Financial Fluency Episode #9: Let's Talk About Debt

Today we’re going to talk about debt. Debt is something a lot of people don’t really like to talk about and don’t really like to think about either.

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It’s one of those things that we try not to look at, and it just kind of keeps on keeping on there in the background of our lives, costing us a lot of money and a lot of stress. It can really affect a lot of areas of our lives, beyond just the finances and the credit scores.

Particularly when I talk to women, I feel like women who have debt, no matter how successful they are in their careers or with their books or speaking, regardless of what they’re doing, if they have a lot of debt, they still feel like a failure. They feel like they have to keep up appearances when they have this debt they haven’t been able to pay off.

The Tool I Use & Love

I want to talk about that today, and I also want to talk about a fantastic tool that I have started using this past year which I completely love, an app called ReadyForZero

One of the reasons I think a lot of people are able to push debt to the back of their mind and not really think about it is because it’s spread out:

Different credit cards
Car loans
Mortgage payments
Student loans.

You’re not really looking at it all or thinking about it all at once. The great thing about the ReadyForZero app is that you put it all into one place and you tell it how much you can afford to pay towards your debt every month. What the app does for you is it does the avalanche calculations.

I really like using the avalanche as opposed to the snowball. The Dave Ramsey snowball method definitely has its place, it gets you the quicker win by tackling the smallest total balance first, but overall the avalanche method – which tackles the highest interest rate first – will save you the most over time.

Get a Plan

When you put all your debts in ReadyForZero, it will line them up by interest rate and it put the highest payment possible towards the biggest one. It tells you exactly how much you should be paying towards each one each month, and then if you can make a bigger payment, you can put that in there and it will adjust things.

If you unexpectedly make a bigger payment which I just did this month, it sends you a little celebration. We paid off one of our cards the other day because we wanted to have one less source of debt in our lives and even though it was obviously just an automated message from ReadyForZero with little confetti and balloons, it still gave me a boost.

I enjoyed having someone tell me, great job, congratulations, you paid off a debt!

Visualize Progress

The other thing I really like about this app is the way it visually represents your debt. Once you put everything in it gives you a graph, and there are little dots along the graph line that show when each debt will get paid off.

Each time you pay off a debt, if you continue putting that same amount of money towards all your debts, it’ll roll into the next one, just like with the snowball effect. It shows you how, over time, it gets faster and faster, the fewer debts you have, and it tells you how many years it’ll take to pay it off completely.

Keep Your Latte!

Another thing I really like is it also gives you a daily interest amount. It shows you how much interest you’re paying right now every single day based on the amounts you’re paying.

I remember in David Bach’s Automatic Millionaire where he talked about the latte factor, and this is something I’ve written about before. He wants you to find the money to save for your future by not buying that latte with a muffin every day or not getting a bouquet of flowers, or not getting a monthly massage, taking these little extraneous seeming things out of life and instead putting them towards your future.

If you put together that ten to 15 dollars a day, it comes out to three to four thousand dollars a year, depending on how much you’re doing.

Looking at this app, one of the first things I thought was, oh wow, interest, this could be your ten to 15 dollars a day, and for some people it might be 20 dollars a day. Others, it might be 30 or 40 dollars a day, depending on how big your mortgage, car payment and credit card bills and student loan are. It made me think about how much of a win it is to get that paid off as fast as possible.

That 20 dollars a day that you might be paying to interest every day, that could be going towards your savings instead of your coffee or your bouquet of flowers, or your manicure or your massage.

You could keep some of those things that keep life happy and pleasurable and make up for it by not paying interest. Tweet That

The other place I like to look at instead of those little pleasurable things is your credit rating. Having a great credit score can make up that ten to 15 dollars a day over the course of a 30 year loan for a mortgage, for example.

Those are a few ways that I like to look at those things, and if you’re able to check out the ReadyForZero app, go do it now, right now at the beginning of the year. Put your debt in there and see what it does for you.

My Recent Experience

My husband and I have been talking about wanting to get completely debt free. It’s something a lot of people argue over, because completely paying off your mortgage can severely unbalance your portfolio when you look at where your money is spread out over all the investments in your life, but at the same time how nice would it feel not to have that house payment every month?

My husband got super eager and was like,

let’s pay it off in two years!

which I don’t think we’ll able to do, but we are looking more towards, what would it take for us to pay this off in the next five to ten years instead of rolling out that full 30 year mortgage?

We’ve been wanting to get some investment properties, and looked at one recently. This was another great lesson for me about debt and income and debt to income ratio, and showing declining income on your self-employed businesses and just not having a regular income.

I learned how difficult it is to get a second mortgage for an investment property based on self-employed irregular income in a year where we did have declining income because of falling cattle prices. It was not going to be easy for us to get that second mortgage, which I was surprised about, because we did have the down payment.

It’s difficult when you don’t have a W2 paycheck or if you have one, but that’s being used up on your home mortgage and you’re trying to get an investment property. I realized when we were looking at that property that I’d really like to take the next year or two to really shape up our finances before we start making that kind of investment.

If You Only Have One Resolution This Year, Do This

Right now looking into the new year, I know everyone makes resolutions:

Eat better
Exercise more
Spend less
Save more

all those things, but something you can do right now today that will actually be an action in that direction – that once you do it, it’ll be easy to keep doing it – is putting all of your debt information into the ReadyForZero app, letting it calculate out your payments and seeing what you can do.

If things go better than expected you can add more to it throughout the year. If things get hard at some point you can back off a little, but you’ll know the ongoing effect from being able to see that graph in the ReadyForZero app.

If you’re in Canada, the UK or Australia or elsewhere and the banks you use don’t hook up to the app, another way you can get the same effect is to go to bankrate.com and use the debt calculators in there. It takes a bit more time and effort to do it yourself, but it’s still worth doing and you can set up the same kind of plan, paying a bit more than the minimum on everything except that one highest interest rate debt that you’re targeting right now.

If you are doing it on a spreadsheet or some other plan that’s not the ReadyForZero app, try using a tracking app like mint.com. I know a lot of people use youneedabudget.com, there are a bunch of them out there, but I think it’s great to have one app where you have all your different accounts and debts going into so you can get an overview and really see the picture of what’s going on.

Personally I put all my accounts into mint.com so that I can have an overview and see when transactions happen and know what my balances are at a glance at any moment in time.

So that’s my advice for today in terms of debt. It’s a really easy quick win just to sign up to ReadyForZero, put your information in there and let it make a plan for you. All you have to do is follow that plan, set up auto pays, get in there and make it happen.

If you want more information on debt and more ways to tackle it, I do have a Debt Reduction Lab which you can find here. And if you like this episode, please be sure to subscribe and keep listening!