Tips for Paying Off Debt

In this episode of Money Moxie, I’m talking about paying off debt.  I share some of my personal experiences and provide tips such as understanding how much debt you have, paying at least the minimum due each month, focusing on the debt with the highest interest rate, and making extra payments towards the principal when possible. I  emphasize the importance of budgeting, automating payments and making lifestyle adjustments to save money.  This episode also includes strategies to make the process easier and less stressful, including redesigning your environment to support your debt payoff goals and rewarding yourself for reaching milestones.
 
 00:06 Introduction to Money Moxie Podcast
 01:01 Recap of Previous Episode
 01:41 Understanding Your Debt
 02:35 Strategies for Paying Down Debt
 04:38 The Importance of Paying Down the Principal
 06:34 Finding Extra Money to Pay Off Debt
 08:50 Automating Debt Payments
 09:34 Continuing the Debt Payoff Process
 10:22 Making Debt Repayment Easier
 12:00 Designing Your Environment for Debt Repayment
 14:32 Rewarding Yourself During Debt Repayment
 16:32 Summary of Debt Repayment Tips
 17:18 Conclusion and Invitation for Feedback
 
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Transcript

Elizabeth: 0:01

Welcome to Money Moxie, the podcast that's all about taking control of your financial destiny. I'm your host, Elizabeth Michel, and I'm here to help you on your journey to financial empowerment. In each episode, we'll dive into personal finance, wealth building strategies, and mindset shifts that will help you master your money. Whether you are just starting on your financial journey, Or looking to level up your money management skills. Money Moxie is here to provide you with the knowledge, inspiration, and motivation to help you thrive. Are you ready to unleash your inner financial powerhouse, improve your money mindset, and make savvy money decisions so you can secure your financial future? Then you're in the right place. Let's get started. Hello, everyone. So in my last episode, I talked about setting up a money plan and making sure that you have an emergency savings and then a couple other tips that have worked for me as I've managed my money over the years. I wanted to dive deeper into getting out of debt and share some money. Tips for paying down debt, getting out of debt, and things that have worked for me over the years. Let's get into it. So I would say The first thing for getting out of debt is understanding and knowing how much you owe. Taking inventory of all of your debts and then tackling it one by one. And I know that, and I've experienced this too when I was working on paying down my debt when I was in my early 20s. it can feel very overwhelming, especially if you have multiple loans, or if you feel like you just owe a lot of money and you don't know quite where to start first. Knowing how much you owe, understanding Where everything's at and knowing the interest rates for each is very helpful in creating a plan for how to tackle that debt. That's something that's really worked for me because then I can Review the list of my debt and then decide which one I want to tackle for our space on that information. The next thing that has worked for me is at least making sure that I am paying the minimum amount due each month. For each of my loans, whether it's credit cards or a personal loan, student loans, just at least making sure I'm putting the minimum amount due each month for each of those. And then I would say the third item that has been helpful is reviewing all the debt that you have, identifying which one carries the highest interest rate, and focusing on paying that one off first and quickest. So you've looked at all of your debt, you know where everything is, you know which one has the highest interest rate, so here's where you can start tackling each one by one. The reason I say to pick the highest interest rate debt first is because that's the most expensive debt, typically, which means the amount of interest that you pay on a high interest rate debt is More over time than what you would pay on something that has a lower interest rate. For example, if you have a 5, 000 loan that has a term of 4 years at 5 percent interest, the amount of interest you're paying on that loan is a little over 500. Now, if you take that same 5, 000 loan, Same term of 4 years and the interest rate on it is 10%. Well, now you're paying over 1, 000. That's double the amount. that you would pay on that 10 percent interest rate loan versus the 5%. That's why I say it's so helpful to really figure out the loads you have and what their interest rates are so you can tackle that highest interest rate first and save yourself money over time. So we've identified our highest interest rate, debt and we're focusing on Making sure that we're paying that off first. oNe thing that has helped me is increasing the amount I'm putting towards the principal as much as I can. And that can be built into a monthly payment. Sometimes you can make a lump sum payment to the principal when you have it. And why do I say that? It's because... It helps you to pay the loan faster and also decreases the amount of interest you pay over time. It's also important to make sure that you are making those payments towards the principal. The principal is basically the balance of the loan before you incorporate any interest. So in the example I used earlier on the 5, 000 loan, 5, 000 would be the principal. paYing down the principal just means you're paying down the balance on the loan, and then by effect you're also reducing the amount of interest you have to pay on the loan. For example, so we talked about that 5, 000 loan. A four year term, and total interest you're paying during that time is over 1, 000. If you can increase your monthly payment by 10%, so that's 12 and some change, almost 13 a month, you save yourself over 100 in interest. And if you can increase that payment even more, say by 20%, which is over 25 a month, you're saving yourself over 200 of interest. Even any little amount counts, the extra that you can put towards the principal. And again, it helps to pay down the principal faster, pay down the loan faster, and saves the amount of interest you're paying on the loan over time. So as far as hey how do I find the extra money to put towards the principal? Maybe you feel like... You don't really know where that money will come from or you're not really sure where you can find that extra money during the month. Some things that have worked for me is to find other areas in my spending that have some flexibility or that can be adjusted. And it can be as simple as deciding to Make your coffee at home instead of going to get a Starbucks during the month. Or saying that you're gonna cook at home at least during the week instead of ordering delivery. Every time you do this, it helps you find that money that you could set aside and put towards paying down your debt. Other ideas that I've used in the past is selling items that I don't use anymore, picking up some overtime hours if that's an option, or some part time work. And then once I have that money and I've identified it, I take that money right away and set it aside, whether it's taking the five dollars that I would have spent on a coffee. I will take that from my checking account, deposit it into a savings that I have designated for paying down debt. And just keep doing that every time I've found a way to not spend the extra money or I've found a way to adjust my spending. And then that savings account that I've been depositing money in here and there every time I decide to cook at home or not go out and get a coffee and have my coffee at home, I take that money that I have accumulated during the month and put it towards the principal. on the debt that I'm focusing on paying off. So there are other little ways that you can find and I would say any dollar counts, even if you're saving a dollar a day and you can put it towards paying off your principal, it can accumulate over time and build up. Once I've identified my highest interest rate debts, I found ways to put extra towards the principal as much as I can. I'm prioritizing those debt payments, too, as part of my monthly budget. I know the amount I want to put towards that debt every month, and I'm building that into my budget, and I'm automating it. As much as I can. So if there is an option to automate that payment and usually today it's. Always an option. I set up that payment to automatically come out of my checking account and get paid towards that date. So I can just set it up. It's aligned with the amount that I want to pay every month and I don't have to manually manage it or, constantly take a look at it to make sure it's getting paid down. I've already set it up and it's just automatically done. And once I've paid off the highest interest rate debt, I can go on to the next and continue this process until I've paid down all the different debts I have. Going back to our early example, with the$5,000 loan. at a 10% interest rates. I think I said the monthly payment was about$127 a month. So if you're paying that 127 a month on that first loan, and now you've paid off that loan, you can take that 127 and put it towards your next loan and use that money as your extra towards the principal. So it can be like a snowball effect and help you to continue to chip away and pay down your debt so you can eventually be debt free. Some of the other things that have really helped me and I think are also really good principles to have as part of an overall money management plan is one, make it as easy as possible for yourself and reward yourself so you're still enjoying your life. And some examples, so making it easy. I said automate and I'm going to re emphasize it here because I think automation is such a useful tool and making it easier and simpler to stick to a spending plan. One of the other things I think has been helpful is if you get your paycheck at a certain time, say you're paid on the first of the month and maybe you're credit card payment or your loan payment is due later in the month and maybe those dates don't really work for you because you really want to be able to make all your bill payments around the same time right after you get your paycheck for the month. You can a lot of times call your credit card company or your loan company and ask them to change the due date for your loan. So it can better align with when you want to have all your bills coming out of your account. If you get paid on the first of the month, and you prefer to have all your bills paid a few days after you get your check, or right after you get your check, you can switch your date to be closer to the first of the month for your credit card payments, or your loan payments, and then everything is lined up. you can also automate everything to Be taken out of your checking account altogether. The other thing that has also helped me is designing your environment to encourage you to stick to this habit. And what do I mean by that? So anything you can do to take away. The temptation or something that would urge you to sign up for another credit card or spend impulsively when you're trying to concentrate on paying off your debt, I would try to remove that from your environment or at least not make it as easy to access. For example. If you're someone who likes to sign up for credit cards, or you use them a lot, but you're not really good about paying them down every month, when you check the mail, I would make it a habit to throw those offers away right away when you receive them. There are also services you can use online to opt out of things like credit card offers. I have one that I've used before that I can include in the show notes. It's called... I don't think it'll opt out of everything, but at least reduce the amount you get in the mail. The other thing that I found as a useful tool. It is unsubscribing from emails. So I know people get credit card offers through emails. You also get a lot of emails with promotions and just encourage you to shop and spend on things that you don't need right now. I found unsubscribing to emails as a really useful tool as well. One service that I've used in the past that I really like is called Unroll Me and it's just basically a service that It takes all of the marketing emails that you get and just cleans them out of your inbox, and it's a lot easier than going through every individual email every day trying to unsubscribe to everything individually. Also include that link in the show notes. The other thing that has been helpful for me too is we're all on social media, and part of that is always seeing ways to spend especially if you're following influencers that are advertising products. So when you're trying to concentrate on really reducing your spending and focusing on paying down debt, I also think it's helpful to unfollow or mute the social media accounts that are encouraging the impulse spending. It's just, again, making your environment supportive for yourself and your goals, and making it easier for you to stick. to the good habit of concentrating on paying off your debt. The other thing that I think is really helpful is rewarding yourself for sticking to your goals. So when we're trying to focus on paying down debt and creating that good habit of, okay, I'm going to prioritize paying off my debt, maybe that also means I'm reducing my spending for right now. Finding non monetary rewards. to help support you in this habit, but still do things that make you happy and excited so that you have something to look forward to when you've stuck to your goal every month of paying down that debt. I recommend doing this as regular as possible, whether it's weekly or every month when you've already made that debt payment and now you want to reward yourself and celebrate. Some examples maybe having an at home spa day, you give yourself a manicure, or put on your favorite face mask, create the ambiance, light a candle, listen to your favorite music, and just give yourself some really good pampered me time. Reading your favorite book, for those of you who love to read, I love to read. And instead of buying the book, you can check it out from your library. I know a lot of libraries offer e book versions as well. And there is an app that I've used in the past too that helps you check out ebooks from your library. It's called Libby. So it's a way that you could still enjoy reading, but not necessarily have to purchase the book. Other ideas I've heard is like going to a free museum that's offering admission for free that day. Taking some time off and giving yourself a staycation and just allowing yourself to relax and enjoy some time to yourself. So anything that's non monetary that you can do that still brings you joy, reward yourself for sticking to your goal of paying down debt, I think is super helpful in continuing to develop and sustain those good habits. So in summary, around my tips for paying off debts. Know what you owe and what your interest rates are. Pay at least the minimum amount due each month. Tackle the highest interest rate debt first as a priority as part of your debt payoff plan. Pay extra towards the principal as much as you can, and I would recommend just setting aside that amount monthly. Prioritize your debt payments as part of your monthly budget and automate them, and continue to repeat this process to help you pay down and pay off your debt. And make it as easy as possible and don't forget to reward yourself and do things that bring you joy. I hope this was helpful. Thank you so much for listening. Thank you so much for listening to this episode of Money Moxie. If you found this content valuable and it resonated with you, please subscribe and leave a review. I'd love to hear from you. And if you want help with improving your relationship with money and creating a solid money plan, check out the show notes for more information on how we can work together. I'd love to meet you and help you on your financial journey.