WEBVTT - Summer Starter Series: Managing Debt 0:00:00.200 --> 0:00:02.960 My name is Tatasha Bamblet. I'm a proud First Nations 0:00:03.000 --> 0:00:08.600 woman and I'm here to acknowledge country t Glenn Young Ganya, Niana, 0:00:08.680 --> 0:00:11.479 Kaka yah y and beIN Ahaka Nian Our gay In 0:00:11.640 --> 0:00:17.720 Mbini yakarum Jar Dominyamiga Umagahawaka Woman Damon Imlan Mbaban Gadabomba 0:00:17.800 --> 0:00:20.240 In and now in wakah ghan On yak rum Jar 0:00:20.680 --> 0:00:24.920 water Nadaa. Hello, beautiful friends, we gather on the lands 0:00:24.960 --> 0:00:28.000 of the Aboriginal people. We thank acknowledge and respect the 0:00:28.040 --> 0:00:31.240 Aboriginal people's land that we're gathering on today. Take pleasure 0:00:31.280 --> 0:00:33.680 in all the land and respect all that you see. 0:00:34.600 --> 0:00:40.160 She's on the Money podcast acknowledges culture, country, community and connections, 0:00:40.960 --> 0:00:44.560 bringing you the tools, knowledge and resources for you to thrive. 0:00:45.080 --> 0:00:47.840 She's on the Money. She's on the Money. 0:01:04.959 --> 0:01:07.840 Hello, and welcome to She's on the Money, the podcast 0:01:07.959 --> 0:01:10.199 that's here to help you get your finances on track 0:01:10.360 --> 0:01:13.919 this year. Welcome back to episode two of our summer series. 0:01:14.040 --> 0:01:18.000 It has been so fun. This series exists for honestly 0:01:18.080 --> 0:01:20.840 a very simple reason. This time of year, motivation is 0:01:21.000 --> 0:01:22.720 really high and a lot of you are ready to 0:01:22.840 --> 0:01:25.440 actually do something with your money. So instead of throwing 0:01:25.520 --> 0:01:28.160 brand new concepts at you, we're going back to the foundations, 0:01:28.520 --> 0:01:31.240 the episodes that help you get set up properly no 0:01:31.400 --> 0:01:33.840 matter where you're starting from. I'm going to pull some 0:01:33.959 --> 0:01:36.800 of the most important, most practical episodes from the vault 0:01:36.880 --> 0:01:38.960 and put them right here on the feeds so that 0:01:39.040 --> 0:01:41.360 you can move through them in order and build momentum 0:01:41.440 --> 0:01:45.640 without feeling overwhelmed. Each episode in this series builds on 0:01:45.760 --> 0:01:48.160 the last, so if this is the very first episode 0:01:48.160 --> 0:01:50.560 you're joining us for, I would love it if you 0:01:50.600 --> 0:01:52.840 could actually press stop right now, head to episode one 0:01:52.880 --> 0:01:54.720 of the summer series, which I've linked in the show 0:01:54.760 --> 0:01:57.960 notes for you, and start there. That episode is all 0:01:58.000 --> 0:02:00.240 about getting your budgets ordered, and it really is the 0:02:00.360 --> 0:02:03.320 foundation for everything we are going to be talking about today. 0:02:04.000 --> 0:02:06.520 Once you know what's coming in, what's going out, what 0:02:06.640 --> 0:02:08.760 you own, and what you owe, you're in a much 0:02:08.800 --> 0:02:11.880 stronger position to actually make a plan, and today is 0:02:12.000 --> 0:02:16.840 exactly about that turning that clarity into action. In this episode, 0:02:16.960 --> 0:02:19.400 you and I we're diving into debt. How to decide 0:02:19.440 --> 0:02:22.120 what to tackle first, how to choose a strategy that 0:02:22.240 --> 0:02:24.880 actually works for your personality and how to get out 0:02:24.919 --> 0:02:27.440 of that overwhelmed head in the sand feeling that debt 0:02:27.520 --> 0:02:30.640 can absolutely create for us. This is another one from 0:02:30.680 --> 0:02:32.800 the Vault, from the very early days of the podcast, 0:02:32.919 --> 0:02:35.320 but the advice is just as relevant now as it 0:02:35.520 --> 0:02:39.839 was then. My friend, debt unfortunately hasn't changed. The way 0:02:39.960 --> 0:02:43.320 out hasn't changed either. What this will change, though, is 0:02:43.400 --> 0:02:46.560 how confident you feel when you're tackling it. So if 0:02:46.600 --> 0:02:48.959 you've ever looked at your debts and thought where do 0:02:49.040 --> 0:02:51.880 I even begin, this episode is going to give you structure, 0:02:52.000 --> 0:02:54.359 options and a whole lot of reassurance that you, my friend, 0:02:54.400 --> 0:02:56.320 are not failing. Let's get into it. 0:02:56.919 --> 0:02:59.200 So you've got a few bad debts and you're ready 0:02:59.280 --> 0:03:01.519 to pay them off, But where the heck do you 0:03:01.600 --> 0:03:04.760 start in terms of prioritizing your debts and what tricks 0:03:04.800 --> 0:03:08.200 are there to actually start paying them off sooner? I know, gi, 0:03:08.440 --> 0:03:13.000 I know she's got the answers. My name is Georgia King, 0:03:13.080 --> 0:03:15.480 and joining me as always to answer these questions is 0:03:15.560 --> 0:03:20.320 Financial Advice of Victoria Devine. Why is debt prioritization so 0:03:20.520 --> 0:03:21.120 very important? 0:03:21.600 --> 0:03:23.720 Because if we're in debt, we need to prioritize it. 0:03:23.760 --> 0:03:26.440 Which is probably the wrong thing to say at the 0:03:26.480 --> 0:03:29.440 start of an episode, but at the end of the day, 0:03:29.760 --> 0:03:31.920 often when it comes to debt, and if we are 0:03:32.000 --> 0:03:34.160 in debt and we are stressed about it, we stick 0:03:34.200 --> 0:03:37.000 our heads in the sand and don't do what we should, 0:03:37.280 --> 0:03:38.760 which is sit down and go, you know what, how 0:03:38.800 --> 0:03:40.480 am I getting out of this place? What am I 0:03:40.560 --> 0:03:43.840 going to be doing? And what am I going to prioritize? First, 0:03:44.360 --> 0:03:47.880 Once you make a list of prioritizations, you'll find that 0:03:48.040 --> 0:03:51.360 you are so much more motivated to actually kick them 0:03:51.440 --> 0:03:55.320 down and get it done and start seeing progress. Whereas 0:03:55.480 --> 0:03:58.200 if you haven't made a priorities list and you haven't 0:03:58.200 --> 0:03:59.800 worked out how you're going to get out of that, 0:04:00.880 --> 0:04:04.040 you are often more likely to feel just super overwhelmed 0:04:04.040 --> 0:04:06.520 and like it's never going to happen. So we're doing 0:04:06.560 --> 0:04:08.680 it one so we can get out of debt, but 0:04:08.840 --> 0:04:11.960 two for our own mental health jobg a king beautiful. 0:04:11.560 --> 0:04:13.560 So it's like a plan that'll make us pay down 0:04:13.600 --> 0:04:16.000 our debts sooner we'll feel more motivated, And that's kind 0:04:16.040 --> 0:04:16.480 of the gist. 0:04:16.560 --> 0:04:19.400 Yet, Yeah, and it's all about just understanding as well, 0:04:19.520 --> 0:04:21.480 like why are we here? How did we get here? 0:04:21.600 --> 0:04:23.760 Are there some things we need to change, but also 0:04:24.120 --> 0:04:25.640 what one are we going to pay first? Are we 0:04:25.680 --> 0:04:27.839 going to pay credit card one or two or three? 0:04:28.080 --> 0:04:30.280 Or you know, maybe you've got a personal loan, And 0:04:30.440 --> 0:04:33.560 it's about working out what that looks like. Because often 0:04:33.600 --> 0:04:35.560 when you have a lot of debts or you're in 0:04:35.640 --> 0:04:38.320 a situation where there is a number of different ones 0:04:38.400 --> 0:04:41.200 to prioritize, so often we can feel super overwhelmed, and 0:04:41.320 --> 0:04:44.120 just putting ourselves in the best possible position is going 0:04:44.200 --> 0:04:46.040 to mean that we are actually going to get out 0:04:46.080 --> 0:04:48.720 of these instead of consistently putting it off or just 0:04:48.800 --> 0:04:51.200 paying the minimum because you're just not sure what to do. 0:04:51.640 --> 0:04:54.600 Yeah, okay, cool. So before we do get into it 0:04:54.800 --> 0:04:56.840 V as well, I assume today we're going to be 0:04:56.960 --> 0:05:01.120 talking about good debt and bad debt. Our OG is 0:05:01.200 --> 0:05:03.280 going to know exactly what the difference is. But for 0:05:03.400 --> 0:05:05.720 our newer listeners, can you clarify what it does? 0:05:05.839 --> 0:05:09.000 Mat I can clarify that. And if you've read my book, 0:05:09.040 --> 0:05:13.200 which arguably everybody should have, you know that I classified 0:05:13.200 --> 0:05:16.440 debt in three ways. I classified as good debt, bad debt, 0:05:16.560 --> 0:05:19.599 and okay debt. So good debts are things that actually 0:05:19.760 --> 0:05:23.240 help contribute to your wealth creation. So that could be 0:05:23.360 --> 0:05:26.360 something like a mortgage because over time you're actually creating 0:05:26.400 --> 0:05:29.320 an asset for yourself. It could be an investment loan, 0:05:29.560 --> 0:05:32.960 not as common, but definitely worthy of consideration, where you've 0:05:33.040 --> 0:05:36.600 borrowed money and you've invested in something. It could be 0:05:36.640 --> 0:05:39.040 a business loan as well. I don't want people to 0:05:39.120 --> 0:05:41.920 think that any type of loan is negative, but if 0:05:41.960 --> 0:05:44.760 it's creating your wealth, from my perspective, it's good. Debt 0:05:45.080 --> 0:05:48.520 doesn't mean we don't prioritize it. We absolutely do, but 0:05:48.680 --> 0:05:50.360 we don't see it as something that we have to 0:05:50.440 --> 0:05:54.080 extinguish asap because it's meant to be helping us over 0:05:54.120 --> 0:05:58.080 the long term. Okay, debt from my perspective is something 0:05:58.200 --> 0:06:00.760 like a hex debt, So I wouldn't a good debt 0:06:00.839 --> 0:06:02.440 because at the end of the day, yes, it is 0:06:02.560 --> 0:06:05.800 helping your future wealth because you're getting an education, but 0:06:05.960 --> 0:06:08.279 it's still something that is going to impact your cash 0:06:08.360 --> 0:06:11.120 flow if you have those help repayments coming out of 0:06:11.160 --> 0:06:14.160 your income each and every single week or month. So 0:06:14.360 --> 0:06:17.200 with hex debt, yes, it's really important to prioritize and 0:06:17.279 --> 0:06:19.360 make sure we're paying down, but it's something that a 0:06:19.440 --> 0:06:22.680 lot of people make the decision to not add contributions 0:06:22.800 --> 0:06:25.280 to so they might just be paying the minimum for 0:06:25.400 --> 0:06:28.760 a long period of time, and that's totally okay. And 0:06:28.880 --> 0:06:32.440 the reason they might not prioritize that is because hex 0:06:32.640 --> 0:06:35.320 debt or help debt as it's called nowadays, it's just 0:06:35.400 --> 0:06:41.480 showing my age DORX. That debt doesn't actually accrue any interest, 0:06:41.600 --> 0:06:44.280 and there's no timeline on paying it, So if you 0:06:44.400 --> 0:06:46.880 don't earn over a certain amount of money, you don't 0:06:46.920 --> 0:06:50.159 have to start paying it back, and it only increases 0:06:50.360 --> 0:06:53.920 in line with CPI or indexation, So that's how much 0:06:54.000 --> 0:06:56.599 the cost of goods and services increase each and every 0:06:56.680 --> 0:07:00.160 single year. So it's only accruing I think last you 0:07:00.360 --> 0:07:03.440 was like one point eight percent, And that's an okay 0:07:03.560 --> 0:07:07.039 thing to carry given the amount of flexibility that these 0:07:07.160 --> 0:07:09.920 repayments carry. So if you lost your job, you're not 0:07:10.000 --> 0:07:11.520 going to be in a position where the government's like, 0:07:11.560 --> 0:07:13.440 oh my gosh, you have to pay back your hex 0:07:13.480 --> 0:07:15.680 step what are you doing? Or is the same as 0:07:15.720 --> 0:07:18.880 not true for a credit card, which I categorize as 0:07:19.000 --> 0:07:22.360 bad debt. So bad debts are debts that actually stop 0:07:22.480 --> 0:07:26.040 you from attaining any level of financial freedom. These are 0:07:26.120 --> 0:07:29.680 things like credit cards, after pay, any type of buy now, 0:07:29.800 --> 0:07:33.320 pay later scheme, and personal loans. So if you're a 0:07:33.320 --> 0:07:35.160 bit confused and you're like yeah, but be like, I 0:07:35.200 --> 0:07:37.160 don't know if it's good or a bad debt. The 0:07:37.280 --> 0:07:39.200 question is what have you got to show for it? 0:07:39.640 --> 0:07:42.520 Is it clothes, it's shoes, or is it future wealth. 0:07:42.680 --> 0:07:45.480 If the answer is future wealth, it's probably good debt. 0:07:46.040 --> 0:07:49.080 But if it's stopping you from creating your wealth, then 0:07:49.240 --> 0:07:51.520 that's when we really need to be having a think 0:07:51.520 --> 0:07:56.000 about prioritizing it and smashing it out asap. So when 0:07:56.040 --> 0:07:58.320 we look at it, I'm not saying shun credit cards, 0:07:58.400 --> 0:08:01.400 shun personal loans, like as you know, gee, I've had 0:08:01.440 --> 0:08:04.440 a personal loan. I've had credit cards. I found myself 0:08:04.480 --> 0:08:06.720 in a bit of a sticky situation with them. But 0:08:06.840 --> 0:08:10.400 at the same time, would I change why I used them? No. 0:08:11.080 --> 0:08:13.520 I used a personal loan so I could go overseas 0:08:13.600 --> 0:08:16.600 and study because I couldn't afford it in that moment. Yes, 0:08:16.800 --> 0:08:18.240 a lot of people would say, oh, you should have 0:08:18.280 --> 0:08:20.200 saved for longer and just done it the year after, 0:08:20.280 --> 0:08:22.120 but I wanted to do it then, and you know what, 0:08:22.240 --> 0:08:24.640 it worked for me. So gee, I don't regret getting them. 0:08:24.880 --> 0:08:26.880 I do regret the amount of stress and anxiety I 0:08:26.960 --> 0:08:29.720 put myself through and the amount of sleepless nights. But 0:08:29.920 --> 0:08:31.760 at the same time, I wouldn't change that because that 0:08:31.880 --> 0:08:34.880 got me to where I am today. But it's one 0:08:34.920 --> 0:08:36.599 of those things that I wish someone had sat me 0:08:36.679 --> 0:08:40.160 down and said, Victoria, do you actually understand what this means? So, yes, 0:08:40.240 --> 0:08:42.160 I was paying for an experience. I wouldn't change it. 0:08:42.240 --> 0:08:44.520 I had a brilliant time, but I do wish I 0:08:44.600 --> 0:08:47.040 had better savings habit, so I wasn't in that position 0:08:47.160 --> 0:08:47.880 in the first place. 0:08:48.040 --> 0:08:50.199 Yeah, but like, look how far it got you. You 0:08:50.320 --> 0:08:53.520 learned so much from it, And I guess this episode 0:08:53.559 --> 0:08:55.880 today it's like not about shame. There's none of that 0:08:56.200 --> 0:08:59.000 in the Shoes on the Money community anyway. But yeah, 0:08:59.120 --> 0:09:01.280 we're just going to talk through exactly how you can 0:09:01.320 --> 0:09:03.840 get ahead sooner. Okay, So let's get into it then, 0:09:04.000 --> 0:09:07.400 V What strategies are there for debt prioritization? Oh my god, 0:09:07.400 --> 0:09:08.679 I need a sip of my tea. What is my 0:09:08.800 --> 0:09:09.280 voice doing? 0:09:09.400 --> 0:09:12.360 Well? You have a suplico teat while I explain what 0:09:12.520 --> 0:09:17.240 these strategies are so strategies for debt prioritization there are millions, 0:09:17.360 --> 0:09:20.200 but I talk about two key methods more often than 0:09:20.280 --> 0:09:23.640 not because I feel like they actually help the most. 0:09:23.840 --> 0:09:26.960 And these two strategies are not my own. I didn't 0:09:27.000 --> 0:09:29.839 create these. I'm absolutely not taking credit for them. I 0:09:29.880 --> 0:09:32.320 don't know who created them because I feel like they're 0:09:32.360 --> 0:09:35.320 so universal when it comes to debt reduction, but they 0:09:35.440 --> 0:09:38.839 work really well. And these two strategies are called the 0:09:38.960 --> 0:09:42.880 Avalanche method and the Snowball method, and I mean sounds 0:09:43.000 --> 0:09:48.840 very like ooh, it's a winter festive episode, but both 0:09:48.920 --> 0:09:51.000 of them actually have nothing to do with the snow 0:09:51.200 --> 0:09:54.040 or winter. But both of them do accelerate the debt 0:09:54.080 --> 0:09:57.000 reduction process in their own ways and give you the 0:09:57.080 --> 0:09:59.880 structure you might be craving to help you get out 0:09:59.880 --> 0:10:03.439 of debt. So the first one is the Avalanche method. 0:10:03.760 --> 0:10:07.640 Avalanche Avalanche unsure of which is right in Australia. I'm 0:10:07.679 --> 0:10:10.920 sure not be corrected on that later G. But essentially, 0:10:11.120 --> 0:10:14.840 this method of debt reduction sees you paying the highest 0:10:15.000 --> 0:10:18.240 interest rate first, while still making minimum repayments on all 0:10:18.320 --> 0:10:20.559 other debts. You're not paying them at all, but we 0:10:20.679 --> 0:10:23.920 are aggressively trying to get rid of the debt that 0:10:24.040 --> 0:10:27.440 has the highest interest rate first, and then once that's 0:10:27.559 --> 0:10:30.640 paid off, you work your way down to end up 0:10:30.760 --> 0:10:33.760 paying the debt with the lowest interest rate. So there 0:10:33.800 --> 0:10:35.760 are a number of reasons why you do this. So 0:10:35.880 --> 0:10:38.600 the goodbits using this method means that you will pay 0:10:38.679 --> 0:10:40.880 less in the long run money in because you are 0:10:40.920 --> 0:10:44.000 targeting the debt with the largest amount of interest first, 0:10:44.200 --> 0:10:46.600 so that you're not accruing a lot of other debt 0:10:46.679 --> 0:10:49.079 in the background. And it can also speed up the 0:10:49.120 --> 0:10:52.880 debt repayment process. So by only paying minimum on your 0:10:53.000 --> 0:10:56.520 other debts and aggressively paying one, you're saving the most 0:10:56.600 --> 0:10:59.560 interest and that's putting you in the most preferable position. 0:11:00.120 --> 0:11:03.400 A couple of downsides there always are. Requires a fair 0:11:03.440 --> 0:11:06.840 bit of discipline, so it's not easy to do these things, 0:11:06.920 --> 0:11:09.719 and that is okay, but it is about commitment, and 0:11:10.240 --> 0:11:13.959 it can stay harder to stay motivated because sometimes the 0:11:14.080 --> 0:11:17.480 debt with the highest interest rate is not necessarily the 0:11:17.520 --> 0:11:20.160 biggest debt you have. So we need to make sure 0:11:20.200 --> 0:11:22.719 that we understand why we're doing this and commit to 0:11:22.840 --> 0:11:25.200 it so that over the long term we get rid 0:11:25.240 --> 0:11:29.960 of it and stay motivated. In comparison, the snowball method 0:11:30.040 --> 0:11:33.319 g is exact opposite. Oh that's a bit dramatic. It's 0:11:33.360 --> 0:11:37.280 not the exact opposite, but the Snowball method is basically 0:11:37.640 --> 0:11:40.720 the opposite of the Avalanche method, where you pay off 0:11:40.760 --> 0:11:44.120 and target your smallest stet first, so you completely forget 0:11:44.280 --> 0:11:46.640 about the interest rates on all of the debts and 0:11:46.760 --> 0:11:50.199 you just plan on tackling the smallest step first and 0:11:50.280 --> 0:11:52.400 then you work your way up to the largest set 0:11:52.480 --> 0:11:55.880 without taking into consideration any of the interest rates. So 0:11:56.600 --> 0:11:59.720 some people prefer this because there's a number of obviously 0:11:59.720 --> 0:12:02.240 good bits, and I'll explain those in a second. But 0:12:02.400 --> 0:12:05.720 some people don't like this because obviously interest rate isn't 0:12:05.760 --> 0:12:08.480 taken into consideration, and that can make people feel a 0:12:08.520 --> 0:12:11.640 bit angsty. So, as I said before, there are some 0:12:11.760 --> 0:12:14.520 good bits. I love this Normall method because it helps 0:12:14.559 --> 0:12:18.319 you nail smaller goals. Sooner you're going to feel more motivated. 0:12:18.360 --> 0:12:21.080 You're going to feel more accomplished because you'd be like, heck, yes, 0:12:21.240 --> 0:12:23.719 I got one debt smashdown and you can move on 0:12:23.840 --> 0:12:26.160 to the next one. So it makes you feel like 0:12:26.280 --> 0:12:29.120 you are making more progress than you are with the 0:12:29.160 --> 0:12:32.400 Avalanche method. Doesn't mean you are or not. It's just 0:12:32.600 --> 0:12:34.880 usually when you get to close a credit card or 0:12:34.960 --> 0:12:37.439 get to shut your after pay like that's going to 0:12:37.640 --> 0:12:40.760 feel really good and keep you on the right track. 0:12:41.320 --> 0:12:43.880 One of our best mates Dave Ramsey. He's not my 0:12:44.000 --> 0:12:46.480 best mate gee, but I would like to get him 0:12:46.480 --> 0:12:49.240 on the show. You guys should do a collab, we should. 0:12:49.440 --> 0:12:52.559 I think he's pretty picky with who he collabs with. 0:12:52.760 --> 0:12:54.560 But did you know he collabed with our mate Glenn 0:12:54.640 --> 0:12:58.120 James from My Millennial Mood on Andrew's podcast on My 0:12:58.280 --> 0:13:02.160 Millennial Money. Really when he came to Australia, he hung 0:13:02.200 --> 0:13:04.640 out with Glenn James, and I'm not gonna lie it 0:13:04.720 --> 0:13:07.120 was a little bit envious because he's known as a 0:13:07.160 --> 0:13:10.280 bit of a finance whiz in the US. In saying 0:13:10.360 --> 0:13:12.360 that I do want to stipulate, I don't agree with 0:13:12.480 --> 0:13:15.040 all of his advice, and there are some things he 0:13:15.160 --> 0:13:18.199 says that I go, come on, Dave, mate, calm down. 0:13:18.960 --> 0:13:22.440 But he is really inspirational in this area. So anyway 0:13:22.760 --> 0:13:24.559 back to what I was trying to say about old 0:13:24.640 --> 0:13:27.960 mate Dave. He basically says that even though the avalanche 0:13:28.000 --> 0:13:31.960 method should technically see us paying less. The snowball method 0:13:32.080 --> 0:13:35.439 is more effective because of personal finance is twenty percent 0:13:35.640 --> 0:13:40.440 head knowledge, which knowledge knowledge that's not how I would 0:13:40.480 --> 0:13:44.720 have explained it, but knowledge and eighty percent about behavior, 0:13:45.000 --> 0:13:47.840 which we do at Cheese on the Money. Absolutely agree 0:13:47.880 --> 0:13:50.040 with that, and you need some quick wins in order 0:13:50.120 --> 0:13:52.560 to say super pumped enough to get out of debt completely, 0:13:52.880 --> 0:13:56.880 So he's not wrong. The snowball method is also easy 0:13:56.960 --> 0:13:59.080 because you don't have to do any maths. You don't 0:13:59.120 --> 0:14:00.679 have to think about the interest straight, you don't have 0:14:00.720 --> 0:14:03.400 to calculate anything. You just start with the smallest debt, 0:14:03.679 --> 0:14:06.840 start smashing it off and making as many repayments as 0:14:06.920 --> 0:14:09.199 you can to that small debt to get rid of it, 0:14:09.720 --> 0:14:12.880 obviously while still making minimum repayments on your other debts 0:14:12.880 --> 0:14:15.960 please don't neglect them. But it just is a little 0:14:16.000 --> 0:14:19.000 bit simpler because there's no working things out or calculating 0:14:19.120 --> 0:14:21.120 interest rate or how much you'll pay over the long 0:14:21.240 --> 0:14:23.840 term versus how many years. So what are the negatives 0:14:23.880 --> 0:14:26.120 then be So as I said before, gee, you're going 0:14:26.160 --> 0:14:28.280 to end up paying more because of the interest factor. 0:14:28.840 --> 0:14:32.240 But again it's about motivation and feeling like you're smashing 0:14:32.320 --> 0:14:35.320 it out and it may be a longer journey to 0:14:35.400 --> 0:14:39.520 becoming debt free, but it's more about what you're actually 0:14:39.600 --> 0:14:42.320 going to be able to feasibly commit to. It's not 0:14:42.480 --> 0:14:45.000 about which one's going to save us the most money, 0:14:45.440 --> 0:14:48.000 because when it comes to debt, we actually just need 0:14:48.080 --> 0:14:51.720 a plan that works for us personally, not necessarily works 0:14:51.760 --> 0:14:52.480 best on paper. 0:14:52.960 --> 0:14:57.800 Yeah, okay, so Avalanche is harder but more effective, not 0:14:57.920 --> 0:15:02.400 necessarily more effective, but in on paper, more effective, more effective. 0:15:02.000 --> 0:15:04.320 If we work out what that actually means on paper. 0:15:04.480 --> 0:15:09.120 Yep. Snowball is potentially easier, but a slower and steadier 0:15:09.320 --> 0:15:11.760 method of going about things. How do you decide which 0:15:11.800 --> 0:15:12.520 one is right for you? 0:15:13.200 --> 0:15:16.440 Well, I prefer doing it based on which name you 0:15:16.560 --> 0:15:19.400 think is cuter. So like I think snowball Snoble's soft, 0:15:19.720 --> 0:15:21.600 like Snowball's fun. It was the name of the cat 0:15:21.640 --> 0:15:25.400 in the Simpsons, Like it just makes sense. Avalanche sounds aggressive, 0:15:25.560 --> 0:15:29.160 so like, I don't go with it. But more seriously, Gee, 0:15:29.160 --> 0:15:31.520 it comes down to your personality. It comes down to 0:15:31.680 --> 0:15:34.640 whether you're someone who has strong discipline to be able 0:15:34.680 --> 0:15:37.960 to put that extra cash towards debt repayments. So if 0:15:38.000 --> 0:15:41.000 that's you, I'd probably choose the avalanche method because you're 0:15:41.280 --> 0:15:43.880 on top of it and you're actually motivated by that. 0:15:44.120 --> 0:15:46.800 But if you're someone who struggles with self motivation, which, 0:15:46.920 --> 0:15:49.280 to be honest, I think I would be a snowballer, 0:15:49.480 --> 0:15:53.120 not an avalancher, because even though it makes logical sense, 0:15:53.560 --> 0:15:56.320 I just like progress. So sometimes if I see that 0:15:56.400 --> 0:15:58.960 I owe thirty bucks or something, I'm far more likely 0:15:59.040 --> 0:16:01.239 to just want it gone and then I feel accomplished. 0:16:01.320 --> 0:16:03.600 I'm the type of person as well. G When I'm 0:16:03.600 --> 0:16:05.680 writing a to do list, I write things I already 0:16:05.760 --> 0:16:06.320 have done. 0:16:06.120 --> 0:16:08.400 The same same then you highlight them so. 0:16:08.560 --> 0:16:10.760 That down won you resonate with putting to do list 0:16:10.880 --> 0:16:13.120 items on the to do list that you've already done, 0:16:13.160 --> 0:16:16.280 I'd probably say you're a snowballer, okay, So completely up 0:16:16.320 --> 0:16:19.640 to you. And just like sunscreen because we obviously are 0:16:19.800 --> 0:16:22.520 very big advocates of sunscreen in this community, where they 0:16:22.560 --> 0:16:24.720 say the best sunscreen is the one you use. The 0:16:24.920 --> 0:16:28.120 same goes for debt reduction methods. The best one is 0:16:28.200 --> 0:16:29.320 just the one that you're going to stick to. 0:16:29.800 --> 0:16:33.040 I love that, okay. So that is the snowball and 0:16:33.120 --> 0:16:36.640 the avalanche methods sorted fee. So they're the main methods 0:16:36.720 --> 0:16:39.960 of debt prioritization and paying down our debts. But what 0:16:40.120 --> 0:16:44.840 about debt consolidation Is that is that a method as well? Gee, 0:16:45.080 --> 0:16:47.520 I guess it's not really prioritizing. It's really just prioritizing 0:16:47.520 --> 0:16:48.480 all of them and making them one. 0:16:49.200 --> 0:16:52.680 Yeah, cook an entire no, I love this. We did 0:16:52.760 --> 0:16:56.040 an entire episode on debt consolidation. So do you should 0:16:56.040 --> 0:16:58.440 be a wizard on this by now, like, come on, 0:16:58.720 --> 0:17:02.800 Georgia King. But debt consolidation is essentially if you didn't 0:17:02.800 --> 0:17:05.760 listen to that episode, please do. But if you didn't, 0:17:05.920 --> 0:17:07.800 it's where you take out a loan to cover all 0:17:07.880 --> 0:17:10.359 of our debts so that we're just working out paying 0:17:10.600 --> 0:17:13.879 one debt instead of multiple. And there are a number 0:17:13.920 --> 0:17:17.080 of reasons we would do this. So one because personal 0:17:17.160 --> 0:17:20.080 loans and credit cards often carry higher interest rates, So 0:17:20.200 --> 0:17:23.400 the average of a credit card usually sits between fourteen 0:17:23.440 --> 0:17:26.960 and twenty two percent interest rate. A personal loan is 0:17:27.080 --> 0:17:30.440 probably sitting around fourteen if it's unsecured, maybe a little 0:17:30.480 --> 0:17:33.600 bit less if it is a secured personal loan. But essentially, 0:17:33.640 --> 0:17:36.240 when you roll them all together, you take out what's 0:17:36.280 --> 0:17:39.080 called a debt consolidation loan, and it's essentially a personal 0:17:39.160 --> 0:17:41.560 loan that just covers all of those debts, pays them back, 0:17:41.640 --> 0:17:44.240 and you just have one in one place. So a 0:17:44.280 --> 0:17:46.679 good example is if let's say you have three different 0:17:46.720 --> 0:17:49.600 credit cards, all with different levels of debt associated with 0:17:49.760 --> 0:17:52.359 them and different interest rates, and they're being paid at 0:17:52.400 --> 0:17:55.720 different times of the month. Debt consolidation would mean it 0:17:55.840 --> 0:17:58.159 swips in, it pays off all of those for you, 0:17:58.480 --> 0:18:01.760 gives you one single loan that you owe interest on. 0:18:01.960 --> 0:18:05.040 It's often a lower rate of interest, and you just 0:18:05.200 --> 0:18:07.960 pay that off once a month. The benefits of this 0:18:08.160 --> 0:18:10.280 is it can feel so much more free, like if 0:18:10.320 --> 0:18:12.200 you're someone who is in a bit of a pickle, 0:18:12.640 --> 0:18:15.440 lots of debts can feel really overwhelming, and it does 0:18:15.560 --> 0:18:18.320 feel like you're pulling them all together, taking control, and 0:18:18.400 --> 0:18:22.080 you just have one repayment to make it's less overwhelming, 0:18:22.240 --> 0:18:24.159 and it just puts you in a position where you 0:18:24.200 --> 0:18:27.720 feel a little bit more empowered to get debt free. 0:18:28.280 --> 0:18:30.320 You might be able to manage a lowered interest rate, 0:18:30.359 --> 0:18:32.040 which is a bit of a money win. So that 0:18:32.200 --> 0:18:34.440 means that you are going to be saving money over 0:18:34.520 --> 0:18:38.440 the long term, and it's important to understand that it's 0:18:38.520 --> 0:18:40.919 one less admin task as well. So at the end 0:18:40.920 --> 0:18:42.960 of the day, if you're paying lots of different debts, 0:18:43.640 --> 0:18:46.080 let's be honest, doing one thing instead of three or 0:18:46.119 --> 0:18:48.400 four kind of just makes sense to gem. 0:18:48.920 --> 0:18:51.880 Okay, so V that that actually does sound quite good, 0:18:51.960 --> 0:18:56.399 But I remember from that episode that there were some downsides. 0:18:56.840 --> 0:19:00.760 Can't remember what they are, so yeah, I'm. 0:19:00.640 --> 0:19:03.800 Sorry, honestly, Jeking, you have been on this show long 0:19:03.920 --> 0:19:06.359 enough to be a financial whiz yourself. But as you 0:19:06.440 --> 0:19:09.159 were asking for when it's not a good idea, there 0:19:09.240 --> 0:19:11.280 are a number of downfalls and we just need to 0:19:11.280 --> 0:19:13.280 be aware of them. It doesn't mean we don't do it. 0:19:13.560 --> 0:19:15.680 So it can take us longer to pay off one 0:19:15.880 --> 0:19:18.920 large loan instead of you know, a multitude of little 0:19:19.000 --> 0:19:21.840 debts which could ultimately cost us more. We just need 0:19:21.920 --> 0:19:25.200 to take it into consideration. It can leave us a 0:19:25.280 --> 0:19:27.680 bit tempted to spend more and leave you in a 0:19:27.800 --> 0:19:30.000 deeper level of debt if you do go and get 0:19:30.040 --> 0:19:32.560 another credit card. So if you don't have a lot 0:19:32.600 --> 0:19:35.560 of self control, I would be really careful about this 0:19:35.800 --> 0:19:39.359 because consolidating it makes it feel like it's going away 0:19:39.600 --> 0:19:42.200 even though it's still there. It's just more manageable and 0:19:42.320 --> 0:19:45.080 more palatable, so you might go, you know what I've 0:19:45.119 --> 0:19:47.440 got that that's really manageable, I'm going to go get 0:19:47.440 --> 0:19:48.280 another credit card. 0:19:49.000 --> 0:19:50.719 Yeah not a good idea, Yeah, yeah right. 0:19:51.400 --> 0:19:54.159 And there are a few scammers in this space, so 0:19:54.320 --> 0:19:56.520 please be careful if you do go down this path, 0:19:56.760 --> 0:19:59.040 please please please make sure you do so with a 0:19:59.200 --> 0:20:03.960