You paid it off. You told yourself this time was different. And then, slowly, the balance crept back up and somehow you’re sitting in more debt than when you started.
That’s not a you problem. That’s a pattern problem. And until you can actually see the pattern, no amount of aggressive payoff plans, balance transfers, or personal loans is going to change what keeps happening.
In this episode, I’m walking you through what I call the Debt Exit Plan, the framework I use with every single client before we touch one dollar of debt repayment. The Debt Exit Plan isn’t about how fast you can pay off debt. It’s about understanding what’s driving the cycle so this can actually be the last time.
I also share what I learned about my own pattern when I was making $90,000 a year and still cycling in and out of $2,000 to $5,000 of credit card debt and what shifted once I could finally see it clearly.
In this episode, I’m walking you through…
[01:00] Why so many people try to get out of debt and end up in deeper debt
[03:10] The difference between the reason you’re in debt and the pattern for why it keeps happening
[09:35] Why a list of bills is not a budget and what your income actually needs to be doing
[13:05] How to build a debt exit plan that includes saving, spending, and debt payoff
Tune into this episode of Money Files to discover how to break the debt cycle by addressing the pattern behind your debt, not just the balance.
If you are ready to stop cycling in and out of debt and want support building a real plan, apply to work with me. I’ll help you build a budget that fits your actual life so you can manage your finances intentionally.
If you loved this conversation on breaking the debt cycle, check out Episode 64 How to Make a Balance Transfer Successful.
Transcript for “The Debt Exit Plan: How to Break the Cycle For Good”
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 Files. So today I’m going to be talking about debt and more specifically, I want to talk about why so many people try to get out of debt and end up in deeper debt than when they first started. So if you’ve ever found yourself in a position where you’ve taken out a personal loan to pay off a credit card and then found yourself in more debt than you started with, then this episode is going to be for you because what happened to you has nothing to do with your willpower. It’s not even a math problem. But I would say that it is actually a pattern problem. And it’s exactly what we’re going to get into today.
I want to walk you through something that I call the debt exit plan. And it’s the framework that I use with every single one of my clients that comes to me wanting to pay off debt, whether they want to pay off a four-figure amount of debt, a five-figure amount of debt, or even six figures of debt. And the debt exit plan is really important because if you skip this step, you can pay off your debt, but you’re going to end up landing right back in the same situation that you were in. And I even know this personally because I’ve lived it and I’ve watched it happen to my clients over and over again.
So one of the most common debt scenarios that I see when clients come to me, it is generally like a combination of personal loan debt and credit card debt. And the story usually sounds something like, you know, Keina, we had $8,000 on our credit card, or Keina, I had $8,000 worth of credit card, depending on if someone’s single or they’re a couple. And they tell me about how the interest rate was killing them. So they took out a personal loan so they could pay it off faster because the interest rate on the personal loan was lower. And on paper, it is a very logical move. It’s a very smart move.
On paper, they have decreased the amount of debt, like the amount that they’ll have to pay for the debt when you consider the lifetime of what they’ll be paying. But then when they tell me this, what’s happening is they’re sitting in $20,000 worth of debt. And this could be like a personal loan. It can even be balance transfer is another example that I see with this. But what’s happened is they’ve moved the debt, but they didn’t actually address the debt. Zeroing out a credit card balance can feel like progress to you. And in one sense it is, you did something, you made a move in order to get out of debt because there’s so much around debt. There’s so many feelings around debt. There are so many thoughts around debt. But if you don’t actually understand why that $8,000 existed in the first place, your credit card will likely find its way back to that balance with a little bit of extra on the top. And that’s generally the cycle.
And the only way to break this cycle is to understand what’s underneath it, what’s driving it. So the thing that I want you to hear is, there’s a very clear distinction, that is the reason that I created this entire episode. There’s the reason you’re in debt. And then there’s the pattern for why it keeps happening. So the reason you’re in debt is what happened. The pattern is what keeps happening. The reason you’re in debt might be that you put a bachelorette party on your credit card. The reason might be that you and your partner split up and you were covering expenses alone for a few months. The reason might be a trip, a car repair, maybe it was a wedding gift. You couldn’t really afford, but there was no way you were going to miss it.
So those are reasons. And the reasons that we don’t want to dismiss. But the pattern, if you’re being honest, is that you’re not planning for the different seasons in your life. So you might be in a season of life where all your friends are getting married or the people around you are having babies. And every time one of those moments comes up, it lands on your credit card, like it’s a surprise because you weren’t considering that the bachelorette trip or the baby shower was something that you could actually plan for it. So it’s not actually making it in your budget. And so that’s the pattern. It’s not the trip. It’s not the wedding. It’s the fact that life keeps happening and your budget doesn’t respond to what’s actually happening in your life.
And the only way to address the pattern is with a budget that considers the season of life that you’re in, which is exactly why before I help any client pay off debt, I walk them through this debt exit plan. So the debt exit plan answers three essential questions. And so if your goal is to pay off four, five, or even six figures of debt this year, you’ll want to sit with these questions before you decide what you want to do next. And before I walk through them, I want to say this to you, that as you answer these questions, remember that nobody is going to be looking at your answers but you. So this is your moment to really be honest with yourself. And sometimes that honesty can feel really uncomfortable. It can bring up shame. But I also want you to consider that this honesty is your invitation. It’s the door opening so that you could actually move forward and that’s the gift you’re giving yourself right now.
So let’s start with the first question. First question is, why are you in debt? What is the pattern? So this is where we start. And it’s also where I had to start. At the time, I’m thinking about I was a vice principal still, and I was making about $90,000 a year. And I was doing well by most people’s standards, but I was cycling anywhere from like $2,000 to $5,000 worth of credit card debt. I’d pay it off. Generally, I would pay it off with like a tax refund. And then the debt would creep back up throughout the year. And for a long time, I told myself the reasons I was in debt. It was, oh, I need to buy patio furniture. I just moved into my house. Or I was buying plane tickets to go home for Christmas or Thanksgiving or even just to see girlfriends. I was getting the brakes fixed on my car. And so all the things I was using my credit card for were very real things.
And my credit card was supporting where my budget wasn’t supporting me. But the reasons I was in debt wasn’t the actual pattern. The pattern was that I wasn’t planning for what some might call unexpected or irregular expenses. So I wasn’t planning for my house. I wasn’t planning for my car. I wasn’t planning for holiday trips and even impromptu trips with my girlfriends. Like none of that really had a place in my budget. I just was like you might be, in a spot where I’m like, oh, I’m going to figure it out. Like it always works itself out. And because I wasn’t making space for it, every single time that something came up, I was figuring it out. I was also going through a cycle of shame where you’re like, oh, here we go again, like I just paid this off. I still haven’t figured out how to plan for it. And literally my cycle was most oftentimes the tax refund went towards my credit card, but it didn’t help me save anything. So for the next, 365 days, I was doing the same type of spending on my credit card.
And so that story kept me cycling in and out of debt when I was making $90,000 a year. So if you’re answering this question for you, what I want you to do is pull up your last 90 days of credit card statements, or you can even look at your debit card. This can be insightful as well because sometimes people start using their debit card because it’s like real money that they have, or they tell themselves it’s real money that they have, but then they start using their credit card when that real money disappears. So I want you to take out your statements and look at how you’re spending after the bills are paid. What do you keep seeing? What do you keep telling yourself every single time you swipe? Like if you could listen to the narrative and reflect on the narrative in your head, because that for me, it was, oh, I’ll figure this out, like I got to pay for this.
And so there were things that were there that I wasn’t pushing myself to actually plan for, but I could see my own pattern. Some of you might also have a pattern where you use multiple credit cards because it’s also like the credit card that is in front of you. And so you just use whatever card. So sometimes you might be using Apple Wallet. Sometimes you might use a physical card or you use whatever is linked on the website. That could even just be something to notice because it tells you about your default money management style. It’s not good or bad, but it’s important to think about because if you have, let’s just say you have three to four different ways that you pay for things, you might have blind spots and not be thinking about like, oh, I use my Amex and I’m using my Chase and I’m using my CityCard. So money is hiding from you in one of three to four places and you’re never able to see everything. So your pattern might just also be a part of like things like you’re blinded. You don’t actually look at what’s going on. So answer that question. What do you keep seeing? That gives you insight to what your pattern is.
Question number two is what does your income actually need to be doing to get you out? And this is where we go beyond the list of bills and why I don’t support you using the list of bills because the list of bills isn’t actually a budget. A lot of people here pay off debt and they think, okay, I’m just going to throw everything I have at it. But that approach doesn’t actually address the pattern because if you don’t make room in your budget for the things that have been living on your credit card, they’ll go right back on their credit card. So your list of bills isn’t going to help you get out of debt. Your list of bills doesn’t account for the life that you’re actually living. It accounts for the things that you see in front of you when payday comes. That’s what it accounts for.
So for me, that meant being honest about, at the time I had a Honda Civic, and I was spending, when I say she went on hospice, that’s what I talk about. I feel like I was in the car dealership having to figure out repairs and it could be anywhere from like $1,500 a year to $3,000 a year that I was spending on the car. And so it kind of just felt like, oh, I mean, this is just kind of happening. And it could be the brakes, it could be the car registration, but it always felt like I was having to fix something during, it was probably like a two to three year period that my car was asking me for attention all the time. And I never gave my car a place in my budget. I just kept putting it on my credit card and dealing with it later.
So one of the changes that I needed to make in terms of managing my money was I had to look at what wasn’t in the budget, and I needed to actually put it in the budget. So at the time, when I was like reflecting on my own debt exit plan, I started with just putting $100 a month into like an auto maintenance car fund. And I didn’t wait until like I had a perfect number. I didn’t get fixated on like, oh my goodness, what if I need $3,000 to fix my car? I knew that starting somewhere was better than not acknowledging it at all. So I used the information that I had, and I knew that I was spending about $1,500 a month. So that’s about $125 a month. So, like I said, I started with probably like $100 to maybe $125 and just putting that into my budget. That meant that the next time my car needed something, I had a space for it, like even if the car needed $800 worth of repair, and I had $500 saved in that car fund, I was only having to figure out where does $300 need to come from? Wasn’t having to figure out the whole thing.
And if you’ve ever had money for something that you actually needed to cover and address, you can attest that that’s a completely different feeling when that thing comes up. And I will say that some of the friction here is that it’s not sexy to save to get your car fixed. It’s sexier to save for travel, but we have to be honest about what’s going on our credit card. You might be saving a lot of money for travel, but you’re not saving for your car. And so you’re going to have this imbalance, and you’re going to continue to be in and out of this debt cycle because you’re not acknowledging that you’re spending money on your car and that’s going on your credit card.
So with this question, what I’m asking you to do is think about what keeps showing up on your credit card that you can’t plan for or what keeps draining your bank account. So maybe that’s vet bills, car maintenance, travel, it could be home repairs. It’s the things that feel like surprises, but they’re really not. They’re a part of what you do and how you spend in a 365-day period because the reason we have a relationship with our credit card debt that we don’t want, is because we have these expenses that never had anywhere else to go. So your income needs to start doing more than just covering your bills. It needs to account for what’s actually going on in your life.
And then the third question is, what’s the plan that keeps you out of debt for good or even as close to zero as possible? The goal is to be able to pay it off, and then how do we maintain that debt payoff? So using what you learned about yourself in question one and two, now you’re going to build a budget that looks at three things at the same time. I want you to look at your saving, your spending, and your goal to pay off debt. I don’t just want you to look at debt. So the reason that matters is that if your debt plan is so aggressive that you can’t spend money, you’re not going to stick to it. And if you’re not saving money while you’re paying off debt, then that next unexpected expense, whether it’s the car, the vet bill, the flight home for the family emergency, that’s going to go right back on your credit card, and you’re going to feel defeated.
So your debt exit plan is going to help you find the middle ground, the place where you can put extra money towards your debt, you can protect the progress with your savings, and you can still have actual space to be able to live your life. Because sustainability is what is going to help you stay out of debt in the long run. And there will also be moments along the way where you can accelerate your debt payoff. Maybe you get a bonus, a tax refund, or maybe you have a month of slower expenses, and so you decide to adjust how you’re spending money. So it’s in those moments that you’ll be so glad that you have this debt exit plan, because you’ll see how you are truly making progress and creating sustainability for yourself.
So these three questions are the work. It’s not just you being focused about paying off the debt, but it’s about having a plan that makes sure that this can be the last time that you actually have to pay off debt again. So start with your debt exit plan, answer these three questions for yourself. And I want to close with, in my own story of making $90,000 a year, how much money I was making wasn’t the problem. The pattern I had was the problem. And once I could actually see my pattern, then I could build a plan that actually addressed it. And let me also be clear that you’re going to experience different patterns throughout your life when you’re thinking about how you’re spending money, because you are going to have different seasons. And so we should always be thinking about, how do I need to be spending money at this time in my life versus maybe how I spent money three years ago? And that helps you account for things that maybe feel more expensive or new hobbies that you want to look into. Like all of those things, we want to make sure that we’re addressing.
So I’m currently working with a couple. They’re paying off $100,000 worth of debt. We haven’t had to file bankruptcy, which I’m so excited about. And they’re not giving up everything that they love, but we built their debt exit plan together. And we’ve talked about them earning more money. We’ve created a budget. So we were able to actually see that we have enough income in your budget to make sure that you can save, pay off debt and spend. And what we’ve created in the last month and a half is a solid plan that’s sustainable, that’s going to help them get out of debt, but also help them communicate better as a team.
So that’s possible when you actually stop throwing money at debt and you actually build a real budget. So in my five month coaching partnership, we focus on paying off four to five figures worth of debt. Sometimes it’s six figures of debt and we do it by starting exactly here with the debt exit plan. So if you’re listening to this and you’re ready to stop cycling in and out of debt for good, I would definitely invite you to apply to work with me. You can find the link in my show notes. You can also go to wealthovernow.com and apply to work with me there, but I will walk you through this debt exit plan. You don’t have to be overwhelmed. You don’t have to be frustrated. I will tell you exactly where to start and we’ll build from there. So thank you so much for tuning in to Money Files. Until next time, have a great week.
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.
