In the past few weeks, I’ve focused on the importance of debt awareness and how becoming a saver can help break the cycle of debt. Today, I’m excited to share the next step in your financial journey: choosing a debt payoff strategy.
In this episode, I share personal stories and client successes, highlighting how understanding your specific types of debt—like credit cards, student loans, or auto loans—can greatly impact your repayment approach. I’ll walk you through the most common debt payoff options, providing examples to help you find a strategy that aligns with your financial goals.
I also stress the importance of managing cash flow and how reducing high monthly payments can create more financial freedom. I encourage you to look into ways to earn extra income through side gigs or monetizing your skills to speed up your debt repayment.
With the right mindset and strategies, I genuinely believe anyone can overcome debt. Remember, you have the skills to succeed on your financial journey. Tune in for actionable insights and inspiration to take control of your debt!
Explore debt payoff strategies and leverage these financial tools to help get out and stay out of debt…
- [02:36] How different types of debt influence payoff strategies
- [03:55] Identifying cash flow opportunities
- [07:28] Comparing debt avalanche versus debt snowball
- [13:25] When to use a balance transfer
- [15:50] Always focus on making more money
Tune into this episode of Money Files to discover which debt payoff strategy is right for you.
Are you ready to start asking for help with your finances? Apply to work with me, and let’s start working towards your financial goals?
If you loved this conversation about Navigating Debt Payoff: Insights and Strategies, check out my episodes Understanding Debt: How Awareness Breaks the Debt Cycle and Why Becoming A Saver is the Secret to Paying Off Debt!
Transcript for “Navigating Debt Payoff: Insights and Strategies”
Intro: Hi and welcome to Money Files. I’m Keina Newell from Wealth Over Now. I work everyday with professional women and solopreneurs to help them get out of financial overwhelm and shame so they can experience more flexibility and ease with their finances. Are you ready to gain confidence and learn to manage your finances intentionally? Tune in and grab financial tips that will help you master the way you think about and manage your finances.
Keina: Hello and welcome back to another episode of Money File. So over the last few weeks, maybe like four to six weeks, I’ve been talking about debt along with like some sporadic other episodes in there. But honestly I don’t want you to just be focused on debt. And also believe it or not, debt isn’t everyone’s problem. I work with clients that don’t actually have debt that they need to pay off. They just want to learn how to become better savers or they want to learn how to shift their mindset around money. And so yeah, there is a world guys where you don’t have debt and my clients that work with me actually get to create that world for themselves.
So I want to let you know that there is another side to this where you don’t have debt, but if you are in a space where you’re focused on paying off debt and you want to make sure that you are in the right mental space, you are really thinking about your debt in a different way, then the last couple of weeks and me talking about debt, like these are podcast episodes you want to listen to. So definitely go back to episode 144. On that episode I talked about the awareness that your debt can bring and actually making sure that you understand your debt cycle. And then on episode 146 I talked about becoming a saver and that being the secret to paying off your debt. Like that’s how my clients learn how to pay off their debt is they also learn how to become a saver.
So today I actually want to talk to you about debt payoff strategies, which I think it’s funny. Everybody goes here first. They’re like, okay, what’s the plan? And clients that work with me, at least for the first 30 days, I never even talk about a plan to pay off their debt. I’m like, let’s get your budget together. And the reason that we’re getting their budget together is because it actually helps them identify what are the reasons that they have gone into debt and it helps them to become more aware of their emotional spending patterns. But also it gives us that opportunity that I just was talking to about my clients becoming savers before they start to pay off their debt.
So if you’re in a place where you’re like, Keina, I feel very aware, I feel like I am saving money, then we can start talking about paying off your debt. Some of the things I’m going to share with you today are probably things that you’ve heard before. They’re not necessarily new ideas but you may hear them in a new way. And so I love to actually look at different types of debt that my clients have. So you may have, when we’re talking about debt, you could have your car loan, like an auto loan, you might have medical debt, you could have personal loans, you could have credit card debt, you have student loan debt, you might have a heloc. So there are a lot of different categories when we’re talking about debt.
The reason that I wanted to bring up these categories, I mean when I was paying off student loan debt, like I had over $70,000 worth of debt and I was kind of like eh, it could be with me for a really long time, but I didn’t feel the same way about credit card debt. Like credit card debt felt like debt that was for lack of a better word, irresponsible. Whereas for my student loans I would always joke and be like, hey, my student loans bought me some of the best relationships in my life so it’s okay, it helped me make peace with that debt. So you want to know what type of debt you have because that can also influence the way that you actually decide to pay down debt. I was going to go in a different order, but I’ll just tell you one of the influences.
So for some of my clients and I actually did this recently with a client that I’m working with, when we’re paying off debt, I actually look for cash flow opportunities. And you might be thinking, what does that mean? So with clients, sometimes I’ll actually focus on paying off an auto loan first. The auto loan has a lower interest rate. Generally speaking, it might be like a 6% interest rate, a 3% interest rate, even a 2% interest rate. But the reason that I might choose to help my client pay off their auto loan first is because it creates a cash flow opportunity. Generally speaking, the auto loan payments might be anywhere from 4 to $700. They might even be like a thousand dollars. And so if I see an opportunity and this is like very strategic, I’m looking where maybe they have like five to like $8,000 kind of left to pay on their auto loan.
So it’s not a ton of money that they have left to pay on their auto loan. But if I can create a situation and a scenario where they can pay off their auto loan, it is instantly going to increase their cash flow. And so if I can increase their cash flow, it’s going to make their budget a lot less restrictive and it’s going to create some other opportunities to be creative with the other debts that they have. So one way that you might think about actually paying off debt is to look for cash flow opportunities. And so that’s just a matter of actually looking at okay, what’s the balance on my actual debt and then what’s my monthly payment on that debt? I actually did that with my client who, she paid off her personal loan and we focused on paying off her personal loan because it was, I don’t have the number off the top of my head, but it was like somewhere from $800 to like $1,300 a month that she was paying on this personal loan.
She had some other personal circumstances that we wanted to consider, like she was going to have a decrease in her pay because she gets a little bit of extra money because she was in an international assignment. But if we focused on paying off her personal loan and could free up that extra $800 to like $1,300 a month, I should remember this but I don’t, if we could focus on that, that was going to instantly increase her cash flow opportunities and give us some different wiggle room to be creative with how we were going to focus on her other debt but also increase her savings. So when you are paying off debt, one opportunity like I said might just be to look for cashflow opportunities. Is there a debt that is costing you a lot per month? When I say costing you a lot per month, I mean you’re paying 6, 7, $800 towards that debt and is that something that you could potentially wipe out fairly quickly that would give you an increase in cash flow from month to month?
I would say like if you could focus on paying that debt off in the next three to six months, like that’s kind of my window that I’m looking for, especially for cashflow opportunity, then that’s a debt that I generally with clients will focus on paying off first. The two other debt payoff strategies that you are probably familiar with are the debt avalanche and the debt snowball. I used both of these processes and approaches when I was actually paying off my debt and it really just kind of depended on what type of motivation I wanted or needed at the time. I think the same can be true for you, especially when you’re thinking about like, okay Keina, I have like this debt over here and I have this debt over here and what do I start to look at first? And sometimes what I find people need is that they actually just need incremental wins.
They need like little small wins that help them actually move forward and accelerate. So if we go with the first approach, which is the debt avalanche. With the debt avalanche, you look at all of your debt and you start paying the minimums on all of your debt, but you find the debt that has the highest interest rate and that’s the debt that is going to get some extra income going towards it. And so that’s your debt avalanche. So if you have a credit card that’s 25% interest and that’s the one with the highest interest, then you would focus on paying off that card. Then maybe you go to the card that has like a 17% interest. And so that’s the order in which you actually address paying off debt. The reason that people generally like that approach is because you are going to be saving on interest that you’re actually paying.
And so when you think about the life of that debt, you’re going to pay less interest because you’re addressing the debt that has the larger interest rate. The second approach would be the snowball approach. The snowball approach is to look at all your debt and to start with small balances first. And so if you were looking at all of your debt and you have a credit card that’s a thousand dollars, you have a credit card that’s $4,000, you have a credit card that’s $10,000, you would pay the minimum on all of your debts and then you would go back to the debt that’s a thousand dollars and you would start paying more than the minimum on that debt. The approach and philosophy behind the debt snowball is that you’re going to get some quick wins because you are going through and you’re paying small balances off first, you are going go from, let’s say you have eight debts that you’re trying to pay off, you’re going to go from I have eight to ooh, I have seven, now I have six, now I have five.
And so you might be someone who wants those quick wins. The debt that’s $10,000, it could potentially have a higher interest rate, but you want to have quick wins and you feel better checking off the boxes and staying motivated by having quick wins, then the debt snowball approach would be something that you maybe want to use. I should go back and say that with the debt avalanche approach, the person that generally likes that is they like the idea that they’re saving money and that’s why they want to focus on the higher interest rate first. I as a coach don’t necessarily, like I said, I can switch back and forth and I generally pay attention to my client’s overall like profile. What kind of personality do they have? We talk through it. I help them make a decision for the opportunity that they want to actually use and take advantage of and paying down their debt.
My biggest focus as a coach is I want to make sure that they’re not distracted while they’re paying off their debt. And in my last episode where I was talking about becoming a saver and focusing on becoming a saver while you’re paying off debt, sometimes some of these approaches can feel kind of slow, especially when your debt’s really high. But I’m there to help people also see their other wins. So yes, you may be paying off your debt a little bit slower than you envisioned, but what else is happening? Are you saving more money? Are you less stressed? Do you feel like this is something that’s sustainable? I would rather you have a sustainable debt payoff plan than something that you’re like, I pay it off really quickly but I didn’t actually think ahead to any of the other implications that paying off my debt quickly would have.
And some of my clients, may wait, like I said 90 days before they’re prepared to actually pay down a debt but when they get in that position, like I have a client right now who we’re going to take a lump sum of money and we’re actually going to put it towards a debt and she feels really confident about putting this lump sum of money towards her debt because she knows that she knows how to save and she’s not going to rebuild and re incurred that debt. So within our coaching we’ve done a primer stage for her where she’s built a lot of solid habits that now when she’s paying off this time, although it may seem slower than she would’ve wanted to do it, it is going to, the results are going to be results that she can actually maintain and sustain over time.
And that’s what I believe as a coach is most important is that you’re actually able to sustain and maintain your results, like I do not want you to have like a yo-yo dieting net relationship, which if you’re listening you probably do. And so in some ways you feel really resigned for how your debt shows up and what happens to it. But if you know like, hey I have the skill of being able to pay off debt, it is going to put you in a much different place, in a much different situation. Also within this debt payoff plan. I should also mention, because some of you are probably like, but Keina, what about like balance transfers and what else can I do? So I love a good balance transfer. I also will tell you it’s not the first lever that I pull as a coach because you should be able to say this with me now, is that we want to develop debt awareness and we also want to have the ability to save.
And so a debt balance transfer is only creating room for you to add to your debt if you haven’t done the other two steps. You are just displacing it and hoping that it resolves itself. Because even when we do a balance transfer, I want to make sure that with my client, we’ve talked about what’s the plan to get this paid off? Are we paying it off in the 12 months? Are we paying it off in the 18 months? Are we paying it off in the 24 months, like what is the plan? I use this, if you listen to a podcast from, gosh, it’s probably been at least a year ago, I interviewed my very first client, her name is Amanda. I remember when Amanda and I started working together, gosh, it’s been like six years ago now. She had about $20,000 or more of debt and we used a balance transfer and I was very, very clear with her.
I was like, Hey, this is probably going to take you a good year and a half to pay off. But she kept consistently paying it off. She got raises while she was also paying it off for that amount of time. But because she had actually learned how to save money and she had a budget that considered how much more she was going to be putting towards her debt without stressing her out and feeling like every single dollar was going towards her debt, she was able to pay that off. And she will tell you I think firsthand that was the best plan that she ever could have created for herself and how she was paying off that debt. Because here’s the honest truth guys, because some of you are listening to me right now and I’m like, oh my goodness, I do not want to wait a whole year to pay off my debt with that $500.
Let’s just say it’s $500 that you’re using to pay off your debt. I just want you to consider that that money is gone already, that you’re never going to get that money back. And the reason I want you to consider that is because it’s another one of my actual philosophy points is, I want you to focus on earning more money. Sometimes we’re focused on the wrong thing when it comes to where we are in debt and focus on earning more money because even when you get that $500 back in your budget, your life isn’t going to like overwhelmingly change. That $500 is going to go towards food, it’s going to go towards some gas. Like it’s just going to be like an inflation cost. I’m not saying that $500 isn’t significant, but I also want you to be thinking about how could you earn an extra $500 to make that $500 payment not seem like anything.
Because if you can focus on how to earn an extra $500, by the time you get that debt paid off, then that means you’re going to actually have another thousand dollars a month that you’ve created. So earning more is something else that I want people to be thinking about as they’re paying off debt because I want you to be someone who’s always focused on building wealth. And as you’re focused on building wealth, the debt is going to happen, it’s going to get paid off, your savings is going to increase. Like those are the things that I want you to be paying attention to. And those are the things I pay attention to with my clients. A lot of my clients that you hear us talking about paying off debt, we’re also talking about earning more money and they go hand in hand. That’s why if you are like “Keina, I’m going to pay off debt before I work with you,” that is the worst decision that you can make in your life.
You need to just work with me right now because that’s the best decision that you can make for yourself. Because I’m going to help you figure out how to pay off the debt. I’m going to help you plan to make more, I’m going to help you manage the more. So you actually feel like, wow, I am actually making more money than I’ve ever made before and I’m actually earning and like can see the fruits of that money in my bank accounts. Like that’s what I want you to be able to experience. Additional ways that you can actually accelerating your debt. I’m going to like pause, oh because it’s going to be that maybe this feels a little like, but know you just said that, you could also get a contract job, you could do rover, you could start tutoring, you could leverage and monetize a skill that you have to earn extra income.
So that might not bring up your overall base pay at work. But in thinking about, are there things in your house that you could sell? Like where in your life can you earn extra income to accelerate your debt payoff, where you have a payoff that’s an additional 3 or $400 a month? As I was building my business, I was using some of what I was making in my business to pay off debt. As I was teaching, I was tutoring and I was paying off debt. So I was increasing my income like to accelerate the debt payoff. And that’s something that I would highly recommend you put into your debt payoff plan. And let me just go ahead and answer the question that’s in your head, Keina, I’m already working extra. Well, let me just tell you, you’re doing fake math right now in your budgeting and how you manage your money so that’s why that extra isn’t feeling like extra and it’s not going to pay off your debt because you’re still using your credit card.
You don’t actually know how much you’re using. And so there’s just a lot of stuff going on in there where as you can get that all cleaned up and put your numbers in one place, it’s going to help you feel like, oh wow, I can actually use my extra income to accelerate my debt payoff. So I am done with this episode and regardless of where you are in your debt journey, I want you to know that you won’t always be in debt. And maybe it feels like, oh my goodness, I’m always going to be in debt, but you’re not. Even if you pay off your debt and you get back in debt again, I want you to know that you have the skills to actually pay off your debt and that you can figure it out. And so I want you to be able to build that resiliency with yourself. So thank you so much for tuning into this episode and I will talk to you guys later.
Outro: Thank you so much for listening to Money Files. If you’re ready to take the next step to reach your financial goals, head to www.wealthovernow.com/appointment and let’s get started.
