We all know that debt in America has gotten a little bit out of hand. There's
over a trillion dollars in student loan debt which if you are a millennial or
part of Gen Z you know that one all too well. There's almost $4 trillion
or maybe a little bit over $4 trillion in consumer debt and
the government itself is in debt. So if it's such a common thing, why is nobody
talking about it? I'm Suzanne with Arvabelle and in this
video I'm going to give you a few different tips and a couple of different
methods that you can use to actually start paying off your debt. If you find
this video helpful remember to hit that like button. This isn't really anything
groundbreaking, it's just pretty hard to find free information about managing
your own finances and we are trying to change that. So if you are interested in
seeing more videos on personal finance, entrepreneurship, and just navigating
life as a young adult in general, consider subscribing to the channel. I
also have to make the disclaimer that I am in no way a financial advisor this is
just general information and if you do need help with your finances always go
and ask a professional. So first we need to address that there are actually two
types of debt. There's good debt and there is bad debt. Good debt is debt that
is taken out with the purpose of increasing your net worth or generating
extra cash flow. So an example of people who would use good debt would be real
estate investors. They are taking out loans in order to buy properties that
will increase their net worth as well as generate extra income for them. But
that's not the debt that we are going to be talking about. We are going to be
talking about bad debt. This is your average consumer debt. So this would be
things like credit card debt, excessive student loans, car loans, those furniture
financing offers, payday loans, things of that nature. The goal of getting out of
debt is to really take on more financial freedom and have the ability to focus
your time and money on things that matter to you now instead of paying off
things that you took out loans for 5 or 10 or 20 years ago. So here are a few
tips that will sort of help you lay out your plan for paying off your debt as
well as help you eliminate a couple of problems that could come up as you
are going on your debt free journey. For each loan or debt amount that you have,
it helps to actually know when you are going to be able to pay that off. Take
your minimum or your average payment that you are making or that you're
supposed to be making, and calculate the number of payments that you have left
and the number of months that that would take. After you do that for each
individual one, calculate the month and the year that you would be completely
debt free. Figure out the exact date if at all possible.
Having that date in mind will really help as a motivational tool because if
you are putting in that extra effort and that extra money towards paying off your
debt, you'll start to see that debt free date move closer and closer which means
that you are just that much closer to being financially free. So let's talk
about credit cards. Now I am all for credit cards and as I say that Dave
Ramsey is somewhere in the world throwing his computer out the window. But
credit card rewards, cashback, all of that good stuff, I'm all for it. However credit
cards only work in your favor if you are using them responsibly. If you're mostly
in consumer debt and you know for a fact that credit cards are a problem for you
get rid of them. Now you may not actually want to go and close the credit card
accounts, because that actually hurts your credit score. But get them out of
your physical and digital possession - and that one, getting them out of your
digital possession is very important. So hide them lock them away but most
importantly I want you to pause the video and do this right now -
disconnect your credit card from all of your online stores. That means Amazon. Not
having that one-click buying option will make it a lot easier to resist making
purchases when you are browsing Amazon at 3:00 a.m. As far as actually paying
off your debt goes, you want to try to make extra payments when you can. This
one is sort of self-explanatory, but the more that you contribute towards paying
off your debt, obviously the faster that you are going to pay it off. Now paying
it off quickly also makes it cheaper for you in the long run because you are
reducing the total amount of interest that you are having to pay on that loan
amount or on that debt amount. Making extra payments
now is going to save you money later. And the last tip which is going to be kind
of a touchy subject is that you may just need to make more money to be able to
pay off your debt. And I know that that is - I know for a fact - that that is much
easier said than done, but I do want to make a point here. There is so much of
the debt free community especially on YouTube and on social media
that's almost obsessed with just budgeting budgeting budgeting and
cutting back. And I agree completely you do need to have a budget and you do need
to be factoring in your debt payments into your budget, however there is a
problem with only focusing on budgeting and cutting back. There's this saying
that you can't squeeze a dollar out of a nickel and that is very true. The bottom
line is that if over the course of a year you are trying to pay back $40,000
of debt but you're only making $20,000 there is no way that
you can make those two numbers line up unless you are bringing in more money. So
this may mean switching to a higher paying job, getting a raise, starting a
side hustle, whatever it is to bring in more money. And again it's much easier
said than done, but you just have to be realistic with your goal and be
realistic with how much you are able to pay off in a year based off of your
income. And it's also very important to not compare your finances with someone
else's because there are all of these like success stories of people who pay
off $80,000 in two years or in one year or whatever it is and
again you may not be able to pay off $80,000 in one year or
two years if you're making $20,000. So now that we have
those out of the way, let's talk about two actual methods that you can use to
start paying off your debt and that would be the snowball method and the
avalanche method. The snowball method is where you start paying off your debt
based on the total balance amount so you would do it in order from lowest amount
to highest amount. You would pay off the lowest balance, cross that one off
completely, move on to the next lowest balance, and keep going until all of your
debt is paid off. So for example if you had $7,000 in credit
card debt, a $5,000 car loan, and
$16,000 in student loans, you would first start with the lowest amount so the
$5,000 car loan then, you would move on to the credit card, then you would move
on to the student debt. Ultimately this method is not going to be the one that
saves you the most money in the long run, but it may be the method that you are
able to stick to better simply because it's just a nice psychological thing. By
completely getting rid of those smaller debt amounts, you just you get to cross
those off your list completely and never deal with them again. And that can be
really encouraging to see the progress that you've made and to see how much
you've reduced the number of debt payments that you have to make. The
second method is the avalanche method which is where you would pay off your
debt in order of interest rate from highest to lowest. This method is going
to save you more money than the snowball method simply because of the amount of
interest that you're paying down. But a lot of people find it harder to stick to
especially if you have a lot of debt that is at a high interest rate because
it can take a while to start chipping away at that big number. So it
may not be as easy or as satisfying to see your progress. So we'll use the same
numbers but include the interest rates this time. So let's say that that $7,000
of credit card debt has an interest rate of 20%. You have the $5,000 car loan
at 4%. And you have the $16,000 in student loans at 7%. Using the
avalanche method, you would pay off the amount that has the highest interest
rate so that would be the credit cards that you would tackle first. Then you
would move on to student loans, and then you would move on to that 4% car
loan. If you can manage to do the avalanche method it will save you more
money and it will probably be better for you, but if it's just not working and you
need to have those little milestones of crossing off the smaller amounts of debt
use the snowball method. Just use whichever one works for you, it doesn't
really matter how you do it, it just matters that you are paying off your
debt. These are really the two most common ways to pay off debt and again
it's nothing like particularly revolutionary but it's important to talk
about and it's important that you start addressing your debt. The
worst thing that you can do is to just ignore your debt completely and sort of
cover your eyes while you dig yourself further and further into debt. Once you
are able to actually become debt free, that allows you to have a lot more
financial freedom. You can then start increasing your net
worth, you can start investing, and you can just - you can just start focusing on
things that are more exciting than debt. Because debt is like, it's not fun! It's
really boring. It's things that you have already bought, that you've already done,
and you're still paying for them now. So avoid debt in the future. If you are on a
debt free journey and you really just have no idea where to start I am going
to leave a link in the description to Dave Ramsey's book the Total Money
Makeover. It really is a great place to start. Now if you are a millennial or you
are part of Gen Z some of Dave Ramsey's ideas...I don't want to say that they're
outdated...but they're a little bit outdated some of them. So just keep in
mind that you want to approach your debt in whatever way works for you don't just
blindly follow what other people are saying and you also don't have to pay
off your debt exactly how someone else has paid off theirs. Just do whatever
works for you. So if this video was helpful remember to hit the like button
and subscribe to the channel. Good luck with your debt free journey, and I will
see you next time.