Episode 5: Paying Off Your Debt

Today, Autumn Dowdy, our in-house budgeting specialist, joins us in the lounge to discuss paying off debt. The KEY: finding which option works best for you. Take a listen, as Autumn explains the options and shares tips for getting started on the path to being debt free.

Finances can be a touchy subject or pain point. It can be daunting to reach out for help in fear of being judged, but debt experts are there to give judgment free advice, listen and to help.

There are two different methods or philosophies to pay down debt. First, is the snowball method - where you will target your smallest loans first and get those paid off to reallocate your money to additional principal payments on the higher loan amounts. Second is the avalanche method, where you target higher interest rates first then allocate money to the lesser interest rates. Both can be encouraging!

In the instance where you don’t have the money to put towards the debt? Autumn says, if you don’t ‘have’ the funds: find it where you can. You may be wondering how. She suggests creating a budget and taking a good look at your debt. You may have the option to refinance and get a better interest rate, extend the term for a lower minimum payment, transfer the balance of a credit card to a zero interest card or combine two or three loans into one with debt consolidation.

For debt consolidation, lots of people say they are leery of that, especially considering they receive mailings all the time saying ‘we can help you consolidate your debt and free up your money’. They question the legitimacy of it. Other people see the process as daunting, they don’t think they have know-how or the time to figure out how to do it.

Start simple. Look at a bank statement. Where is my money going every month? Did I eat McDonald’s 3 days this week? Did I get Starbucks every day this week? Sometimes we don't know we are in this cycle of spending until we see a bank statement. My go to saying is raindrops fill buckets. It can be a bad thing when spending $5 here or there piles up, but it can be a good thing on the other end when you’ve cut spending, refinanced and you're able to pay off more debt. Looking at where your money is going is a great first step.

Regarding credit card interest - sometimes people aren’t looking at the statement and therefore don’t realize how much they pay every month in interest. They are just paying the minimum amount due. They see that statement and realize that they are paying $100.00 a month just for interest. If you are wanting to lower that rate and haven’t looked into those first options mentioned there are others.

Paying $5.00 extra a month goes to the principal and will lower the interest you pay. Another option is making biweekly payments. If payments are $150.00 a month, pay $80.00 biweekly. You’re paying $10.00 extra a month. In the end, you will make 13 payments a year instead of 12. That’s one extra payment going directly to the principal every year.

If you are paid biweekly, schedule your payments to be deducted then. Then, adjust for the rest of the month with the mindset - this is the money I have left.

Last few podcasts we have talked about how necessary it is to create a budget and how to operate in that budget; what advice can you give people that are not using a budget or are hesitant to create one?

Even though a budget may seem scary, or restrictive, you can't start addressing making the situation better if you don't know where you are at. You can't start to address: where can I save money? What can I pay off? What time frame can I pay it off? What habits do I need to change? What habits do I have that I didn't know I did? You can’t answer without getting the information in front of you by means of the budget.

Look at statements - what are my absolute needed expenses every month? What is left after those expenses, where is that money going and where should it go? A budget gives you those answers. This is where you start to see that big picture and can make the necessary changes, and You can't know where you're going if you don’t know where you’re at.

Being DEBT FREE IS an attainable goal.

Autumn Dowdy can help anyone, not just HarQuin Dancebookkeeping clients. We have a debt consulting cohort on our main website https://www.harquinbookkeeping.com/consulting.

We will have multiple cohorts throughout the year with different options available. If you're a DIY - there are forms to help you. We hold zoom meetings, talk out questions and review what’s available to you.

You can learn how to manage debt and understand finances. Hop into this cohort, get with some experts, learn what you need to learn because ultimately, regardless of who is doing your books you are responsible for your finances - personal or business. Being financially literate is necessary to be successful, profitable and debt free!