Speaker 1: Welcome to How the Money. I'm Joel and I am Matt,
Speaker 1: and today we're discussing the debt snowball versus debt avalanche
Speaker 1: approach to paying down your debt. Yeah, Joel, we are
Speaker 1: talking about the hotly debated topic of how you should
Speaker 1: pay down your debts, that avalanche versus the debt snowball,
Speaker 1: and obviously the debt snowball. A lot of folks have
Speaker 1: heard about that through Dave Ramsey. He's pretty big in
Speaker 1: the personal finance space. Heard of that guy, You've heard
Speaker 1: of that guy. We're coming for you, Dave. Dave's got
Speaker 1: some good things to say, right I don't I definitely
Speaker 1: don't wanna tear Dave down. Um, there's there's actually an
Speaker 1: article in Money magazine recently that kind of was going
Speaker 1: after him. And I will say, Dave not my favorite person,
Speaker 1: not my favorite person, and I disagree with him on
Speaker 1: a lot of things. So disagree with him on things
Speaker 1: except for this one thing that he does. Okay, yeah,
Speaker 1: but no, I feel like he has helped so many people,
Speaker 1: and in particular to get out of debt quickly, that
Speaker 1: I would think twice before speaking harsh words against him,
Speaker 1: just because of how much of a good effect he
Speaker 1: has had in a lot of people's lives. I think
Speaker 1: tackling this topic of how you pay down your debt
Speaker 1: quickly and which of these methods is most effective is
Speaker 1: gonna be good. It's gonna be good for us to
Speaker 1: talk about. Yeah. Dave Ramsey, he's like the godfather for
Speaker 1: personal finance for me, man, he basically ushered me into
Speaker 1: this entire space like ten years ago. So Hill maybe
Speaker 1: at least a little tip of the cap kind of
Speaker 1: launching my financial journey to a certain extent. And sometimes
Speaker 1: there's a teacher that's really great for for a while
Speaker 1: and then you kind of moved past, you know, what
Speaker 1: they have to offer. But yeah, I'm really interested to
Speaker 1: tackle this topic today. It should be fun, Matt. Before
Speaker 1: we get to that, I wanted to frugal versus cheap? Yeah,
Speaker 1: I kind of want to ask you a question. I
Speaker 1: see that written down here. So is it frugal or
Speaker 1: cheap for me to forego buying my kids school pictures?
Speaker 1: M Well, most folks know that I'm a photographer, right,
Speaker 1: so I'm curious what most folks think, you know, Like,
Speaker 1: do they think I'm gonna fall on the side of no,
Speaker 1: you're being way too cheap. You gotta get those pictures.
Speaker 1: Or if I'm like, well, I'm a photographer, I can
Speaker 1: just take my own pictures. I'm frugal. Uh. That being said,
Speaker 1: I think you are being frugal because I'm with you.
Speaker 1: We we only rarely purchase the pictures if they're just outstanding. Otherwise,
Speaker 1: when we get the little link and they say that
Speaker 1: you can go look at the pictures, you know, I
Speaker 1: look at them and then I screenshot them, and I'm
Speaker 1: able to preserve the memory that that picture was taken
Speaker 1: and you can see a little bit of it, and
Speaker 1: they got the water mark. It's got the watermark on it,
Speaker 1: so I'm never going to print it out, but I
Speaker 1: can still save it in photos on my computer, and
Speaker 1: I can still go back and see the cute smiles
Speaker 1: and kind of bring back all those feelings without having
Speaker 1: to actually pay thirty bucks for an eight by ten.
Speaker 1: You know, you know what I'm saying. The school pictures
Speaker 1: are crazy expensive, and obviously, like someone comes out and
Speaker 1: spends a lot of time and and they do a
Speaker 1: good job. They take good photos, and sometimes we do
Speaker 1: buy them though, I mean, if they're really good I mean,
Speaker 1: we've purchased them before because I'm like, I gotta have that.
Speaker 1: You know, it's just just too cute. The same here too. Yeah,
Speaker 1: we have to I've got We've definitely bought school photos
Speaker 1: in the past, but this year we were like, you
Speaker 1: know what, We're not gonna do it. And part of
Speaker 1: the reason was because the girls had just been in
Speaker 1: a wedding and they're the just super adorable pictures that
Speaker 1: we just recently had, both of them, and so we're
Speaker 1: not going to spend the extra sixty bucks to get
Speaker 1: this picture package. It's not because I don't love the
Speaker 1: I mean, obviously I went through to look at the
Speaker 1: pictures and they were freaking adorable, and it was really hard.
Speaker 1: I was like, oh, maybe it's worth the money. I
Speaker 1: want it. But yeah, we decided to forgot it because
Speaker 1: we've got pictures from a lot of other events, and
Speaker 1: you know, phones have gotten so good. I'm taking good
Speaker 1: pictus of my kids all the time, so plus, you know,
Speaker 1: a good photographer, and anytime our families get together and
Speaker 1: I bring along the camera, we always try to get
Speaker 1: a decent family shot or try to get all the
Speaker 1: girls together, get them smiling, looking in the right direction
Speaker 1: and that that works pretty well. Yeah, so I think
Speaker 1: if you're sitting there between the ferns, like looking all perfect,
Speaker 1: but it's a little more real life when they're kind
Speaker 1: of screaming on each other in in mid slap. Yeah yeah,
Speaker 1: I know, right, get the lifelike poses of just crazy
Speaker 1: things happening. But yeah, I think for people that get
Speaker 1: that email about getting their kids school pictures, certainly, sometimes
Speaker 1: you want those little wallet sized pictures. You want to
Speaker 1: be able to hand them out to your friends and
Speaker 1: family members. And we've gotten them too before and they
Speaker 1: make great gifts oftentimes the four by sixes. Put them
Speaker 1: in a frame, give them to grandma, that kind of thing.
Speaker 1: But just don't feel obligated like you have to, especially
Speaker 1: if you already have good picks of of your kids
Speaker 1: from other outings. Yeah, and a quick tip if you
Speaker 1: do want to go ahead and purchase those pictures is
Speaker 1: to see if you can purchase the digital file. A
Speaker 1: lot of times they'll charge a certain amount, maybe even
Speaker 1: five bucks more than than one of the more expensive prints,
Speaker 1: So like an eight by ten might be like thirty bucks,
Speaker 1: like I mentioned, but you can get the file for
Speaker 1: thirty five bucks. Always up for that because you can
Speaker 1: spend a little bit more and then you have that
Speaker 1: file and you can obviously do whatever you want with it.
Speaker 1: But then go to a website like m picks dot com.
Speaker 1: That's m p i x dot com and they're a
Speaker 1: fantastic lab where you can get some really high quality
Speaker 1: prints at a consumer price point. But at the same time,
Speaker 1: lab is it's really good. They've got an entire professional
Speaker 1: line and a lot of the professional photographers that I
Speaker 1: know use them for their professional fancy prints that they're
Speaker 1: able to up charge and obviously make a profit. I
Speaker 1: don't want to give away all the secrets, but yeah,
Speaker 1: check out MPIs dot com. Good to get some of
Speaker 1: that insider knowledge, all right, I like it. Okay, let's
Speaker 1: quickly mention the beer that we're having on the show today, Matt.
Speaker 1: This is maple Vanilla Copra Kai, another one by Southern
Speaker 1: Grist Brewing Company. And thanks to Jamie for sending us
Speaker 1: peers yet again. This is the second one this week.
Speaker 1: What's the deal with copra Kai? So like cobra Kai,
Speaker 1: Like that's a karate kid. Yeah, and so it's like
Speaker 1: the do they do copro with the p Just so
Speaker 1: that they don't get sued. Probably, okay, that's my assumption.
Speaker 1: That was Okay, is there what or I didn't know
Speaker 1: if copra kai was an actual thing like something different,
Speaker 1: not that I know of, But you know what, I'm
Speaker 1: gonna reach back around to Jamie and ask him why
Speaker 1: they named it. That you should also ask him how
Speaker 1: he made this delicious beer because it smells like an
Speaker 1: entire dessert in my glass right here. So I'm excited
Speaker 1: for us to talk about this at the end of
Speaker 1: the episode. Yeah, Bouquet flavors. Alright, Matt out onto the
Speaker 1: topic at hand, and we're discussing the best way to
Speaker 1: pay down debt. We're debating the debt snowball versus debt
Speaker 1: avalanche approach. And the problem is that Americans are in
Speaker 1: debt and lots of it, student loan debt, car loan debt,
Speaker 1: credit card debt, mortgage debt, and it can be overwhelming
Speaker 1: and acting that debt in your life takes a toll
Speaker 1: not only off of your money issues, but it takes
Speaker 1: a massive weight off your mind. And there was a
Speaker 1: study that they did in Singapore recently that found that
Speaker 1: folks who had massive mortgage utility and municipal debt paid
Speaker 1: down by a charity, they performed better in cognitive function tests.
Speaker 1: Anxiety disorders massively decreased, and the ability to forego instant
Speaker 1: gratification also increased. So not having this debt in your life,
Speaker 1: not only does it make your finances start to dear,
Speaker 1: it makes your brain function better. And I just thought
Speaker 1: that was like fascinating that having a lot of debt
Speaker 1: in our lives has terrible effects on our brains. Yeah, Joel.
Speaker 1: One of the things they mentioned was that how the
Speaker 1: real cost of being in some stantial amounts of debt,
Speaker 1: like that, how it's not completely reflected in the numbers.
Speaker 1: It's not completely reflected in how much you owe or
Speaker 1: how much you make or your net worth. You see
Speaker 1: it as well, like like you said, in your mental health.
Speaker 1: And it's unfortunate that that total effects is oftentimes overlooked
Speaker 1: because it is mental. But fact is, you know, no
Speaker 1: one in all likelihood is gonna be showing up to
Speaker 1: pay off your debt. And we don't take the stance
Speaker 1: that all debt is bad, but if you are rolling
Speaker 1: in consumer debts and that's stressing you out, Assessing which
Speaker 1: of the different strategies to take can be helpful. Yeah,
Speaker 1: because the quicker you can eliminate even just one debt
Speaker 1: out of your life. Right, there's that breathing room. It's
Speaker 1: gonna lessen your overall anxiety in relation to your debt.
Speaker 1: And first we want to mention that if you're in
Speaker 1: overwhelming amounts of debt, well it's really important to consider
Speaker 1: getting credit counseling from a place like NFCC and you
Speaker 1: can check them out at NFCC dot org. And if
Speaker 1: your debt exceeds fift of your annual income, well that
Speaker 1: is in all likelihood the best place for you to
Speaker 1: head to get some free credit counseling from your local
Speaker 1: NFCC affiliate. One other thing to consider before you know,
Speaker 1: we kind of dive into the different approaches to paying
Speaker 1: down debt. But let's talk for a second to about
Speaker 1: your interest rate. If you have a good amount of debts,
Speaker 1: you want to consider a balanced transfer. Credit cards will
Speaker 1: oftentimes offer a zero percent for elemented amount of time.
Speaker 1: Transferring your debt over to a new card like that
Speaker 1: will allow you some breathing room, give you some time
Speaker 1: to kind of figure out your approach and how you
Speaker 1: are going to pay down your debt. If you can't
Speaker 1: find a good balance transfer, consider calling your credit card
Speaker 1: company directly and see if you can get your interest
Speaker 1: rate lowered. From that same point, it's good to kind
Speaker 1: of go into those conversations with some knowledge. You want
Speaker 1: to do your homework ahead of time. But we've talked
Speaker 1: about this before, Joel, but it never hurts to ask,
Speaker 1: and you're not going to get that lower interest rate
Speaker 1: uh and pay less unless you ask for it. So
Speaker 1: in a minute, we're gonna talk about the debt snowball.
Speaker 1: We're gonna talk about the debt avalanche, some pros and
Speaker 1: cons to both, But first we're gonna take a quick break.
Speaker 1: All right, Matt, let's get right into it. First. We'll
Speaker 1: talk about the debt snowball approach. And this approach is
Speaker 1: all about psychology, not as much about math, but psychology,
Speaker 1: as it turns out, is crucial when it comes to
Speaker 1: how we handle our money. In fact, it's often more
Speaker 1: important than just the nuts and bolts and knowing how
Speaker 1: the math works. And in fact, just like we talked
Speaker 1: about with that Singapore study that we mentioned at the
Speaker 1: beginning of the show, it's pretty obvious that debt has
Speaker 1: a clear effect on our psyche, and the debt snowball
Speaker 1: approach is actually an attempt to kind of maximize positive
Speaker 1: psychological impact of debt paid down as opposed to the
Speaker 1: mathematical and financial best approach to paying down your debt. Yeah,
Speaker 1: this is the Dave Ramsey approach. And the argument often
Speaker 1: goes is that if it's all about the math, then
Speaker 1: you wouldn't be in debt in the first place. You know,
Speaker 1: if you're paying attention to the numbers, the interest rates
Speaker 1: the debt, you would know from the very outset that
Speaker 1: going into debt isn't going to work out for you.
Speaker 1: And so let's go ahead now and talk about the
Speaker 1: way it works and the debt snowball approach. You are
Speaker 1: going to pay the minimums on all your balances, but
Speaker 1: then you're going to attack and pay off your debt
Speaker 1: with the smallest balance first. Once that debt is eliminated completely,
Speaker 1: you get to roll those payments that we're going to
Speaker 1: that small debt to the debt with the next smallest balance.
Speaker 1: And so it's called the debt snowball effect because essentially,
Speaker 1: think of you know, you start off with a small
Speaker 1: balance and then you roll it over to the next
Speaker 1: largest balance and it gets bigger and bigger and bigger,
Speaker 1: not unlike a snowball that you're rolling down the hill.
Speaker 1: Makes sense, Yeah, it's I mean really psychologically that makes
Speaker 1: a lot of sense, right, because let's say you have
Speaker 1: seven overall debts that you're looking to pay off, and
Speaker 1: you get a quick win by paying the first one
Speaker 1: off because the balance is super low. It feels good,
Speaker 1: It feels good, and then you're motivated to do just
Speaker 1: a little bit more and you actually have a little
Speaker 1: bit more money then to put towards that second debt
Speaker 1: because that the other one, that first one, it's gone. Now, yeah,
Speaker 1: you don't just have more money to put towards it,
Speaker 1: but you have more steam, like you've got that one
Speaker 1: men um rolling to Yeah. Completely, So I think this
Speaker 1: path can provide wins more quickly along the way, can
Speaker 1: keep you motivated, and interestingly enough, the most studies actually
Speaker 1: show that the results are more favorable with a debt
Speaker 1: snowball approach than the debt avalanche approach, which makes sense
Speaker 1: because when we're factoring in the psychology of how we
Speaker 1: approach our money and our debts, I mean, this is
Speaker 1: the kind of strategy that keeps someone engaged towards paying
Speaker 1: down their debts as quickly as possible, whereas the debt avalanche,
Speaker 1: which we're gonna talk about in just a second, doesn't
Speaker 1: quite have that same effect. Yeah, those are the legit
Speaker 1: studies to like Harvard, you know, all the good schools,
Speaker 1: not the not the crappy schools. And one my Kanasas
Speaker 1: State University coming out with that. You know, how don't
Speaker 1: you hate k s U. Dog that's a good spot.
Speaker 1: So the debt snowball it makes the most sense from
Speaker 1: my psychological standpoint, but it doesn't when it comes to
Speaker 1: the number's jole. And that's when sort of the math
Speaker 1: nerds will jump all over your case. And what they
Speaker 1: would propose is for you to look at the debt avalanche.
Speaker 1: So why don't you tell us about that? All right?
Speaker 1: So the debt avalanche is all about math and not psychology,
Speaker 1: so kind of the complete opposite of the debt snowball approach.
Speaker 1: When you take the debt avalanche approach again, you're still
Speaker 1: paying the minimums on every single balance except for one.
Speaker 1: But the debt that you're prioritizing paying off is the
Speaker 1: debt that has the highest interest rate, as opposed to
Speaker 1: your debt that has the lowest overall balance, And there's
Speaker 1: certainly a chance that your highest interest rate debt could
Speaker 1: also be your lowest balance, in which case win win.
Speaker 1: You're kind of tackling both methods at the same time.
Speaker 1: But yeah, the debt avalanche approach is for the math
Speaker 1: nerds out there that can still be just as focused
Speaker 1: paying off debt without that psychological benefit of paying off
Speaker 1: certain debts more quickly. All right, Joel, quick question for you.
Speaker 1: Then the snow metaphor with the snowball makes sense, right,
Speaker 1: Like you've got your quickly gaining steam starting off with
Speaker 1: a small little snowball, and it rolls over and gets
Speaker 1: bigger and bigger and bigger. That equates to the size
Speaker 1: of the debt that you're attacking. But how does it
Speaker 1: work with the avalanche then? I guess like you're starting
Speaker 1: off big? Yeah, I guess so. I don't necessarily think
Speaker 1: that that, uh, that perfect metaphor. No, it's definitely an
Speaker 1: imperfect metaphor, that's for sure. And I don't know where
Speaker 1: if there's like any like yellow snow involved in this
Speaker 1: metamor or anything like that. I think those are like
Speaker 1: tidle loans completely away from the gotcha. I think we
Speaker 1: could probably come up with some other really cool metaphors
Speaker 1: when it comes to snow for paying down your debt.
Speaker 1: But yeah, I think someone just kind of tried to
Speaker 1: come up with a cute alternative to the debt snowball.
Speaker 1: But with avalanche, I guess you're kind of focusing on
Speaker 1: the large interest rates, kind of going after the big
Speaker 1: impact stuff first, and then by the end of it,
Speaker 1: you're kind of focusing you know, I guess the end
Speaker 1: of the avalanche, there's just a little bit of snow
Speaker 1: trickling down the mountain at the very end, and maybe
Speaker 1: that's your smaller interest rate loans that kind of dies
Speaker 1: out right. Yeah. Yeah, So really, the debt avalanche approach,
Speaker 1: it could prevent you from attacking your debt as intently
Speaker 1: as you might otherwise be inclined to do. But if
Speaker 1: you are a really good planner and you can stay
Speaker 1: the course, well, the debt avalanche, or sometimes it's also
Speaker 1: called debt laddering, well that's likely the best approach for
Speaker 1: you because you're going to pay off your debts in
Speaker 1: a little bit less time, and you're gonna pay less
Speaker 1: overall in interest to your creditors, so Joel. Overall, if
Speaker 1: I had to pick like one over the other, I
Speaker 1: think I'm gonna end up on like on team snowball
Speaker 1: because for most people, even though it doesn't make the
Speaker 1: most sense from a financial standpoint, when you're only looking
Speaker 1: at the numbers, Like we said earlier, it's not all
Speaker 1: about the numbers. There's so much psychology involved. And I
Speaker 1: think for a lot of people, in particular, if you're
Speaker 1: struggling with debt and you've been working for a while
Speaker 1: at trying to pay down your debt, I think in
Speaker 1: those cases specifically, that the debt snowball is where it's at. Yeah,
Speaker 1: I think up until probably last year, I would have
Speaker 1: been team Avalanche all the way, and I would have
Speaker 1: all about the numbers. I would completely disagreed with you,
Speaker 1: because I do think, like, why would you pay more
Speaker 1: in interest than you have to? I don't like that idea.
Speaker 1: I don't like the idea of paying down a five
Speaker 1: percent debt first when you have a nine credit card
Speaker 1: chilling there like that. That doesn't make any sense to me.
Speaker 1: And so I think I still probably reside a little
Speaker 1: bit more on team Avalanche side and paying off your
Speaker 1: highest interest rate debts as quickly as possible, and then
Speaker 1: moving on to those lower interest rate debts. But yeah, recently,
Speaker 1: one of the loan balances on one of my rental
Speaker 1: properties is getting pretty low, and it's are you feeling it?
Speaker 1: I am to pay it off? I am. But the
Speaker 1: thing is, the interest rate is so low that it
Speaker 1: really doesn't make sense for me to prioritize the payoff,
Speaker 1: and so I'm just having to kind of sit on
Speaker 1: my hands and forget about it and not even remind
Speaker 1: myself that we're getting to that point because there are
Speaker 1: other priorities in my life. I don't want to focus
Speaker 1: on that at this point in time. It would make
Speaker 1: more sense for me to put my hard earned dollars
Speaker 1: towards the market. Yeah, towards in the market, or towards
Speaker 1: a higher interest rate loan that I have on another
Speaker 1: rental property. But I completely understand the itch, especially as
Speaker 1: you get close to paying something off, it just kind of, oh,
Speaker 1: you want to just finish it off. I think it
Speaker 1: is a difficult decision, but really picking your path and
Speaker 1: sticking to it makes a whole lot of sense. Yeah,
Speaker 1: And I'll argue in favor of the debt avalanche because
Speaker 1: I think there's are some situations where it does make sense,
Speaker 1: because the argument will go against it that well, if
Speaker 1: you're paying attention to the numbers, right, you like you
Speaker 1: would have never ended up in debt in the first place.
Speaker 1: But I think there are a lot of folks who
Speaker 1: for a period in their life, maybe when they were younger,
Speaker 1: they didn't they didn't pay attention to the numbers. They
Speaker 1: didn't pay attention to how much they're spending, how much
Speaker 1: debt they were accruing, and there's a moment where they
Speaker 1: wake up. They kind of have an enlightening, whether that
Speaker 1: be uh, they're getting married, or they read a great book,
Speaker 1: or they see maybe what their friends are doing with
Speaker 1: their money, and all of a sudden they're realizing that, oh,
Speaker 1: wait a minute, I'm doing some terrible things with my money.
Speaker 1: And in those cases where there's a switch, like when
Speaker 1: something happens like that and the the lights kind of
Speaker 1: turn on in their head, if they can be disciplined
Speaker 1: and stick with their plan, I think the debt avalanche
Speaker 1: makes total sense in those scenarios. Matt, that's a good point.
Speaker 1: And you know what, I think there might actually be
Speaker 1: a third option here for people something to consider. And
Speaker 1: I don't think I've ever heard anyone else ever talk
Speaker 1: about this, and we should kind of come up with
Speaker 1: our own name for it, maybe the debt snow lanch
Speaker 1: uh snow Cone method. So it's kind of a little
Speaker 1: more hybrid approach. And we will tell you what we
Speaker 1: mean by that right after the break. All right, Matt,
Speaker 1: in a second, we're going to talk about how to
Speaker 1: actually begin these methods, how to implement them into your
Speaker 1: lives in order to kind of start crushing that debt.
Speaker 1: But first let's kind of talk about this hybrid approach
Speaker 1: that we think might make a lot of sense for folks. Yeah, Joel,
Speaker 1: you know, it is a sort of a hybrid approach,
Speaker 1: and you know, I don't think we're original thinkers here.
Speaker 1: Sure a lot of folks have done this, but paying
Speaker 1: off that really high interest rate debt first and then
Speaker 1: prioritize those balances that have the smaller balances next. For instance,
Speaker 1: high in straight credit card debt that you might have,
Speaker 1: that's what you're gonna want to cut most quickly. In
Speaker 1: a car note at five PC isn't a priority in
Speaker 1: the same way, But once you have those credit cards
Speaker 1: out of the way. You can then work towards paying
Speaker 1: off your car just to kind of be rid of
Speaker 1: it once that balance starts getting lower, even if you
Speaker 1: have student loan debts, say at seven percent. So I
Speaker 1: think in this hybrid approach, what you're doing is you're saying,
Speaker 1: what's the disparity and interest rate between that and the
Speaker 1: rest of my debts, And if it's a big disparity,
Speaker 1: like if you have that one credit card that's at
Speaker 1: nineteen interest, you're going to want to prioritize that first,
Speaker 1: no matter what if all the rest of your debts
Speaker 1: fall in that five to seven percent range exactly. Basically
Speaker 1: you're looking for an outlier that you want to eliminate first. Yeah,
Speaker 1: and then it doesn't really matter what your order is
Speaker 1: after you pay that one off first, Right, it doesn't
Speaker 1: matter if you then tackle the five percent debt instead
Speaker 1: of the seven percent debt. That's okay, that's less meaningful
Speaker 1: in the grand scheme of things. But paying off that
Speaker 1: really high interest rate debt as quickly as possible, that's
Speaker 1: going to help move the needles that you pay less
Speaker 1: interest overall. Yeah. What those same studies, with that same
Speaker 1: research show though, is that it does matter for you
Speaker 1: to make sure and focus on a single debts. Those
Speaker 1: who trying to kind of spread out their payments not
Speaker 1: just the minimums, but kind of additional payments across a
Speaker 1: whole sort of portfolio of debts that they had were
Speaker 1: much less likely to successfully get out of debt versus
Speaker 1: paying towards a specific debt with laser light focus. Regardless
Speaker 1: of the approach, so you could be paying towards the
Speaker 1: balance that was the smallest, or you could be paying
Speaker 1: down the balance that had the highest interest rate, doesn't
Speaker 1: really matter. As long as you were focusing on that
Speaker 1: one singular debts, you had a much higher chance of
Speaker 1: getting out of debt altogether. And this again goes back
Speaker 1: to that same study, Joel. But the weight and the
Speaker 1: impact that multiple debts like that can have on you mentally,
Speaker 1: it's just draining, is it's it's you know. One of
Speaker 1: the things they mentioned in the article as well was
Speaker 1: that how it's a bandwidth tax that kind of SAPs
Speaker 1: on your mental energies and your ability to think straight
Speaker 1: to perform normal tasks effectively. And certainly we've seen this
Speaker 1: in other areas in our life as well, when we
Speaker 1: try to multitask do multiple things all at once, Chances
Speaker 1: are you're not gonna do any of those things that well.
Speaker 1: But the interesting thing is, we all think we know
Speaker 1: how to do it. It's true, we all think we're
Speaker 1: good multitaskers, but most of us actually are terrible or
Speaker 1: terrible at it. But if you can just focus on
Speaker 1: that one thing and does knock it out of the park,
Speaker 1: it's just gonna be way more effective, and you're gonna
Speaker 1: see a lot more progress happen sooner. Yeah. Man. Interestingly enough,
Speaker 1: when you kind of crush the numbers and you look
Speaker 1: at how long it takes people to pay off their
Speaker 1: debts and how much overall interest they pay in the
Speaker 1: debt snowball versus debt avalanche method, it really doesn't end
Speaker 1: up being that big of a disparity, which I thought
Speaker 1: was really interesting. Sounds like you're about to cross over
Speaker 1: to the team debt snowball side. Yeah, I feel like
Speaker 1: with psychology being such a major impact on people's continued
Speaker 1: ability to keep going down that path of paying down
Speaker 1: their debt, well, yeah, I mean, debt snowball actually really
Speaker 1: does make a lot of sense, and it's interesting just
Speaker 1: doing more research for this episode. I was kind of
Speaker 1: struck by the fact that that psychology factor is way, way,
Speaker 1: way more important than even I gave it credence for
Speaker 1: in the beginning, because I mean, I know that's important.
Speaker 1: I know that's important in personal finances, the way people think,
Speaker 1: and just kind of those strongly held beliefs that we
Speaker 1: have in the back of our brain that we don't
Speaker 1: even know exist. They're huge in the way we approach
Speaker 1: paying off debt or spending or all of those things. Right,
Speaker 1: But I didn't realize that it's as powerful as it is.
Speaker 1: It's kind of jarring how much power our brains have
Speaker 1: over us when it comes to, you know, how we spend,
Speaker 1: but then also how we paid on our debt. So
Speaker 1: at this point, what we're saying is to have some
Speaker 1: self awareness, know yourself enough to know which these approaches
Speaker 1: would work the best for you, because it doesn't matter
Speaker 1: all that much when it comes to the numbers. But
Speaker 1: what does matter is that you actually do the deed right,
Speaker 1: like that you finished the drill, and that you're able
Speaker 1: to get out of that debt. Both of these approaches
Speaker 1: can be helpful. So what's most important to you, though,
Speaker 1: is that you prioritize paying down your debts at all
Speaker 1: and getting started. Yeah, just a really quick thought on that, Matt.
Speaker 1: Let's say you want to start running, but you've lacked
Speaker 1: a little bit of the motivation. Well, there are all
Speaker 1: these kind of little tricks that you can do in
Speaker 1: order to make yourself more likely to actually get out
Speaker 1: there and and run your first mile. If you lay
Speaker 1: out your shoes and your running gear ahead of time,
Speaker 1: before you even go to bed, well, when you wake
Speaker 1: up and you stare at it, there's a huge chance
Speaker 1: that you're actually gonna put it on and maybe go
Speaker 1: for a job. But if you say no, I'll you know,
Speaker 1: I'll get it out of the drawer in the morning, Well,
Speaker 1: there's a good chance that you're going to sleep in.
Speaker 1: And I think the same is true when it comes
Speaker 1: to debt repayment. If you can get fully on board
Speaker 1: with one strategy and actually get the ball rolling, well,
Speaker 1: the likelihood is you're gonna stick with this and you're
Speaker 1: gonna make progress. And once you see progress, it's going
Speaker 1: to be a self fulfilling prophecy that you are going
Speaker 1: to continue down that path and you're gonna crush your debt.
Speaker 1: And so yeah, let's go through kind of helping people
Speaker 1: figure out how to get started going down one of
Speaker 1: these paths. So, Joel, the first step is that you
Speaker 1: want to get organized. Go ahead and write down all
Speaker 1: the debts that you owe, So start with the minimum payments,
Speaker 1: but then we'll go ahead and right down your interest
Speaker 1: rate and the total balances due for each of those debts.
Speaker 1: Because regardless of which approach that you're gonna take, you
Speaker 1: need to know, well what which one has the actual
Speaker 1: smallest balance, or you need to know which one has
Speaker 1: the largest interest rate. You gotta be organized, and Joel,
Speaker 1: just like you mentioned kind of setting out the shoes,
Speaker 1: setting out your gym shorts, you gotta line everything up
Speaker 1: and have it sitting there so that you can attack it. Yeah,
Speaker 1: and so either way you slice it, whether you're going
Speaker 1: debt snowball or debt avalanche or that kind of hybrid approach,
Speaker 1: the snow lanch that we talked about, creat a repayment
Speaker 1: schedule that funnels all of your extra money towards that
Speaker 1: debt that you're targeting. Under your favorite strategy, you're gonna
Speaker 1: want to make sure that all of the other debts
Speaker 1: in question that you're paying the minimums on and then
Speaker 1: as much extra cash as you have in your budget,
Speaker 1: you're funneling that straight towards that debt that you hate
Speaker 1: the most that you're planning to crush. Yeah, man, knock
Speaker 1: that thing out. And then after maybe each of those
Speaker 1: debts that you knock out completely, it might be worth
Speaker 1: considering rewarding yourself at that point. Don't let little mistakes
Speaker 1: completely derail you. You want to make sure that you're
Speaker 1: able to see some forward progress. Like That's the problem
Speaker 1: with that is that a lot of times it can
Speaker 1: be this invisible thing that's really tough to quantify, and
Speaker 1: in reality, like as a human being, what you experience
Speaker 1: is that you're depriving yourself of the things that you
Speaker 1: used to spend money on, and you don't really feel
Speaker 1: that you're doing anything. So sometimes having these little small
Speaker 1: reward is a tangible way for you to remind yourself
Speaker 1: physically that, oh, yeah, I'm paying down my debt right.
Speaker 1: Because so much of our currency, so much of our
Speaker 1: money today is digital, and it's not like you have
Speaker 1: a stack of cash that's growing on your dresser and
Speaker 1: you're able to see that and feel like you're you're
Speaker 1: becoming better off, or that you're handling your money better.
Speaker 1: It's just digital, it's just number that shows up on
Speaker 1: your phone, and it can be tough sometimes to feel
Speaker 1: the actual impact of that. Yeah, some sort of little
Speaker 1: reward can I think help you stay engaged in the
Speaker 1: fight to pay off your debt. Whether it's a latte
Speaker 1: on a Saturday morning at your favorite coffee shop or
Speaker 1: a new pair of Chuck Taylor tennis shoes. You know
Speaker 1: that that would probably be mine. But yeah, I think
Speaker 1: something like that can actually provide that boost, like, Okay, cool,
Speaker 1: I can't wait till my next little reward when debt
Speaker 1: number two gets paid off. And I think it's really helpful,
Speaker 1: Like we need little we need moments of feedback in
Speaker 1: these areas of our lives, and if if you're not
Speaker 1: able to share it with somebody in particular, providing little rewards,
Speaker 1: little benefits, little boosts for yourself or reminders. Yeah, it's
Speaker 1: so helpful, right, And you mentioned sharing it with someone
Speaker 1: else as well. I mean, and I think that's another
Speaker 1: great way of moving forward with pain down your debt
Speaker 1: is have somebody else who might be in a similar
Speaker 1: life stage as you or have similar goals that you're
Speaker 1: trying to achieve because you can. Again, you can remind
Speaker 1: each other not through just these little treats and rewards,
Speaker 1: but also through encouragement and spurring each other on. Joel,
Speaker 1: I mean going back to your your running analogy. Even
Speaker 1: though you don't run no way, you're never gonna see
Speaker 1: me running. Man, I stay, I stay on two wheels.
Speaker 1: But when you're running with a buddy, that is going
Speaker 1: to be a much more effective way to train and
Speaker 1: to stick to a training schedule or hitting a specific time.
Speaker 1: If you're trying to set like a new personal record
Speaker 1: for yourself, that's another way that will allow you to
Speaker 1: stick with it and to stay motivated. And as you're
Speaker 1: on this path to paying down your debt as quickly
Speaker 1: as possible, you know, like we said, these are all
Speaker 1: great approaches, but the biggest thing, the biggest thing that
Speaker 1: you have to be aware of is that you can't
Speaker 1: start creating new debt again in the process or at
Speaker 1: the end of this process. You can't pay off a
Speaker 1: credit card and then start working on your next debt
Speaker 1: and then, you know what, start charging that first credit
Speaker 1: card that you paid off, start charging it up again.
Speaker 1: That defeats the purpose and puts you in a very
Speaker 1: similar bind. You have to take a hard look at
Speaker 1: the root causes of what led you to getting into
Speaker 1: this debt in the first place. And Joel, for a
Speaker 1: lot of people like that, root cause might be having
Speaker 1: a credit card to begin with. Right, Like you and I,
Speaker 1: we talk a good bit about credit card bonuses. I
Speaker 1: love those sign of bonuses and and getting the big
Speaker 1: rewards that way. But for a lot of folks that
Speaker 1: might be temptation to overspend and consume on a scale
Speaker 1: that doesn't fit with their budget, and so in that
Speaker 1: case it might be wise for them to not have
Speaker 1: a credit card. There are some different benefits like that
Speaker 1: that you can use to your advantage that can work
Speaker 1: for you, but just don't allow the same tools to
Speaker 1: work against you and cause you more harm than good. Yeah,
Speaker 1: if you know the credit cards in your possession don't
Speaker 1: end well if if you know that it ends with
Speaker 1: a shopping spree online or you go to your local
Speaker 1: mall or whatever. I don't know the mall still exists.
Speaker 1: I feel millennials are killing malls, right, that's what I hear.
Speaker 1: But if you Amazon shopping spree, yeah, yeah, However you
Speaker 1: use your credit card. However, you use it poorly, you
Speaker 1: need to be aware of that. And if you feel
Speaker 1: like you can't handle credit card usage, well, well then
Speaker 1: you need to cut them out of your life because
Speaker 1: it's just not worth the potential harm that could befall
Speaker 1: you from using your credit cards frequently and often, landing
Speaker 1: you in more and more debt. So true, Let's now
Speaker 1: go ahead get back to our beer. Yeah, man, So
Speaker 1: this was maple vanilla Copra Kai that we had from
Speaker 1: Southern Grist Brewing Company. Thanks to Jamie over there for
Speaker 1: sending this one over to us, dude, this was one
Speaker 1: of the best beers we found on the show in
Speaker 1: a while. This beer was harmonious. I would say it
Speaker 1: had the elements of maple and vanilla perfectly blended into
Speaker 1: this milk stout, and in my opinion, it was the
Speaker 1: absolutely perfect specimen of what a milk stout should taste like.
Speaker 1: This was fantastic. Yeah, and this is only a seven
Speaker 1: percent beer. A lot of stouts that have a lot
Speaker 1: of flavor like this ten to be boozier and bigger,
Speaker 1: which makes them a little more difficult to drink, and
Speaker 1: this one was not that way. It's it's really easy
Speaker 1: to drink a lot of amazing flavors. Since I'm holding
Speaker 1: the can right now, I can, I'm kind of sniff
Speaker 1: in it and it almost has this cake batter quality
Speaker 1: to it, smells really sweet, really delicious. You almost had
Speaker 1: like a like one of those maple doughnut kind of
Speaker 1: vibe going on. Like like, there's this concept of the
Speaker 1: pastry stout where people are putting donut kind of additions
Speaker 1: into their souths brownie additions, all these kind of interesting,
Speaker 1: funky dessert like factors into their stouts, and this one
Speaker 1: kind of had, like, man, some really cool elements, some
Speaker 1: really tasty notes, but it wasn't overwhelming in your face either.
Speaker 1: It was like these awesome flavors in perfect balance. Yeah,
Speaker 1: like you said, harmonious with it being a milk stout,
Speaker 1: It's just got that smooth, creamy, milk shake like nature
Speaker 1: to it, you know what I'm saying. Fantastic Beer. We're
Speaker 1: kind of gushing all over this thing, so we should
Speaker 1: probably go ahead and cut it short. But Fantastic Brewery,
Speaker 1: Southern Grist. I looked them up as well because we
Speaker 1: since we had on the last episode, I wanted to
Speaker 1: see what other beers they had man, and they have
Speaker 1: such an amazing variety. A lot of places will just
Speaker 1: rock the I PA is really hard, or they'll have
Speaker 1: tons of sours. So the Grist kind of had it all.
Speaker 1: They had i pas, they had sours, they had some
Speaker 1: some German styles that you don't see a lot of
Speaker 1: hip new breweries made. But then they've got some awesome
Speaker 1: big stouts like this as well. And so yeah, props
Speaker 1: to Southern Grist. That just means we're gonna have to
Speaker 1: try more Southern Grist beers. We just need to go
Speaker 1: up there. Have you been up to Nashville anytime for
Speaker 1: like a day trip or something. It's been a while. Man,
Speaker 1: it's a great town, but it's been a minute that's
Speaker 1: I've been there. But yeah, I feel like there's some
Speaker 1: really good breweries up there now, and it's just like
Speaker 1: a really fun town to be in. Good live music.
Speaker 1: I just remember hanging out on Broadway in Nashville going
Speaker 1: to see some kind of old school country music with
Speaker 1: like pedal steels and upright bases and stuff. I mean,
Speaker 1: that's totally my jam. Go buy some boots or something
Speaker 1: something Southern country. Now. I still wear my Chucks, but
Speaker 1: as Nashville. Is that like day trip territory for Atlanta. Yeah,
Speaker 1: it's about four hours from where we are. It's not
Speaker 1: bad at all. I might have to do it, dude,
Speaker 1: Let's do it, all right, I'm in alright. Quick snow
Speaker 1: ball avalanche recap debt snowball. It is all about the psychology,
Speaker 1: it's not about the math. You're gonna prioritize pain down
Speaker 1: the debts with the smallest balance if you're in it
Speaker 1: for the quick wins and gaining that momentum, versus the
Speaker 1: debt avalanche, where you're gonna be focused on the math,
Speaker 1: not the psychology. And in this case, you are prioritizing
Speaker 1: pain on the debts that have the highest interest rate
Speaker 1: because you're a nerd and you can't get past those numbers. Yeah, Matt,
Speaker 1: that debt avalanche strategy particularly good for robots and extreme
Speaker 1: planners and those that have a lot of discipline, right. Yeah,
Speaker 1: you gotta know yourself exactly. Yeah. And so the last
Speaker 1: thing that we need to note real quick is the
Speaker 1: most important part of both of these strategies. It's focusing
Speaker 1: on paying down one debt at a time to the
Speaker 1: exclusion of all the others. You're gonna pay the minimums
Speaker 1: on every single debt, but there's only one debt that
Speaker 1: you're going to prioritize highly. And so either way you go,
Speaker 1: make sure you're taking that approach. That's going to be
Speaker 1: the most motivating factor. That's going to kind of give
Speaker 1: you that tunnel vision and it's gonna help keep you
Speaker 1: motivated because you're targeted in specifically on that one debt
Speaker 1: and you're going after obliterating it at all costs. And Joel,
Speaker 1: you cannot underestimate the power of focus when it comes
Speaker 1: to your debt. Do not try to multitask your debt payments.
Speaker 1: But that is going to be it for this episode.
Speaker 1: You can find our show notes up on our website
Speaker 1: at how some money dot com. Yeah, and if you're
Speaker 1: into leaving reviews for awesome podcasts, totally feel free to
Speaker 1: do that for us. We would greatly appreciate it. And
Speaker 1: if you think Matt and I have room for improvement,
Speaker 1: please drop us a line. You can go to how
Speaker 1: to money dot com slash do Better. We would love
Speaker 1: to hear from you. All right, buddy, until next time,
Speaker 1: Best friends Out, Best Friends Out, Best Friends Out,