focusing on if we're going to go out to eat or spend money on something, we're making sure that it's something that really makes a difference and makes us feel good instead of just swinging by and grabbing Chick fil a on the way with the kids because it's just easier than packing a PB& J. So getting really clear on your finances, increasing your income, reducing expenses, things like that. Building your emergency fund. So having access to cash or cash readily available. And if you have a situation where something comes up and you leverage something like a line of credit or some debt financing to make that happen, just making sure that you have a clear plan on how you're going to pay that off and not just hoping that something will work out and you'll have the income. Now if you're in a debt trap. How do you get out? It's a scary place to be. And Eric and I have been in one to the point where we had to make a decision. Are we paying school for the boys this month? Or are we going to pay the mortgage? And fortunately, our refinance closed on the day that we needed it to. Part of that was me telling the lender, like, if you can't get this closed, I'm going somewhere else. Because it was a long process. Especially DSCR lenders, you have to lay down the hammer and say, well, no, we're closing and somehow they get it done. It's amazing. So avoiding how to get out of that it's, I think it all comes down to having a plan. So I'm, I'm a huge fan of Dave Ramsey in certain situations, and this is one of those situations. I don't think all debt is bad, but I think consumer debt is bad. So laying out all of your debts and the interest rates, and there's two schools of thought. You have the avalanche and you have the snowball. So the snowball method is what Dave Ramsey teaches. So you're going to take the ones with the smallest balances and pay them off first. And avalanche is paying off the ones with the highest interest rate first. So this is one of those where money is not necessarily a hard black and white math thing. If you're looking at it from a hard black and white math, doing the avalanche makes sense. Pay off the highest interest and then you'll have more money to go towards the other debts. The problem is a lot of times those higher interest things are bigger balances. And if you're working your butt off to make extra income and to pay off this debt, and you don't feel like you're making progress, you're going to get discouraged and potentially just give up. So the idea is start with those small balances, you know, the Kohl's credit card or the, I don't know, at home, Sears came to mind, which I don't know why Sears came to mind. Like no one shops at Sears even around. I don't even know if they're still around. But pay off those small credit cards first and then use the momentum. So what you were paying towards that Kohl's card or at home or rooms to go or whatever it is, as you're paying that off, take that payment and apply it to the next. So then you're just continuing to make a dent in the debt and you get those small ones, but if you're not covering your basic expenses each month, there's not really an easy way to get outta debt. So a lot of times it's an income problem or an expense, personal expense problem, but it's just tackling it slowly. One debt at a time. And just having faith that continuing to do the work you will get there. I think it's also really important as you're thinking about this to avoid lifestyle inflation. I think back to my college days and like some of the restaurants we eat at now would have never been a thought of somewhere I would eat at in my college days. And that's lifestyle inflation. As we get older, we want nicer things. But how can we avoid doing that? So that's going back to like avoiding getting into a debt trap. But if you feel like you have had lifestyle creep, which we, we have been reigning it in, like I said, with the eating out and things we're just shifting our mindset a little bit and trying to get more into maybe the early twenties, not college. Cause. College was chaos. But trying to cut back on some of our spending to bring that lifestyle creep in is another way if you're in it to just look at your expenses, see what you're spending money on. I also love Ramit Sethi's approach of he has a conscious spending plan that he uses. And what he likes to teach is making sure that you're spending money on the things that actually make you happy. And if buying a Starbucks every day, is like the brightest point of your day and it just makes you so happy, great. Keep buying the Starbucks. But if you're buying a Starbucks every day because you're just frenzied and chaos and I think I've talked about this before, but Eric used to buy a coffee and a plain bagel with cream cheese at Dunkin Donuts every morning. And he was spending, I want to say it was like seven or eight dollars. This was years and years ago before the crazy inflation. And I asked him, I was like, why not just keep? A toaster, and some bagels at your desk, and some cream cheese, and you have a Keurig, so it's not like you're working hard to make a cup of coffee. So what if instead of stopping at Dunkin Donuts and spending 15 minutes in a drive thru line, you just went to work and popped it in the toaster while you're checking your email, and make your own? So it actually saved him time and money. So like, what are the shifts like that you can do? What are the things that you can buy the phone case instead of buying the new phone that will help you feel like you're getting that little bit of gratification without having to spend a ton of money? And if you are in a debt trap or feel like you're on your way to a debt trap, and there's something you have questions on, or you'd like to chat with me about, please reach out. You can schedule a call. We can chat about, how to avoid this and like, what's the best strategy. So this is stuff I love. And in a weird way, when I have debt that I'm paying down, like student loans, we've had student loans for a long time. I love making that debt payment every month because I see that it's making a dent in the balance. And I just want to say, like, can you potentially shift your perspective around your debt payments A burden and something you don't want to do to a step closer to reaching your goals. So if you have questions or thoughts on this, please feel free to reach out Tiffany at energetic CFO. com. And I think that's it for today. So look forward to hearing from you. If you think this podcast episode will help someone, please, please send it to them, give us ratings, reviews, all the things that you can do to help us grow. I think, yeah, that's it. So, see you next time, and I hope you have a great rest of your week. Thanks for joining me on this episode of the Energetic CFO Podcast. Remember, small steps can lead to massive rewards. By taking action, staying disciplined, and seeking knowledge, you can achieve your financial dreams. If you enjoyed this episode, please be sure to share, like, and subscribe. And don't forget to leave a comment with your thoughts and questions. Until next time, keep learning, keep growing, and keep thriving.