#026 – Conquering Bad Debt: Your Game Plan for Financial Victory

By: Fran Walsh

Read Time: 5 Minutes

Ever caught yourself dreaming of a debt-free life while scrolling through your monthly statements? That moment when you're calculating how much you can save, only to realize your bad debt is like a ball and chain slowing you down?

It's important to remember - not all debt is made equal. Today we're focusing on getting rid of things like Credit Cards, Payday loans, High-Interest Personal loans, or anything that has a high interest rate!

It’s that feeling of running on a financial treadmill, knowing you should be moving forward, but debt keeps pulling you back. Imagine breaking free from that cycle, not just dreaming of financial freedom but actually living it...

What if I told you there's a way to tackle bad debt head-on, transforming your financial landscape? Let’s get into it ↓

1. Understand What You Owe: It's like facing the music when your alarm goes off at 5 AM for that first workout you promised yourself. It’s going to be tough, but necessary. List out all your debts, especially those high-interest credit cards and loans that eat up your cash faster than my Mustang used to by guzzling gas. Even more important than understanding the balances is understanding what the interest rates are on those. Just like how our investments compound in our favor, high interest compounds AGAINST us and can get out of hand quickly if we don't take action.

   Action Step: Spend the next five minutes pulling up every debt account you have. Knowledge is power, and in this case, knowing exactly what you owe is the first step to taking control. A painful, yet necessary step.

2. Prioritize Your Debts: Think of it as setting your workout goals. Some prefer to tackle the hardest exercises first (the debt avalanche method), targeting the debt with the highest interest rate. Others get a boost by knocking out the smallest debts for quick wins (the debt snowball method).

    Action Step: Decide which debt you want to attack first. There’s no wrong answer, the key is to JUST START! The best strategy is often the one that you are most comfortable with & can stick to. The idea is to build momentum by stacking wins on top of each other until we are debt-free.

3. Cut Unnecessary Spending: This isn’t about giving up all life's pleasures; it’s about smart budgeting. We all love a Starbucks coffee, but for $6 a day I think we can all agree making it at home or getting the same coffee from Wawa for $1.50 is a much better idea! Apply the same principle in all aspects of your spending life. Look for areas to trim that won’t diminish your quality of life.

   Action Step: Review your last month's expenses and highlight anything that wasn’t absolutely necessary. Start small, so you aren't going into lifestyle "shock" and begin to work on weekly improvements.

4. Increase Your Payments: Every extra dollar you throw at your debt is like putting in an extra mile on the road when training for a marathon. It pays off in the long run. Even small additional amounts can DRASTICALLY reduce your interest payments and shorten your debt’s lifespan.

   Action Step: Take a look at your budget, (hopefully you are following the 50-20-30 rule we are always preaching!) Figure out how much free cash flow you have each month to allocate towards extra debt payments. Automate this as much as possible to avoid spending that extra money on fun stuff!

5. Consider Debt Consolidation: If juggling multiple debts feels like you're getting attacked from all different directions, consolidation might be your answer. It can simplify your payments and potentially lower your interest rates. For some people, having everything lumped into one sum & one payment eases their mind and makes tackling it head-on more manageable.

   Action Step: Take five minutes to research debt consolidation options. A single, manageable payment could be the game-changer you need. Depending on interest rates at the time though - it may not make sense financially. Be sure to run the numbers or consult your advisor because making a big decision like this. We want to make sure there is going to be a positive arbitrage on your money before doing this.

6. Build an Emergency Fund: It’s the financial equivalent of a rest day. You might not see the immediate benefits, but it’s crucial for long-term health. This fund prevents you from falling deeper into debt when unexpected expenses pop up.

   Action Step: Start small, even if it’s just $5 a week. Think of it as the initial step in your warm-up routine, essential for avoiding injuries—or in this case, financial setbacks. 

Need help figuring out where to start when it comes to figuring out how much free cash flow we have to start conquering your bad debt? Check out our online course for everything you need to master your finances. If you aren't in a rush today, stay tuned for a special announcement dropping soon...

Conclusion: Attacking bad debt isn’t about drastic lifestyle changes or cutting out all joy. It’s about smart, strategic moves and staying committed to your financial health. Just like training for an Ironman, paying down debt is a marathon, not a sprint. Equip yourself with a plan, take it one step at a time, and soon you'll be crossing the finish line into a life of financial freedom.

Whenever you're ready, there are 2 ways the we can help you:

1. The Master Your Money System: Discover the ins and outs of automating your finances with our easy-to-follow video course. Learn the same strategies we use for our millionaire clients to maximize your money.

2. Join Our Private Client Group: If you're in your 30s or 40s, earning a good income, and aiming for financial freedom, let's team up. Leave the financial headaches to us and concentrate on what truly matters – your family and your career.