Finance Friday: The Debt Snowball

??Finance Friday: ??The Debt Snowball ?? ??

Do you want to start investing in your future, your kid’s college, or just have some margin in your finances to be able to afford a vacation or item or repair without having to “pay later” for it??

The reality in America is pretty alarming:

• The average American household has an average of $137k in debt.?
• 44% of adults can’t cover a $400 emergency.?
• 42% of Americans aren’t saving for retirement.?

Between:

• Student loans ?? ??
• Car loans ???
• Credit cards ???
• Personal loans?
• HELOCs ??
• Buy-Now-Pay-Later ??????

We are buried in debt as a society.?

And those debts have payments that are due every month.?

And all those carry an interest rate.?

So, we look up after paying the minimum payment and realize we are running in place. Many times, the interest is adding more than what we are paying.?

This leaves the margin between our paycheck and the money we would use to pay for retirement savings, kid’s 529s, down payment for a house, or just life stuff like a car repair very very slim. Most households have to choose between the monthly payment or that repair. Which often causes them to go further into debt.?

The cycle is stressful and debilitating and causes all sorts of secondary issues- marital issues, stress at work, family/kid issues, not having freedom to make decisions in your life because you have these payments hanging over your head…mental health issues.?

What if you didn’t have all this debt??

Imagine how less stressful your life could be.?

That is why so many financial experts advise you to first, before you start investing or anything else, get out of debt in everything except for your mortgage.?

?Owe nothing to anyone.?

Live within your means.?

Act your wage.?

I know this may sound crazy, but you only buy what you have the cash for today. And if you don’t have the money, you don’t make the purchase.??

Reminds me of the old Steve Martin bit on SNL. https://youtu.be/R3ZJKN_5M44 ??

So, now that I’ve depressed many of you, may I try to motivate you to get out of debt??

You CAN pay off your current debts.?

I hear of millions of people that have been in debt and have been able to attack the debt and get to a zero balance. It’s possible.?

You may need to sell some stuff. (Yikes, maybe even your car/truck or house if it’s way out of your monthly budget)

You may need to get a side hustle or part-time job.?

You may need to change jobs to make more and get paid closer to what your skill set is worth.?

But, it is possible!?

However, you need a plan. A way out…

Without a plan, it becomes an impossible feat. The mountain can seem insurmountable.??

One of the best plans and ways to get out of debt is “The Debt Snowball”.?

Here is how it works:

List your debts (everything except the mortgage) smallest to largest regardless of the interest rate.?

Then, you make the minimum payments on everything except the smallest debt. That one you go crazy and put any extra margin you can find on. Anything you can sell, any extra money you can earn that month goes on the smallest debt until you can knock it out.?

Then you take the payment you had on the smallest debt and any extra money and roll it into the next smallest. The snowball picks up steam and begins to grow as you pay off your debts.?

Now, I know one of the questions and objections to this…what about high interest rates? Shouldn’t we pay the higher interest rate debts first to avoid incurring more interest??

Mathematically this would make sense.?

But like we talked about last week, 80% of personal finance is behavior.?

If it was about math, we wouldn’t be where we are financially, am I right??

(Cue Michael Jackson- ?? I’m talking ‘bout the man in the mirror…I’m asking him to change his ways??) ??

And there is something about seeing real progress and knocking out creditors that creates physiological momentum. The chemicals in your brain begin to transition from fight/flight/depression, to atta-boy atta-girl dopamine “we can do this”.? You start to get excited and see the potential.?

All the extra money you had to pay for the first debt, now goes onto the second debt on your list. And you begin to knock that debt out quicker.?

It starts with being intentional.?

It begins with a plan.?

You can do this.?

You can be debt free in the matter of time that depends on your income and level of debt. But it’s possible!?

You are going to have to change your lifestyle.?

You are going to have to change your buying habits.?

You are going to have to say “No” to a lot of things and people and requests in your life.?

You are going to perhaps move.?

You are going to have to sacrifice sleep and time with your family and friends for a short period of time because you are working more.?

But…

The sacrifice is worth it.?

Let me ask you again:

What would your life feel like and look like without any debt??

Free?

Less stressful??

Less heavy??

Energizing??

More time you could spend with the people who matter most??

More options for what you can do??

What would a layoff look like for you right now?

What would it look like if you didn’t have any payments other than rent/mortgage and utilities and food??

Much different, right??

Less desperation when looking for your next opportunity??

Let me ask you this:

What would your financial life in 20-years look like if you didn’t have debt??

Your retirement account??

Your housing situation??

Begin to imagine and dream what your life would look like without debt.?

That. That image. That dream. Those thoughts and goals and “we could’’s”…

That is what Chris Hogan (financial adviser) calls “Dreaming in High Definition”.?

When you have a “what” or a “why”, it will push you and propel you to keep dreaming and keep going to accomplish your goal.?

I’ve heard that your “Why” needs to make you cry.?

The very thought of that dream life or scenario should cause a lump in your throat and give you all kinds of emotions. Then, leverage those feelings to keep you going when you get tired and worn out. Or when you see a “sale” or “nothing down” or someone invites you to do something you can’t afford.??

The dream should be bigger than those urges. You wouldn’t want to steal from the dream to just get another pair of jeans or go out to eat just because.

You can be debt free.?

You can realize this kind of financial freedom.?

But it’s going to take you, the person in the mirror to make new decisions.?

It’s going to take you to begin with intentionality.?

Make a plan.?

Dream.?

Begin the Debt Snowball.?

Let the momentum start to build.?

You got this! I’d love to hear from you on your journey and be an encouragement. So, message me! I’ll be your biggest cheerleader. Or I can also help talk you off the ledge of a purchase. ??

Begin to live that dream!