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StitcherWhen you’re carrying a lot of debt, peace of mind feels just out of reach but that doesn’t mean you’re doing it wrong, you just haven’t found the method that fits you. In this episode, we’re bringing back a powerful, proven approach to help you take control, prioritize your debt with confidence, and make every payment count.
The bigger picture in paying off your debt is the small things that you do to pay them off.
Sponsors:
- Buying what you love while you’re still in debt. We’ve found that the biggest key isn’t the order of which you pay off but with the consistency with how you stick to it. You’re not gonna do that if you deprive yourself and we wrote a book with how you do that. It’s available wherever you buy a book and here. buywhatyoulovebook.com
Debt Avalanche vs Debt Snowball
In this article, Investopedia runs down the standard ways to pay off debt in an accelerated way.
What Jen + Jill have to say:
Debt avalanche involves making minimum payments on all of your outstanding accounts and pay off the bill with the highest interest rate. Jen thinks the pros for debt avalanche is that it saves us hundreds of dollars on interest payments which can also reduce the amount of time it takes to pay off debt by a few months. However, it takes a hefty amount of discipline and commitment to make more than minimum payments and requires a constant amount of ‘discretionary income’.
On the other hand, ‘debt snowball’ is listing your debts out from smallest amounts to largest amounts–tackling the easy jobs. Jill thinks this builds motivation by settling debts fast and it’s easy to implement. It just incurs more interest and it can take longer to become totally debt free. Just a tip from the Frugal Friends: if you’re an average income earner, you would want to consider investing as early as possible.
Things to Consider When Prioritizing Which Debts to Pay off First
This article by InCharge affirms the idea that “debt is neutral” by digging deep into the radical middle approach when it comes to considering priorities.
What Jen + Jill have to say:
There are 4 things to consider when prioritizing which debt one must pay off first, and Jen might not put this one on top but she thinks tax breaks should be on your list. Do not be misled as mortgage interest is only deductible if you itemize deductions and the student loan interest is deductible if you take the standard deduction. Consider interest rates and try to prioritize anything in the double digits immediately (anything 5-9% is secondary and anything under 5% is at your discretion–which can depend on which one you think is best to pay off your debt).
Consider also your remaining balance as it is accompanied by a sense of accomplishment and motivation if you keep track of them. Jill reminds us that debt should remind us (not all the time) of the consequences of not paying it.
How did you personally pay off your debt and what did you prioritize?
For Jill, due to the high interest and most amount of debt, she decided to prioritize paying off her truck loan then school loans.
Contrary to how Jill decided which to prioritize, Jen decided to focus on paying her car loan first because it was little. Followed by her student loans as it was 6.5% interest (Travis’ were 3-4%).
Bill of The Week
Thank you Nic for sharing your bill about the mental toll/exhaustion about networking – so sorry for the days it took you to recover!
Thanks so Much for Listening!
Thanks so much for listening. We love love love reading your kind reviews of our book Buy What You Love Without Going Broke and we especially loved this one from:
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What a great read! This book offers insights into finances and budgeting that I have not seen anywhere else. The principles really make sense and I believe they will help me succeed in areas that have been a struggle for me. I found this book to be easy to read, informative, and entertaining!
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