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With the high interest rates, paying off your credit card debts can be an especially hard challenge. Today we’ll look at how you can use the debt lasso to speed that process up!
Using the Debt Lasso to Knock Out a Ton of Debt
Carrying a ton of debt can be tough. When it's credit cards, it's especially frustrating.
What makes credit card debt so challenging is the high-interest rate. Even if you're paying each month, it doesn't seem like it's making much of an impact.
It can almost feel like being stuck in quicksand. You're sinking debt into debt and you're just drained.
Since I wasn't familiar with it, we had discussion how they used it to knock out over $50,000 of credit card debt.
During our discussion we get into:
- how and why the created the debt lasso
- how they adjusted their budget to pay off their credit card debts faster
- finding that balance between hitting your financial goals still enjoying your life
Hope you enjoy!
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This interview transcription is edited for clarity and time.
Dealing with Credit Card Debt
Elle: David, John, thank you for joining me today. I'm really excited to talk to you guys about a goal that kind of transformed my husband and my trajectory with our families and opening up options, but I'm sure also has done the same for you, which is paying off debt, especially when we're talking about high-interest debt.
John: Thank you for having us.
Elle: Every year Fidelity releases, their money resolutions [survey] and paying off debt is usually in the top three.
The frustrating part is it seems like you start off good. You're motivated. And then by the end of the year, you're like, I really didn't make any progress.
I think a big part of this is not finding a system that works for you.
John: Absolutely. Absolutely.
David: Yeah. It's interesting. That was one of the things that John and I at the very beginning, realized that if we didn't have something that would work for us, it wouldn't last.
Because we knew it was going to take us several years to pay off our debt, we knew that we needed to figure out something and get into a groove that that would propel us forward and keep us motivated to keep going.
Elle: It's interesting. You're saying you knew that it was going to take years. We have a mutual friend, Michelle Jackson, and she recently had put a great post about personal finance unicorns, where not everybody pays off their debt in a year and a half.
They don't knock out $60,000 in a year. It's usually a process [such as your own situation].
I wanted to talk to you about that. Why did you create that method and how does that work?
Escaping $50,000+ of Credit Card Debt
John: Yeah, absolutely. So well, so our story is, is that we sort of, at some point just profoundly discovered that we had $51,000 worth of credit card debt.
We got into a panic and a funk and depression, and after we came out of that, we came out of it committed to paying it off.
We started to look at the options that were available at the time to pay that off. We stumbled upon the snowball and the avalanche method and fortunately, my husband's really good at math.
He crunched the numbers and he'd estimated that it was going to take us like four to six years to pay off our debt with either method and that was just deflating. Like I don't have that kind of patience.
It just seemed too hard. In our minds, we thought that the faster we could pay off the debt, the more likely we were going to achieve our goal of becoming debt-free.
Our background actually is in finance. So we were helping other people with their money and telling them how to save and invest. We weren't doing that ourselves, like the cobbler's kids and their shoes.
David looked at the numbers and we thought, well, what is inhibiting us from being able to pay off our debt faster with either of those methods,
David: – besides our bad spending habits–
John: besides our bad spending habits. And it was the high-interest rate that was whether it was the snowball or the avalanche method. It was that high-interest rate.
Tackling the High-Interest Rates
At the time we were paying anywhere between 15 and 20%, that was slowing us down. So we asked the question – how can we make that go to zero?
Is there a way to make that completely go away? We started to do some research and we found out that there are actually zero interest balance transfer credit cards.
And we thought, well, is this an option for us to maybe do some consolidation and to pay off our debt faster?
The next problem was those balance transfer fees, so they're not well, does that make actually make sense?
We actually found out with our particular situation, it did actually make sense to pay those transfer fees, especially if you can find the 12 to 18 month terms that the zero interest rates would last.
We thought, well, geez, we can just eliminate that. And that actually helped us. We had estimated we pay off our credit card debt in three years.
We were really committed and aggressive with it and we ended up paying it off in two and a half years.
Elle: There's a couple of things I wanted to talk to you about that because you guys use balance transfer.
Again, high-interest debt. I can totally understand wanting to lower it, but for some people that advocate for the debt snowball or debt avalanche, they kind of want you to completely avoid credit cards.
So how do you resist the temptation of relying or getting back into the credit card habit while you're moving and you're opening these accounts?
John: Yeah, of course.
How the Debt Lasso Works
David: So the debt lasso method is more than just a balance transfer or refinancing of your debt. There are actually five pieces to it.
Those five pieces are the things that help you with that whole process.
The very first step is to commit and you have to commit to not adding more balanced to your credit cards.
There's a number of ways to do that, but that's the first thing you have to commit to doing. If you don't commit to doing that, you'll never pay your debt off.
The second is to commit to a specific amount every single month that you're going to pay towards your credit cards.
And that amount must be well above your minimum payments. That way you are actually making progress because you're paying a bigger chunk.
So that's the first step is making that commitment. The second step is similar to the debt snowball. You want to go out there and you want to look. In this amount that I committed to paying every month, can I knock out a credit card or two in that first month or two?
Do I have a credit card that has a really low balance, a knock those out and that way you get a little boost right at the very beginning?
John Schneider: Step three is the actual debt lasso method where you try to ideally lower your interest rate down to zero, but that option is not available to everyone.
So the lower, you can lower your interest rate the better into as, few locations as possible, which is why we call it the debt lasso.
The fourth step is to automate the entire process. You're committing to a specific amount that you're going to pay towards your credit card each month.
You can put that in your bill pay system so it goes out automatically , that eliminates the risk that you won't make a payment. Or you'll rationalize away making the amount that you commit to in step one.
Then number five is to monitor. You want to make sure that even though everything's sort of on automation. You want to just make sure everything's running smoothly and you're not missing any payments.
When you do pay off any card, then you rolled that additional payment that was going towards that card to the next card.
And that's that entire five-step process that helps folks pay off their debt as quickly as possible.
Finding Money in your Budget to Pay Off Your Debt
Elle: Wow. I love how you guys start off with the commitment because it does take a significant change.
Of course, one of the biggest things is the money has to come from somewhere.
Realistically, initially, it's going to be from your budget. I mean, hopefully you're earning extra income.
For you, what changes did you have to make with your budget? Where was it coming from with your first part of this debt lasso of those payments? Which one was the hardest and which one was the easiest changes to make?
John: Absolutely. Actually, the very first step that, that we took when we came out of our funk of having so much credit card debt was that David methodically and meticulously went through every expense of ours for the previous 12 months.
He grabbed all our account statements, all our credit cards, checking everything that he could find, any itemize, every expense that we had.
It really blew us away when we did that spending analysis is what we call it. Because had you asked us prior to this analysis, what the quality of our life was? We would have said, you know, it's okay. But when we looked at our spending, it blew us away. We were living like rockstars on, you know, a bartender budget.
You know, we were just living way beyond our means, but we were traveling well, we were eating and dining. Well, we were drinking well, we had some really nice bottles of wine. It just blew us away.
We realized that if we could reign in our spending is especially in a few particular categories that would help us save a significant amount of money.
So were able to reign in our spending in those particular areas. Probably the number one win that we had – and this is likely the case for most people, most Americans – was that we reigned in our grocery spending in our dining spending dining out spending.
There were some weeks that we were spending $400 a week at the grocery store and $400 dining out. And
David: – for two men –
John: $800. That's just two men in our thirties. We have never been skinnier. So I'm not sure what we're doing wrong now, but nobody needs to eat like that.
We were able to lower that and we saved about $30,000 a year by becoming super meticulous with our grocery shopping and reigning in our dining out.
The other thing that we did, and this was the most challenging to answer your question was we were very, very, very social creatures.
We were constantly going out to happy hours and parties and clubbing and to bars and whatnot with our friends who were traveling a lot, most often on credit cards.
So that was the hardest part for us, but we were able to reign that in and we tell people we didn't stop going out to your point earlier. Cause we. We knew we were social creatures.
We couldn't just cut cold turkey, but we stopped going out as frequently. And that, that not going out as frequently, also freed up some more money that we could put towards expedite paying off our credit card debt.
So that combination, as well as eliminating our high interest rates really helped fuel paying off our credit card debt. And that's how we got that paid off in two and a half years.
Paying Off Debt While Still Enjoying Now
Elle: Yeah, that is fantastic. Congratulations because first of all, $50,000 of any kind of debt is a huge one, but credit card debt, which for so many people can sink them to get over.
That is incredible. But I do want to talk about this just a little bit more before we wrap things up. With personal finance, I found for us and for a lot of couples is finding something that's sustainable. Right?
We've talked about this before we hit record of diets and finances going all drastic and yeah.
The big stories are usually these drastic stories that get the headlines. But if you, you want to hit your goals, you have to have something that's sustainable.
How did you guys strike that balance of paying off debt, which is a good goal to have, but still living and enjoying your life?
David: Yeah. So I think for us one of the biggest, I think issues that folks have today is that people don't feel like they can have a fabulous life and less they're in some way, showing everyone else that they're living a fabulous life.
The easiest way to do that is by your experiences in the past, it used to be things. I think to some degree it is still things, but we're seeing this shift towards people blowing their budgets and their fi financial future on experiences versus things.
What we realized is that we did have to have something sustainable. One of the things that we came up with is our fabulous life calendar, which is a part of our fabulous life combo you can get it debt free, guys.com.
The idea with that is that we knew that we still wanted to have a great quality of life. Every single month we wanted to be doing fun things and being out with our friends and doing all that.
We knew that if we didn't fill the calendar up with things that were either free or lower costs that we still really enjoy doing, then we would be susceptible to dropping a hundred, $150 on brunch and day drinking on a Sunday with our friends or having a happy hour that was supposed to be two beers, turned into something that is way longer than a happy hour.
You know, you can do happy hour, then you have appetizers then you have dinner. That kind of thing was what was wrecking us financially. We knew that we needed to fill our calendar up with the great quality of life fund things that we could keep control of the costs of.
And that is what allowed us to feel like we were living fabulous while we're still paying off our debt and how we have since then had this fabulous, not fabulously broke life because we still focus our a lot of our time and energy on things that are within our budgetary control, which allows us then to focus our money on growth, on investing on enjoying the things that we really want to enjoy instead of things that are kind of disappear quickly after you've spent the money.
Elle: I think you've hit a lot of good points. It isn't about deprivation. Yes. You do have to cut out your budget, but you shouldn't, you should still have joy in your life.
So you mentioned your pay off debt course. Do you mind giving a little more details?
David: So the credit card pay off plan is basically a distillation of what we did over those three roughly three years to learn what we needed to do to get ourselves to where we could pay of debt off and then start paying it off.
So it really comes down to the first set. Is it is all around your mindset. How do I change my mindset to focus on what's important?
The second, is that the whole idea of how do I reduce my interest and get myself ready to really start paying my debt off?
The third step is how do I create a budget that really works for me? We define our budget as dynamic and focused on happiness. And a lot of people hate the word budget because they don't focus on what makes them happy when they're budgeting. They focus on all the other stuff. That piece there, we also kind of loop in this idea of, how can I make more money?
There are some easier ways, not necessarily easy, but there are some easier ways to make a little bit more money to help you pay off your debt faster.
Finally, the thing that most folks don't have is how do we create a plan with them all of that; that will work for the time period that it will take for me to pay off my debt?
That's kind of all encapsulated in this course. We have a supplemental piece to that, that our folks who meet with us every Thursday night, we do, I'm sorry, Tuesday nights, we do a group session. They call it financial therapy because we're constantly talking about wins and challenges and how everyone can contribute to this idea as a group, people are moving through paying their debt off.
John: So you can find information about the credit card pay off plan at debtfreeguys.com.
But if you want to get an idea of how the debt last one method might work for you and how it might work relative to the snowball, the avalanche method, you can also go to debt-free guys.com or go to debtlasso.com to download a free copy of the debt lasso calculator.
Elle: Thank you so much, John and David for joining me. I really appreciate it.
John Thank you.