Debt Paydown: The 5-Step Plan That Gets Any Debt To Zero | Ep. 41

Most people who want to pay off debt never actually sit down and find out how much they owe. That single avoidance is the first thing standing between where you are and zero.

Rahul lays out the exact plan he uses to pay debt down, step by step, from the smallest credit card balance to the biggest financial mountain. Van pushes on the questions most people are quietly asking, including whether any debt can actually be considered good and what happens when bankruptcy becomes the only realistic option.

There's a moment where they break down what a single four dollar coffee actually costs you over time once interest gets involved, and it reframes almost every small purchase that gets swiped onto a card. The plan they walk through doesn't change based on how deep the debt is, which is exactly what makes it work.

If you've been avoiding the number, this is where you stop.

Get You Excel Budget Tool Here: 
https://docs.google.com/spreadsheets/d/1ovdGIl4sMZs5lPiBbgfmN_epCjKr9Cnx/edit?usp=sharing&ouid=100637789188546965595&rtpof=true&sd=true

Find us on Spotify @pillayplacepodcast

https://open.spotify.com/show/6yDlDhEWsh21t2zeg7f5AC?si=B7-HfM0VR6SJuI2i7l4Kdg

YouTube: @pillayplacepodcast 

https://www.youtube.com/@PillayPlacePodcast

Transcript

SPEAKER_00 0:00

Average Americans today have uh twenty-six thousand dollars worth of debt. It takes them roughly two and a half years to pay them off, which means we pay an extra $7,000 in interest.

SPEAKER_01 0:13

That doesn't sound like a good deal.

SPEAKER_00 0:14

That coffee that you buy for four bucks is gonna be about $50 in about five years, I should say, at such a high interest at 10% interest rate. Debt is a is a killer of finance, right? It's designed to make credit card companies a lot of money. So if you're doing it for the points, don't fool yourself. Until you sit down and actually put it on a piece of paper or Excel or whatever, you will not know exactly how much you owe. So when you pay minimum, you're making the most interest payments of your time. Be a lender, not a barber.

SPEAKER_02 0:48

Welcome back to the Palay Place. Here we talk about faith, family, and finance. And today we're gonna talk about handling debt and debt pay down. So if this is for you, stick around. I am going to be talking to my husband, who's really good at handling debt, um, that maybe I created. And so um let's jump in.

SPEAKER_00 1:10

Let's start off with a statistic. Um an average average Americans today have uh $26,000 worth of debt on average, okay, and it takes them roughly two and a half years to pay them off. They pay an average interest of almost 10%. It's nine and a quarter actually, which means that on a twenty-six thousand dollars worth of debt, we pay an extra $7,000 in interest.

SPEAKER_01 1:37

That doesn't sound like a good deal.

SPEAKER_00 1:38

No, so that means that we're instead of a twenty-six thousand, we pay off thirty-five thousand on a on a can you do the math and because I can't do this, but like break that down to say you put a coffee on debt. Yeah.

SPEAKER_02 1:52

How much are you paying for that coffee?

SPEAKER_00 1:54

A lot.

SPEAKER_02 1:55

At the end.

SPEAKER_00 1:56

Yeah, a lot, right? So so I mean, let's just say ten years. In ten years, that coffee that you buy for four bucks, if you pay, you know, my some of the credit cards we have, right? We don't really use it, but it's like 24% interest, right? So when I saw the stat that average American pays 10%, I was like, oh, that's pretty good compared to some of the cards I've seen. But $4 a cup of coffee is going to be about $50 in about 10 years, or five years, I should say, at such a high interest at 10% interest rate. So reality is um debt is a is a killer of finance, right? It's designed to make credit card companies a lot of money. So if you're doing it for the points, don't fool yourself, right? Like it's a lot of people, I've done this before. So I've I I am guilty of this where I'm like, oh, I'm gonna use debt to rack up points and try to you know outsmart the credit card company. They're alive for many, many years because they have outsmarted us on how to do this. Reality is they give away points, but they still make money. So the truth about debt is we have to be smart about it.

SPEAKER_02 3:02

Is there such a thing as good debt though?

SPEAKER_00 3:05

Yeah, there is. So I good question. Um, and we'll we'll go through a list of this. First of all, knowing, and what VN's asking is, you know, let's separate our debt. Let's understand the magnitude. First of all, you know you can that's a lot of money. If you're owed $26,000 and you're paying off $35,000 for that same $26,000 that's a lot of money, right? But let's go down to okay, let's separate debt into good debt and bad debt. Good debt is debt that has assets around it that appreciate, meaning that like a house.

SPEAKER_01 3:41

Okay, right?

SPEAKER_00 3:42

If you owe money on your home, the home is supposed to appreciate, right? Hopefully more than what what you are actually paying for it, right? But more importantly, the the if the asset is appreciating, the money that you borrowed is not that bad. Now, at the end of the day, you still end up paying a lot more for that house. So I would strongly encourage people to pay that off. But reality is at least that's good because it's creating some revenue for you, right? Or asset is appreciating. Bad debt is you use your credit card to go buy, you know, whatever shoes, that's a consumer good.

SPEAKER_02 4:19

But what if what if you need to borrow for groceries and like everyday expenses?

SPEAKER_00 4:26

That's a really good question. So if you are needing to borrow for groceries, then I think that one, you need to step back, first of all. Because one of the one of the keys to paying debt off is actually stop using debt, right? So if you need to use debt, and I wouldn't, I wouldn't discount this because right now cost of things are high. If people are using their credit cards for everyday expenses, it's time to reevaluate your budget.

unknown 4:56

Okay.

SPEAKER_00 4:57

It's time to make some sacrifices. You know, we have a budgeting episode that talks about okay, one, what is your mindset? Two is how to cut expenses, three is how to increase revenues, right? Like what's in your hands. The Bible talks about what's in your hands, right? And in reality is maybe you have a car, maybe the car can be put on tour to create some revenue, right? To uh increase some tax incentives for you. Those things could help.

SPEAKER_02 5:22

I yeah, I also feel like we're in a time where it is easier, a lot easier to pick up a side hustle of something. Yeah. If you have a car and you turn it, right, you're also not driving it and spending money on it. You are just sitting at home.

SPEAKER_00 5:43

Yeah. Well, we we Airbnb, you know, our property, and it's been it's been very helpful actually.

SPEAKER_01 5:50

Yeah.

SPEAKER_00 5:51

Right. And frankly, we use it to to pay off things as well. Yeah. So so yeah, so number one rule of paying things off is to don't add more.

unknown 6:01

Okay.

SPEAKER_00 6:02

Don't don't dig a bigger hole. Stop digging the hole. So and if you need to, if you're relying on the debt to live your everyday life, then I think that it's time to pause and do your budget and figure out a way to stop doing that.

SPEAKER_02 6:18

It sounds like the first thing you need to do is actually face it and see it as a problem.

SPEAKER_00 6:24

Correct.

SPEAKER_02 6:24

Right? Like you don't want to ignore it, avoid it, and pretend that it's not a problem.

SPEAKER_00 6:31

That's right.

SPEAKER_02 6:32

And so the the hardest part, I think, is to look at it and be and and see if it is a problem. Because the thing is, debt is not biblical. Right?

SPEAKER_00 6:48

Lending is, not borrowing. Right. Yeah.

SPEAKER_02 6:51

Right. I was like, right?

SPEAKER_00 6:53

Okay, like debt is not and in the old testament, every seven years they would wipe debt off. So you like take seven years, pay these things off.

SPEAKER_02 7:03

Well, I think the first thing is actually looking at it and identify is this a problem or not a problem?

SPEAKER_01 7:10

Yeah.

SPEAKER_02 7:10

Um, I think sometimes if people don't know how much they're owing, that's a sign that you're not looking at your problem.

SPEAKER_00 7:16

Yeah. So I thank you for saying that. Because I think one of the key things, a lot of people want to pay debt off. But if I ask them, okay, what is how much do you owe, they'll give me a range, right? And reality is until you sit down and actually put it on a piece of paper or Excel or whatever, you will not know exactly how much you owe. And what we do is we actually put it on an Excel sheet and then we write down the interest next to it, and we calculate the interest, and I look at how much money we're spending just on interest alone every month. Right? That's really, really critical. And then there are strategies to paying things off, and we'll get right into that right now. Um, did you have anything to add?

SPEAKER_01 8:00

No.

SPEAKER_00 8:01

Yep, so okay, so so if we're things that you put on credit, like for example, Amazon is very famous for attaching to your credit card and things that automatically charge your card, right? So what we do is we pay that off every month. We don't let it accumulate month over month. Because the moment that it starts accumulating debt is the moment we start paying interest.

SPEAKER_02 8:21

So babe, what do what do what would you suggest people do if they're unable to pay it off every month?

SPEAKER_00 8:31

Rule number one, don't use it. Don't add more.

SPEAKER_02 8:34

Okay. And then what if um like paying the minimum?

SPEAKER_00 8:41

Yeah, paying the minimum. So that's the that's one of the strategies to to paying debt off. So how do you really handle debt pay down, right? Because when you're paying minimum, all you're paying is just the minimum required. And minimum required to you means that it's the maximum profit for the credit card company, right? No, we're not fighting profit. What we're fighting is paying X extremely too much in interest, right? So when you pay minimum, you're making the most interest payments over time, right? So how do you avoid that? One is it's called a snowball effect. And this is a very famous way to do this, right? Everybody recommends this. Um, but you take you take the you know, all your cards, let's say you write them down, you write down your minimum payment next to it, right? And you can take the one that has the highest interest rate, and you add an extra payment to that. 100 bucks, 200 bucks, 50 bucks, 10 bucks. And that pays the card down, right?

SPEAKER_02 9:41

Okay, so that's like step one.

SPEAKER_00 9:43

Step one.

SPEAKER_02 9:44

What are step one is to see if it's a problem, see the problem.

SPEAKER_00 9:49

See the problem.

SPEAKER_02 9:50

Yeah. Right? Face the problem, see the problem.

SPEAKER_00 9:52

Face the problem, see the problem. Two, don't add anything more.

SPEAKER_02 9:55

Don't add anything more. Three.

SPEAKER_00 9:56

Three is snowball effect.

SPEAKER_02 9:58

Okay.

SPEAKER_00 9:58

Create a snowball effect and paying debt down. Okay. So the question I would have is can you make fifty bucks more? Or can you save $50 more? Can you cut $50 worth of coffee and add that to your credit card pay down? And I actually don't always go for the highest interest, even though logically that makes sense. I go for one that where I can get an easy win. What does that mean? So that means that if I owe $500 on a card and then $10,000 on a second card, I will pay the $500 off first. Because I've paid it off, it's off, it's over, right? So I'll pay the $500 off first. Let's say I did it with $50 more bucks a month, and then I add the $50 and the minimum payment for that card. Let's say it's $20. So now it's $70. I take the $70 and I pay the next $10,000 card now on top of the minimum payment. So you're snowballing your payments to pay off things faster.

SPEAKER_02 10:57

So not necessarily always the higher interest, but the easier.

SPEAKER_00 11:03

I get the easy wins in first.

SPEAKER_02 11:05

Can you kind of get it out of the way?

SPEAKER_00 11:07

Kind of get it out of the way. I actually we put it on our vision board so I can cross it off, right? Like I call wins easily. It's like, you know, low-hanging fruit type of thing.

SPEAKER_02 11:16

It's also probably motivating to know.

SPEAKER_00 11:18

It's very motivating. It's hard to like go, okay, I'm gonna pay the 20% interest on a $10,000 card, and you have to count the win two years later, right?

SPEAKER_01 11:27

Yeah.

SPEAKER_00 11:27

So so I try to count the wins faster. And then I think the fourth step, since you want to ask for steps, fourth step would be don't stop. If your cards are paid off, don't stop spending, don't stop paying things off. When you keep the lifestyle, keep the lifestyle you've developed, the habits, right? And and then once the cards paid off, go into student loans, go into cars, and then go into home. Pay everything off.

SPEAKER_01 12:01

Yeah.

SPEAKER_00 12:02

Okay. And then bonus, bonus step would be I have a bonus step, right? And before I get into the bonus step, let me tell you talked about a little bit about scripture. Because in Deuteronomy, the book of Deuteronomy, chapter 28, verse 12, um, Scripture says the Lord shall open to you his good treasure, the heavens, to give you rain on your land in this season, and bless the work of your hands, and you shall lend to many nations, but you shall not borrow. Right? So it's it's okay to borrow because it's ridiculous to say that I'm gonna go buy a $500,000 home with cash. It takes eternity to save for that kind of money, right? And a lot of discipline. So reality is you would use debt to do it. And that's okay. You can create wealth that way. That's good debt. We get into bad debt, like consumables or whatever, we may need to go buy groceries, but it's time to pay things off. Once you pay things off, the bonus step would be you can actually go buy a bond. Okay. A bond is a is a basically uh an investment that you can get, and you can buy a government bond, and the government will pay you four or five percent, and they borrow that money to go build roads or go do other things or pay for, you know, social security, whatever. But long story short, is they pay you back four to five percent. Now you're a lender and not a borrower, and that's one of the safest investments. If you look at last week's, um, not last week's, if you lot if you look at the podcast about investments that we talked about a few weeks ago, it talks about say you asked what is a very safe investment. Government bond is a very safe investment. Okay, and you become a lender and not a borrower, and now you're making interest on your money.

SPEAKER_02 13:55

Awesome. What is um what about what about when you're in so much debt and then you have to file for bankruptcy. What's your view on that?

SPEAKER_00 14:08

Well, I I personally like starting over. Right. And I think that there's a time and place for that. If you truly are in a place where you're bankrupt, then I think it's time to accept it and not make that mistake again, which means go over your head, right? And sometimes, sometimes things happen, like people's businesses, you know, go belly up and they get into a really tight spot and they have to file for bankruptcy. And that's okay. You start over, and a lot of people actually that have gone through bankruptcy come out stronger because they know what not to do. Right? I am not a big fan of debt consolidation. So a lot of people think about debt consolidation or bankruptcy because the problem with debt consolidation is you hire a lawyer to go negotiate for you, which you can do yourself, it just takes work. Negotiate your debt, try to bring the rate down or whatever. But when you're in debt consolidation, until the debt consolidation's paid off, you can't rebuild. A bankruptcy, you're facing the facts, you go through to court, the court helps you, you know, take care of your debt, and then you start over quickly. Debt consolidation kind of gets you stuck in there for a while.

SPEAKER_02 15:29

Got it. Okay.

SPEAKER_00 15:35

Should we recap the points? Yeah. You have it written down, so I do. Yes.

SPEAKER_02 15:43

Uh okay, well, let me see if I remember what you are teaching me. Are you teaching me this? Um okay, number one, the very first thing you want to do is look at your debt. If you don't see the problem, then you don't have anything to fix, right? So you wanna, if there is a problem and then you know what the problem is, then you can you can start there. So number one is look at it, see if it's a problem. What's number two?

SPEAKER_00 16:19

Number two is making sure that you don't add more. Don't add more debt.

SPEAKER_02 16:25

Don't add more debt. Number three?

SPEAKER_00 16:28

Number three is snowball effect.

SPEAKER_02 16:30

That's number four, don't stop the snowball effect.

SPEAKER_00 16:34

Don't stop the snowball effect.

SPEAKER_02 16:36

Number five is the bond.

SPEAKER_00 16:40

Go invest.

SPEAKER_02 16:41

Invest.

SPEAKER_00 16:42

Yes. Be a lender and not a borrower.

SPEAKER_02 16:44

Yes, be a lender. What does the Bible say about debt?

SPEAKER_00 16:48

The Bible says be a lender and not a borrower. Yeah. I'm sure there's other scriptures, but reality is like the the debt is not God's perfect plan.

SPEAKER_02 16:57

All right. Well, we hope you enjoy this episode. If you find it useful, please share it with a friend. Um if you are gonna go on a journey to pay off your debt, please also let us know. We can pray for you. We can there's also a uh Google Doc um budget budget sheet that we can link below um that you can use and face the reality of debt. Okay, uh, and um that's it. We hope you enjoy it, and we'll see you in a next episode.