The Rachel Cruze Show - The Fastest Way To Pay Off Debt in 2025

Starting point is 00:00:05 Well, hey, you guys. So the beauty of a new year is that it's built on a fresh start, right? I mean, everyone feels like they have a clean slate. You're able to start something new. But it's also another reminder that those student loans or any other debt, for that matter, is still sitting there. And, you know, you have to pay interest on it. And it's like, oh, it's not fun, right? You kind of feel that weight of the minimum payments. Well, if you feel that and you're like, I need something to change, you came to the right place. Because we're going to talk about how to pay off debt in the fastest way possible. in 2025. And stick around because later I'll be sharing the one kind of debt that some people don't even know they can get rid of. And if you haven't subscribed yet to the channel, make sure you

Starting point is 00:00:46 do that so you don't miss a future episode. All right. So when it comes to paying off debts, there is a lot of debt out there that I want you to pay off in order to build wealth. And this is everything from student loans, car loans, credit card debt, personal loans, helocks. I mean, there's so much out there. So when you look at paying off consumer debt, this means, everything but your house. So when you get all of that consumer debt, I want you to write it all out to know exactly how much you owe in each category. Next, let's talk about debt payoff and when that begins. So when you start paying off debt, you first want to make sure that you have an emergency fund in place. And so being able to have a thousand dollars saved, it's going to be your first goal

Starting point is 00:01:28 before paying off debt because you need some money in the bank if something comes up because it will to be able to cash flow those emergencies. Now, those are going to be smaller emergencies because it's only $1,000. So if it's something bigger that you're going to have to pay, then usually those type of bills will take two to three months that you have to pay those eventually. So that means you can get a side hustle and figure out how to cash flow those while you pause paying off debt. But again, your first goal is that $1,000 emergency fund, and this is really your safety net between you and life. Once that is complete, then you're going to start paying off that debt. So I talked about baby step two is that you're going to pay off your debt smallest amount to largest amount

Starting point is 00:02:08 regardless of the interest rate. And you're going to do this method. It's called the debt snowball method. And this is the fastest way to pay off debt because what you'll realize is that debt is more of a behavior issue. It's not a math issue. And so there's something about changing your behavior where you know that you actually can get out of debt. That behavior, when you get a quick win, suddenly shifts in the positive to know, oh my gosh, I can do this. Like, I can change how I'm handling my money, I can get out of debt. So even if it's an $800 credit card bill, that's your smallest debt, and you pay it off, and you cut it up, you get rid of it, close the account, and it's like, okay, well, that's done. Now I can move that minimum payment over to the

Starting point is 00:02:48 second smallest debt. And again, you get a side hustle, you decrease your lifestyle, you do whatever you can to throw extra money at that one, pay it off, and you realize, okay, just pay that one off. Now you can roll the minimum payment that was on the credit card and the second smallest debt, now to the third smallest debt. So what happens, it starts compounding, from a minimum payment standpoint, which is great mathematically, but more importantly, you are getting quick wins, and that is going to help you in this process. So that is the debt snowball versus the debt avalanche where people actually want to pay off the highest interest rate first, because mathematically, that is correct, right? You want to get rid of the highest interest rate

Starting point is 00:03:23 first. But the problem is that highest interest rate, you know, could be a $20,000 debt where you have all these other little ankle biter debts that are not as much in interest, but you got this big one and you're trying to chase the math where you realize it can feel like, oh my God, I'm like going up this mountain and it's, I feel like I'm not getting traction. So changing your behavior is so key when it comes to personal finance. That's why that's that snowball method is so crucial. Yeah, and you think about it too, snowballs, like, they're more fun than avalanches, right? Avalanche, ugh, scary, bad. Snowballs fun, exciting, right? So always remember the debt snowball method is more effective. But the reality is, is that a lot of Americans are living

Starting point is 00:04:04 paycheck to paycheck. And so finding margin to pay off debt is really crucial. So here are six ways to find margin. Number one, cut unnecessary expenses. When I mentioned lowering your lifestyle, for real, lower your lifestyle, you know, cut anything that you don't need. And this is subscriptions, going out to eat, even your grocery budget for the month. See if you can shrink it down by $50 to $100 and throw extra at your debt. Like do whatever you can to cut your expenses. And do a budget if you've not done a budget yet, so you'll know specifically where your money's and how to control it. Number two is to increase your income.

Starting point is 00:04:38 So this can be from the job you have. This could be working overtime. This could be getting a side hustle. But bringing in extra income is going to be a big part of this equation of paying your debt off faster. And I was just talking to a group of about 600 people and the amount of side hustles that were out there and people that were making $8,000, $9,000. I mean, it was everything from pet sitting to driving Uber or Lyft.

Starting point is 00:05:02 This was piano teachers that are like, yeah, they did a side gig and taught piano. I mean, it was everything you can imagine, and people were making hundreds of dollars a month. Like, it can be significant. And it's not fun. Right after your full-time job, you don't want to go work a side hustle or work on the weekends. But for a short period of time to bring in some income to get this debt paid off faster, totally worth it. Also, number three is to look around your house and sell your crap. We all have stuff that we don't need, from clothes to electronics, like stuff that is out there that you're like,

Starting point is 00:05:32 oh my, my, we don't need this furniture even. Sell it, get rid of it, and make some money. Again, we all have so much stuff. So get rid of it and make money off of it. Number four is to pause investing. So while you're getting out of debt, yes, pause investing. And that could be hundreds of dollars back in your paycheck every single month. That can help to pay off debt.

Starting point is 00:05:52 Because when you pay off debt and you have no money leaving in payments, that means you can actually then save up an emergency fund and then start investing 15% of your income and to retirement. And that 15% is pretty high compared to what most people are investing from a percentage of their income. So you're able to catch up and do even more when you get to that point that you are debt-free. Number five is adjust your tax withholdings. So if you got a big tax refunds, that means you are sending your money that could be in your paycheck to Washington. And then once a year, you get a big check back and it's earned no interest, it's done nothing. It's been sitting there for free when it could have been used to pay off debt.

Starting point is 00:06:32 that much faster. So if you got a big tax refund, go to your HR department and adjust your withholdings. And then also number six, use the money finder. So this is a great tool that kind of speeds a lot of this up in real time. And it gives you other areas of your life to look to see where you can get extra money. And we are finding that people are finding a lot, which is amazing. Because getting that margin is such a key part of winning financially. So I will put a link in the description. Now, as promised, there's one kind of debt that most people think that you don't have to pay off quickly. But if you do, it will boost your net worth and free up your income like nothing else. And that is paying off your mortgage early.

Starting point is 00:07:13 Yeah, a lot of people are like, what? But listen, we are finding that people that are doing the baby steps and paying off their mortgage, which is baby steps six toward the end, they're doing this on average in nine years. And if you are able to pay off your house and you have no mortgage pay, you're saving hundreds of thousands of dollars, literally in interest. Like, it's amazing how much interest we pay when it comes to a mortgage. But then also the complete freedom and freeing up probably one of the largest line items in your budget of not having a mortgage payment.

Starting point is 00:07:45 Like, it is an incredible thing. So this is on your journey of being debt-free. Yes, consumer debt is so huge. But also, when you pay off your house down the line, it's even better. So I hope that all of us helped you guys motivate for the new year to become debt, free and have that freedom not just financially but also emotionally and make sure to show this episode maybe with a friend who wants that freedom as well in 2025 and also avoid the 10 mistakes that can derail your debt payoff coming up next all right you guys remember to take control of your money

Starting point is 00:08:17 and create a life you love

The Rachel Cruze Show - The Fastest Way To Pay Off Debt in 2025

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