How to Get Out of Debt

115R | How to Get Out of Debt

A how-to conversation about strategies for tackling consumer debt, a review of Monday’s episode with Bonnie Traux, and a few updates about the ChooseFI community.

  • Brad’s wife no longer working as a CPA – although she was technically laid off, she’s excited for the extra time in her schedule.
  • Being at FI gave Laura the ability to be happy for her previous employer and move on with a smile.
  • Bonnie Traux, from Monday’s episode, is an ultimate side hustler.
  • If you’re stuck, you’ll have to do something different if you want a different result.
  • Bonnie reached financial independence in about 13 years.
  • Before starting to save, Bonnie spent years paying down consumer debt as her husband was continuing to build it.
  • The journey towards financial independence doesn’t start at zero – it often starts with tackling debt.
  • How to tackle debt
    • Part 1: Know where to find your account information
      • Use account-tracking software – examples: Mint.com, YNAB Full Disclosure: We earn a commission if you click this link at no additional cost to you. (You Need A Budget), or even Excel or a pen and paper.
      • Know what’s coming in, and what’s going out.
      • List out all the debts you have, their payments and interest rates.
    • Part 2: Acknowledging that you can’t afford debt.
      • Reasonable interest rates are somewhere near or below 6%.
    • Part 3: Debt Payoff Strategy
      • The Debt Snowball – take all your debts and organize them from smallest balance to largest. Continue making minimum payments for all debts, and commit any extra to paying off the smallest debt. When it’s paid off, roll that payment into paying off the next smallest.
        • The Debt Snowball is a psychological win, but ignores interest rates.
      • The Avalanche – the interest rate is the most important thing. Always pay toward the balance with the highest interest rate.
      • The Hybrid Method – combine these two strategies to pay off a few smaller debts at first, then commit to paying toward the highest interest debt.
    • Part 4: Creating the Margin
      • You could earn more – start a side hustle, work a little extra
      • A no-spend month
      • Optimize regular monthly expenses
      • A credit card balance transfer
      • Consolidating debt

 

  • Brad and Jonathan will join the Washington, D.C. Local Group on April 8.
  • One of the Colorado Springs Local Group members is hosting a weekly dinner and board game night.

 

Links:

Mint.com

YNAB (You Need A Budget) Full Disclosure: We earn a commission if you click this link at no additional cost to you.

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6 thoughts on “115R | How to Get Out of Debt”

  1. “You’re making interest or you’re paying interest; your intrest snowball is working for you or against you”. Loved this episode–I’d love to see you do additional episodes on other “basic” tenents of FI.

  2. Brad and Jonathan, I’ve been listening to your podcast for about a year now and this is the first time I’ve left a comment. This podcast resonated with me on so many levels! First off, Brad’s wife becoming unemployed struck very close to home. While I have never been let go or laid off, I did take a massive pay cut (to my wife and I) 2 years ago to get out of a very bad position in which I felt that I totally lost control of my life. I was miserable and was to the point of going to work at Wal-Mart when a lesser paying position opened up in my company. I took the job and my quality of life has drastically improved! The reason we were able to take the pay cut was because we are completely debt free and we have honestly never even missed the lost wages. About 10 years ago a coworker introduced me to Dave Ramsey and it struck a cord with us. We did the debt snowball and paid off $66K in 16 months including the balance on our mortgage. The snowball method worked for us mainly because of the almost immediate psychological wins. We still a do biweekly budget and now pay cash for everything, including our last 3 cars(all low mileage one owner used) and our current home which we moved to 4 years ago. Believe me, it is a sublime feeling to write a check for your primary residence!

    I had never heard of the FIRE movement until about a year ago and I stumbled across it completely by accident. I was doing some research for my wife’s 403B plan and I found the 403bwise.com website(very good info). While there, I came across the millionaire educator and that’s when I found the FI community and your website. You guys do an awesome job and I’m sure you are helping countless people like me. My wife and I would probably be considered lean FI and could be really close to full FI in about 6 years(I’m 43 and she’s 40). Our biggest unknown is college costs for our 2 kids. Your recent episodes about college tuition was very insightful for us. I’m happy in my current position and am continent to stay as long as things don’t regress into what I went through before. I won’t live like that again and it’s really comforting to know that financially I don’t have to! Thanks for promoting financial awareness on so many levels, keep up the good work!

  3. Hey I started listening to your podcast and I really feel like it’s valuable and it’s giving me a bunch of great ideas. I do have a question regarding paying down debt. I’m currently paying my student loans and while it’s easy to tackle the highest interest-rate or the lowest balance first it’s a little bit misleading because some of of mine have had several years worth of interest (before I was in the position to pay them down) that has not compounded so I have to pay off the interest on a particular loan before I can start to pay the principal and the interest only accrues on the principal. I have not been able to figure out a plan on which loans to start paying off first to save the most money. I can’t wait to move forward with paying down my loans fastest to increase my savings and pursue FI.

  4. Great episode as always!
    Bonnie’s story is exceptional, however,
    she was able to reach FI in part by having a $100K salary for some of those years.
    If I recall her partner had the same.
    Many of us love our $50K jobs and probably couldn’t do that in 13 years.

  5. I absolutely loved this episode. My fiancé, Ethan, and I are currently working hard towards decreasing our student loan debt and everything they said confirmed we are working towards it in the right way. I started writing a series on our blog, which is still relatively new, called the Student Loan Series, which discusses the student loan repayment route we are taking. We decided to share our journey so other people can benefit from our story and hopefully improve their financial situation. Our third post in the series actually is spot on with what they were saying, and I was thrilled to hear it in their words! Thanks ChooseFI for giving us faith that we can make debt freedom happen!

  6. I just started listening to the podcast and am catching up on all the episodes. You have me FIRE’d up. I knew I had a debt problem, and I would go through phases of paying off large chunks at a time, then I’d go on a spending spree again. I would spend exorbitant amounts of money without even realizing it. Your podcast has given me the motivation and the direction I needed to get out of debt once and for all. I have a lofty goal of paying off $85,000 in debt in 2020 while still maxing out my 403b. I am fortunate that my husband and I both have high paying six figure jobs and with some planning and restraint I know we can do it. I also have the unique ability to basically work as many freelance hours as I am willing to work through my employer and other local hospitals to earn additional income at a higher pay rate. I have already signed on for an additional 20 hours per week for the next 3 months. My secondary goal is to pay off the remainder of our debt in 2021 and be debt free (except mortgage) by the beginning of 2022 and then open up a 457b through my employer and start investing and saving more. I’m not sure if we will go full FIRE but I do want to cut back on how much I am working and travel more. There’s a sense of pride that comes with my job (nurse anesthetist) that I don’t know if I will want to give up completely. I am also lucky that with my career choice the options are endless. I can go part time and still make six figures or I can even be a traveler and get paid my current salary plus living expenses while taking 3-4 months off every year without a pay cut. My husband loves his job so while our ultimate goal is to retire early, it’s not to fully retire THAT early but rather to enjoy the benefits of financial freedom while still working. My husband is not *quite* on the same page as me, but he’s getting there and he is reluctantly going along. He hasn’t listened to the podcast yet, but it is in his queue and he promises he will start soon. Right now we are just tackling our debt. We have $20k in credit card debt, plus $115k in student loan debt, and another $50k in our HELOC that we used to renovate our home. Luckily we have been good about maxing out our 403b and 401k and we have close to $300k in those accounts so we did one thing right! We also bought our house when the market was down and still paid $30k less than it appraised for and as a result we have a reasonable mortgage and a lot of equity in our house. We have some more renovation projects we want to do, but have put them on hold for now. Our cars are paid off and my husband WAS shopping for a new car, but I’ve convinced him to keep his at least until we are debt free and then pay cash for his next vehicle. I look forward to every paycheck now not because I have money to spend, but because I can put it towards my debt and watch those numbers shrink!!

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