Many of my clients try paying off debt in lump sums and then get frustrated when they find themselves in four or five figure debt again. As a financial coach, my goal is to help you build sustainable financial habits to help you disrupt the debt cycle. One of my clients recently paid off over $30,000 in debt, and I use her story and others to walk you through my six-step framework for paying off debt sustainably.
If you’ve ever tried to pay off debt before but found yourself frustrated or even in more debt you’ll want to listen to this episode. While listening you’ll gain key takeaways to help become a saver, the secret to paying off debt.
In this episode, I explain why learning how to become a saver will help you pay off debt in these six steps…
- [04:23] Operational Framework: Why you should become a saver before paying off debt
- [05:52] Step #1 Uncover why you are in debt
- [06:14] Step #2 Budget for minimum debt payments
- [08:04] Step #3 Start setting up sinking funds
- [11:22] Step #4 Run your plan for 90 days
- [17:09] Step #5 & 6 Evaluate and Accelerate
Tune into this episode of Money Files to understand why saving money is the secret to paying off debt and breaking the debt cycle.
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 Why Becoming A Saver is the Secret to Paying Off Debt, then check out my episode on Understanding Debt: How Awareness Breaks the Debt Cycle!
Transcript for “Why Becoming A Saver is the Secret to Paying Off Debt”
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. I am excited to talk to you as always. I hope that you are enjoying your cooler temperatures wherever you are. I know some of you may not be enjoying cooler temperatures depending on what part of the world you live in, what country you’re in, what state you’re in, the temperatures, maybe it’s not fall, but here in DC it is very much fall and I am enjoying it. So today I want to continue to talk to you about debt. Paying off debt with my clients is something that I love. And in the past months I’ve had a client pay off over $30,000 worth of debt. She is one of my clients that I’d tell her, I’m like, you are the most unique and expensive client that I have. But she enjoys spending money, but even with her spending money, she has paid off $30,000 worth of debt.
She just sent me a message the other day. She’s like, Keina my credit score in a 703. But I enjoy helping clients pay off debt in a sustainable way. I think that one of the things that debt can make you want to do is like you want to get out of it quickly. I would say that the quicker you get out of debt, the quicker you go back into debt because you’re not actually shifting any of your behaviors, you’re not shifting any of your patterns and you’re not understanding yourself. If you actually go back to episode 144, you can listen to an episode that I talk about like personal debt awareness. And I think that’s the step that’s missing for a lot of people, and I’m sure it’s missing for you, where you just don’t have your own personal debt awareness. And if you don’t have that awareness, you are not going to build a healthy relationship with your debt.
You’re not going to be able to pay off debt and stay out of debt. If you get back into debt, you’re not going to be able to have a positive conversation with yourself. You’re going to belittle yourself about why you’re back in debt and those conversations just aren’t going to be healthy. So I definitely encourage you to go and listen to episode 144 and just be able to understand like, Hey, why am I in debt? And that’s not going to look the same for every single person. One of the reasons I also love working with clients, one-to-one is because I get to understand their own intimate patterns for why they’re in debt. Like some of my clients are in debt because they may have gone through a divorce. That looks very different than having a shopping addiction and you being in debt. Or I’ve had people reach out to me that have had experiences where it’s like, Hey, I’ve actually taken on debt for a child of mine.
So there are different patterns to the debt and so we have to understand our relationship with debt. And even within all of those, whether it’s a spending addiction, whether it is, Hey, I’ve been helping a child, or it’s like, Hey Keina and I just went through a separation and you know these attorneys like this is my freedom debt, whatever that is, there’s still an understanding there to why you are in debt. There are things that you are going to learn about yourself even in thinking about the person that is helping their child. It sounds like your family is important to you but how does that show up in your debt? Being able to ask those questions, but also what I would learn from someone who’s telling me that their debt is from their family is if you value family, then we need to actually have a family fund, which kind of gets into today’s episode, which is I want you to start saving in order to pay off your debt.
In my five step framework, the first step is for clients to have a budget and the second step is to save money and then we pay off debt. If you’re wondering what the other steps are, it’s earn more and then invest. But I want you to become a saver before you start paying off debt. One of the common questions that I get from people, whether they’re working with me or not working with me, it’s like, Keina, I have money in savings, like should I pay off debt? I just answered this question from earlier today and she’s like, Keina I have money in savings, can I pay off my debt? And my typical answer is like, it depends. If you haven’t actually identified why you’re in debt, if you don’t have a budget, I’m going to tell you no, because you paying your money towards your debt is just going to put you right back into debt.
Remember I just said the faster you pay off your debt, the faster you’re going to go back into debt. Some of you want to pay off your debt within one click and you don’t have any contingency plan. You don’t know that just that next week you need $5,000 to get your car fixed and now you’re right back into debt because you have no ability to be able to think and plan ahead. And those are the things that are causing you to get back into debt, which is why I need you to start saving money to be able to pay off debt. Saving money is the low key hack to being able to pay off your debt. So when I am thinking about you being able to pay off debt, there’s like an order of operations to this, within this debt area of your life.
So the first thing that I want you to do is I want you to identify why am I in debt? And I just told you, go and listen to episode 14 and thinking about like I want to build my own personal awareness of why I’m in debt. If you haven’t done that, do not pass, go. That’s step number one. Step number two, which goes with my framework, which is to have a budget is in your budget I just want you to put the minimum, like I just want you to be making the minimum payments on your debt. Keina I don’t want to, Keina it’s not doing anything. It’s not helping me pay down the principle. I understand those things, but hear me out. I want you to put the minimum payments in your budget because I also want us to have like a realistic perspective of what’s going on.
I was talking to a client recently and this particular client likes to make those lump sum payments towards debt. Like, oh, I have an extra $600 and I have an extra $500. Well, this client also has variable income and their income fluctuates. I said, yes, I understand that you think, be very clear, you think you have an extra $500. But what I know is that in December and January, your income is lower. And so this $500 that you’re putting on your credit card right now, you think it’s helping your credit card debt go down, but your credit card debt is going to spike in December and January because your income is lower and you haven’t prepared for that. So that’s why for anyone who is thinking about like, Hey Keina, I want to pay off my debt. I need you just to put the minimum payments for your debt into your budget, it’s going to allow us to have some consistency.
It’s also going to allow us to see what do you truly have left over, that if and when you do start accelerating your debt payments, that we can be consistent with that payment. So the next order of operations that I want to see in your budget is I need you to start syncing funds for the things that cause you to go into debt. And so a sinking fund is simply what I would describe as like a category in your budget where you are putting money away for things that aren’t happening months a month but you know that at some point they’re going to happen and you want to financially prepare for them. So a great example of this would be getting your car fixed. That is something that would typically go on a credit card. Another example of this might be buying clothes.
You may not buy clothes every single month, but that’s probably something that goes on your credit card. You see a dress that you like, you see a purse you like, you need new brass, whatever that looks like that goes on your credit card because it doesn’t happen all the time, but then you don’t have money for when it does need to happen. So clothing could be another category that you have in your budget. Another example of this would be home repair. It could be like landscaping at your house. So like outside, like landscaping. I’m thinking about clients that sometimes they’re like thinking every single year we get our trees cut back or every single year we were winterizing our home. Those things that are happening outside of your house, that needs to be a sinking fund.
Another example of a sinking fund, especially for my people out here with kids is like birthday parties. Hosting your child’s birthday party. What does that actually look like? The holidays are another example of sinking fund. So I always tell people that if you’re wondering what you should put into a sinking fund, I want you to think about the last 60, 90, 30 days. Like what are the things that you put on your credit card that either made you roll your eyes or that you felt like you couldn’t pay off? Those are the things that we want to start including in our budget and the reason I’m saying a sinking fund is because you right now, you’re not thinking about things that you spend money on outside of paying bills, groceries and gas, like those things are very apparent to you because they’re happening all the time. But the things that aren’t apparent to you are like, oh yeah, I like to go to concerts or yeah, I actually do like the Nordstrom anniversary sale, or I actually really, really enjoy traveling every single quarter.
Those aren’t the things that you’re thinking of month to month. When you get your paycheck, you’re paying your bills and then you’re like, okay, this is leftover money. That money isn’t leftover, that money actually has a job, it has an assignment, you have to give it direction. And the way that I want you to give it direction is to think about those things that have caused you to go into debt and how do you put some money aside so that the next time something happens, you actually have money for that thing. So order of operations, number three is to start sinking funds for the things that cause you to go into debt.
The next order of operation. Number four is I want you to run your plan or your budget for 90 days, minimally, 90 days. Some of my clients, I make their budget run longer than that before we really start to accelerate debt. You might be asking me, but Keina, why? Why do you do that? The reason that I’m doing that is because I want to monitor patterns. I want to see like is this the budget that actually works for you? I want to identify what’s happening in a 90 day span. I get to learn a lot, especially working one-to-one with people about the things that catch them off guard about random charges that they forgot about that maybe only happened quarterly. And so we’re actively adjusting this plan over the 90 day period.
We are also, during this 90 day period, we’re building a saver identity. And so by building this saver identity, it is helping my clients learn that they can actually save money. By learning that they can actually save money it’s also stopping them from going into debt. Remember I told you the secret to paying off debt is learning how to save. And so when my client says like, Hey Keina, I actually need to take a trip home because my mom is sick. Well, because we’ve actually started the travel fund and we’ve had it for 90 days. Guess what? There’s $500 in a travel line item that they can buy a ticket and not blink. That ticket, $400, $300, whatever it might have been, would’ve normally gone on a credit card, but now it’s over here in this bucket for travel. It is a very like, I mean it would’ve made the decision regardless, especially in the example that I just gave where you go and visit your mom because she’s not doing well, but now they’re doing it with so much more freedom.
And they have this identity that like, oh, I can actually save money. I actually get to do more and I’m not restricted. And so even though we’re only paying the minimum on our credit cards, you know what’s not happening on our credit cards? We’re not adding to the debt on our credit cards. So the balances are going down over the 90 days. They’re not going up because of the fact that clients actually have the money for the things that they want to have the money for. So saving is really the thing that’s going to start to allow you to pay off debt. So we run the plan for 90 days, people are building the identity of becoming savers, and as they’re building this identity of becoming a saver, it’s so crucial, especially for clients who have never saved money before, that they have this identity. I actually, I have a client who we have been running her budget for 90 days and she’s really good with updating her budget. She’s in a really sweet spot. So we were looking at her credit cards and we are creating her debt payoff strategy now, and she’s like, Keina, I feel like I have the money for this credit card and I can just pay it off.
She’s like, but I’m really scared to pay it off because I don’t want to deplete my savings. So we talked through it and the thing that we were able to talk through was that she is a saver now. I said, before you came and you started working with me, you told me like sometimes you would save a thousand dollars a month, but then you’d have to dip into the savings and then sometimes like you weren’t able to save. I said, but since we’ve been working together, you have consistently saved each month into this account. In addition to you are saving for a wedding, you are also saving for travel, you are saving for auto maintenance. And I said, if you reflect on your own spending habits and your own patterns over the last 90 days, what do you notice? And she was able to celebrate the fact that like she’s like, I haven’t had to dip into my savings and I’ve only dipped into the things that like I’ve had money for travel, I’ve had money for gifts and that feels really, really good.
So ultimately we decided that she was going to take the money in her savings, pay off her credit card, which is going to give her more income in her spending plan to accelerate some debt, but she’s also going to accelerate how much she’s saving. So she’s going to be able to rebuild the money that she’s paying towards her credit card. She’s going to be able to rebuild that within the blink of an eye, like probably before the end of the year. And that’s because she has built the identity of a saver. So when she asks me the question like, Keina, I have money in my savings, should I pay off debt? You can hear that we approach that differently than when she first came to me. If she had asked me that when she first came to me, I would’ve said, no, I don’t know anything about you. You don’t know anything about yourself, except for the fact that you like to spend money and that you have debt and you can’t figure it out.
And she was one of those people that’s in the cycle of like, I use my bonus to pay off my debt, but then my debt creeps right back up and I don’t know what to do, like that is her cycle and that’s something that she’s out of. So we have run the plan for 90 days and we were also able to go into, which is step number five, the evaluation phase. We were able to evaluate what’s happening with her finances and then we’re now in step six, which is starting to accelerate like her debt payoff strategy. I just told you that like one of the things we’re doing is paying off one credit card in full. I want to say it’s about $5,000. And then she has another $20,000 in credit card debt that she wants to pay off. Actually I think it’s closer to $29,000 of debt that she wants to pay off. And so we’re talking about doing a balance transfer for that debt, but because I know that she is not going to get into more debt and that I’ve taught her how to save money for the things that she would’ve gone into debt for and she’s executing that plan and we’ve monitored that plan for 90 days, we’re going to be able to leverage a balance transfer so she can pay off this $30,000 worth of debt within the next year to year and a half using some of her bonus, but also using the payments that she was already making where she can start making a thousand dollars payments towards this almost $30,000 of debt that she has.
Remember while she’s still saving money, because that’s the thing that’s going to keep her out of debt. And the thing that I actually was celebrating with her, I said, when you get this paid off, like in the next year, the thousand dollars that you’re actually putting towards your credit card payments each month are going to help you accelerate every single area that you’re saving in. Like that is going to be beautiful. You’re going to be able to trust that you can save money and you are going to be able to spend money like even more freedom than you currently are right now, which is so exciting for clients to be able to see that shift and that transformation that can happen for them, especially when you think about where will I be a year from now? Where will I be a year and a half from now?
And she’s been working with me for less than five months, but we’re already at that point where she can see a different version of herself coming up. She is excited about the fact that she’s going to feel like the six figure earner that she is and she’s going to be able to set herself up financially to just live a completely different life than the one that she’s been living. And y’all, she has a budget, she’s a six figure earner. She’s enjoying spending, she’s enjoying saving and she’s doing all of the things. I just want to tell you, budgeting is not restrictive. I know you might think that budgeting is for people that don’t make a lot of money, or maybe you just think like, I’ve never been able to figure out budgeting. You need a coach. You can’t figure it out on your own, like your mind can’t identify where in the cycle you’re stuck.
And when you work with a coach, specifically me, I am going to help you figure out where you keep getting stuck. So not only am I going to help you save money, not only am I going to help you pay off debt, I’m going to help you build a new financial self-concept and a new financial legacy for yourself so that you’re not coming back around at the age of 30, the age of 35, 40, 45, wondering like, why am I still stuck in the same place? So if you’ve been on the fence about like, oh, I’m not really sure if I should work with Keina, this is your sign. I need you to stop identifying with my clients or stop identifying with these podcast episodes or newsletter and I just need you to choose that this is the time right now that you want to invest in yourself.
I want to acknowledge that stepping out and raising your hand and saying like, Hey, I want to make this decision, is the hardest part, like just choosing to book the call can be the hardest part. I can help you figure out everything else. I can help you figure out how to invest. I can help you figure out how to invest in yourself. I can help you figure out the numbers piece. You just need to come and show up for yourself. You need to, I think about in my fitness journey, like you just got to get fed up and if you aren’t, like you just got to be sick and tired of being sick and tired. And at that point, when you realize, which hopefully it’s today that you realize, dang, I’m so sick of my excuses and I’m on and off and whatever, and not from a place of shame, but just like stop putting, like get my finances together on your New Year’s resolution.
Stop making New Year’s resolutions that have anything to do with finances, just because you chose to hire a coach. I have a client right now that I’m also working with, she’s going to have a baby in a couple of months and I’m like, Hey, you are going to be in a completely different situation and it’s going to feel so good to know your finances are in order while you have a little one at home. Because I said, you may not even be able to budget for four weeks because you’re going to be up to your eyeballs in diapers, but because of what we’re doing and the work that we’re doing right now, it’s going to help you prepare for that first four weeks that you’re going to be at home with the baby and just trying to figure out your life and figuring out up and down like you put in the work right now because it gives you future dividends for anything in your life that’s coming up.
So if you are ready to start and I shouldn’t even say if you’re ready to start because you are ready to start, you can go to the link in my profile and you can book an appointment or you can go to Wealthovernow.com. At the top of the page it says book a call. And so you can apply to work with me, we’ll do a 60 minute consultation, I’ll ask you a bunch of questions, get to know about you and then I’ll tell you how I think I can help you and we’ll choose a date for you to get started and we’ll go from there. So I’m excited to connect with you and until next week, I want you to have a great week. Alright, bye.
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.