(upbeat music)
Well, welcome back to the show.
- I'm here.
- I know, you're back! Thanks— you couldn't stay away,
I know, I know.
- When the Rachel Cruze Show calls, you come.
- It is true, people, it is true.
(laughs)
So, we're on to Baby Step 2,
and Baby Step 2 is paying off all of your debt,
except for your house.
And you do this by using the debt snowball,
and that is where you list out all of your debts,
smallest to largest, regardless of the interest rate,
pay minimum payments on everything,
and you pay off the smallest debt first.
And so we find that people gain incredible traction,
and they really win with this method.
And on average, people are getting completely out of debt,
except for their house, in 18 to 24 months.
So, it's pretty powerful—this whole idea.
So, when you started this whole program,
I mean, you're like the Godfather
of the Baby Steps and all of the things.
So what caused you, first and foremost,
to be, like, Yeah, you need to be debt-free.
What's the point of even being debt-free?
Those people watching that are like,
"Eh, is it that big of a deal?"
What would you say?
- Well, I mean, so in the Bible it says
the borrower is slave to the lender.
And we had just gone broke in
most everything because of debt.
And so, just from a risk management standpoint,
that's where it started. Because it's like
pain avoidance—because we'd been through so much crap.
- Yeah.
- You know, and then the next thing that happened was,
I started realizing you actually—
your most powerful wealth-building tool is your income.
And when you don't give it to someone else,
you can use it to become an everyday millionaire.
You can use it to change your family tree.
You can use it to be outrageously generous,
but when you give it all to Countrywide,
and Citi Bank and Lexus in the form of payments,
and MasterCard and Visa and American Express,
and so on, you know, you don't have any money.
And so it's kind of a math thing—
that you're giving up your power.
Your mathematical power to build wealth.
- It's so good, and there is, there is such freedom—
we've talked about it on the show—
not only mathematically and financially,
when you don't have debt and you don't have payments,
but emotionally and spiritually.
It changes your whole life, your whole being,
when you have no payments,
when you don't owe anyone anything.
You do have this sense of freedom
that you get to choose things in your life
that you otherwise wouldn't be able to
if you had to go to that job,
and make that money just to pay the bills.
- You know, and I kind of thought, the first time,
my first understanding of the borrower
is slave to the lender was the math thing.
That when you give all your money to someone else,
you're kind of owned by them, right?
I got that part.
But what I didn't realize, is slaves don't have choices.
Slaves—it's tough to have relationships,
because people are pulling you around.
You're going to a job you hate every day,
putting up with a toxic environment—
just to pay your freaking bills.
You know, slavery has societal,
relational, spiritual, not to mention,
mathematical implications.
And so, that scripture really does have a lot of layers.
You can just keep peeling them off
and it keeps going.
- Yeah, absolutely. So when you look at the math side
of doing the debt snowball
and paying it off, smallest to largest,
I've heard the argument over and over again—
well, you should pay off the highest interest rate first,
because mathematically, that's correct.
And we laugh all the time like,
well, if you're doing math,
you wouldn't be in credit card debt,
so math doesn't always apply to the situation.
- But 25 years ago, when you started this,
and you fought against that,
what made you do smallest to largest?
What was kind of the "aha" moment?
- Well, what we realized was the problem is not math.
And if the problem is not math, you can't fix it with math.
The problem is the person in the mirror.
And so, what happened was,
the first thing I ever did, you know,
in terms of interacting with the public,
trying to help people, was one-on-one coaching.
And we would have people come in that were in foreclosure,
and they were behind on their credit card bills.
And I would get everything arranged in their budget
to where they could could get caught up
and then they would be okay and avoid their bankruptcy.
And it was a one-on-one coaching session—that's all we had.
And then I would see them six months later,
and I would go, how's it going?
"Oh, we filed bankruptcy."
What?
You know, I had all the math done for you.
And it wasn't a math thing— it was a behavior thing.
The stuff that was going on in their lives,
was still going on in their lives,
and if you don't change the person,
the math doesn't change.
When people change, numbers change—that's what Hogan says.
Not when numbers change, people change.
It doesn't go that way.
So what we figured out was, that personal finance,
and we say it all the time,
is 80% behavior, 20% head knowledge.
The problem is not math.
The problem is me. I'm the guy.
I mean, the problem is chocolate chip cookies
if I'm trying to lose weight, you know?
So we figured out that chocolate chip cookies
are not the problem. It's the guy eating the cookies.
It's 80% behavior, it's 20% head knowledge.
You know, you cannot work out enough to lose weight
if you eat an elephant. I mean,
you just can't do it.
And the same thing is true here with your money situation,
you know—you cannot make enough money
to out-earn your stupidity. I tried it.
I tried it really. I'm good at making money,
but you have got to control the person in your mirror.
And once we understand that, then we go,
well, if we're gonna solve this,
if it's a psychological, behavioral problem,
then we're gonna solve it with
psychological behavioral answers and solutions.
And so that's why the debt snowball works.
And all these other theories,
and all these people who want to talk about this
are just people that don't want to do it.
They don't want to do the hard work
of dealing with the person in your mirror.
That's harder work than trying to find
some math thing to fix this.
Math thing is not going to fix it—it's not gonna fix it.
The thing that's gonna fix it,
is when you fix you. And that's it.
- It is, it is so true, but the hard thing is,
is no one likes change, right?
You've been doing the same thing over and over again,
and you get in this rhythm in life,
and to get out of that orbit and to do something different,
it's hard and it's intimidating.
So what would you say to someone that's like,
"Oh, I know I need to, but I don't even know,
like what to do, if I can even do this."
Like, what would you say to someone?
- List them smallest to largest,
when you pay off the little one,
you'll go (gasps) maybe I can.
And then, when the second goes—
(gasps)
Maybe I can.
(gasps)
And your hope starts to increase,
because your success level increases.
You know, the first time the child rides the bicycle,
and you let go of the seat . . .
(gasps)
Maybe I can. That's all it is.
And it's a behavior thing,
because you're building confidence and hope.
And you're saying, this system will work—
maybe, finally, I can get control of my money.
- Yep, it's so good, and I think,
when you get to the point in your life,
and we say this over and over again, that you say,
"I'm sick and tired of being sick and tired."
Because I do talk to some people that are like,
"Yeah, I kinda sorta think I wanna,
kinda get out of debt, maybe, kind of".
(laughs)
I'm like, yeah, that's probably not going to happen,
because getting out of debt's hard, right?
It takes sacrifice. It takes intentionality,
so what would you say to someone—
because a lot of people watching
are in the middle of getting out of debt—
so what encouragement would you give them?
- It's hard.
But it's worth it.
It's hard, but it's worth it.
You know, putting up with your spouse,
at times, is hard.
But Sharon and I have been married 37 years—it's worth it.
I get to play with grandbabies, and my babies,
and it's worth it to pay a price to win.
It's worth it, but it's hard.
If it was easy, everybody'd be rich.
- It's so good. It's so good.
Okay, you guys, that's it—Baby Step 2.
You heard it straight from the horse's mouth.
Is that a saying?
- Could be the mouth.
- Is that a saying?
(laughs)
So good. Okay, well I'm gonna bring you back on the show
later on in the episode to talk about another Baby Step,
so thanks for being here.
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