The Rachel Cruze Show - The Tricks to Ditching Debt Fast

Episode Date: April 10, 2023

Imagine a life where you can stop spending your money on debt payments and every paycheck is yours to spend instead. That’s what this episode is all about. We look at a popular debt payoff method called the debt avalanche, the sneaky ways your credit card is keeping you broke, as well as how to become financially independent once and for all.   What you get in this episode: ·      Why I Never Recommend the Debt Avalanche Method ·      Secrets Credit Card Companies Don’t Want You to Know ·      Are Millennials Too Dependent Financially? Helpful Resources: Christian Healthcare Ministries EveryDollar                                                 Sponsors pay the producer of this show, The Lampo Group, LLC, advertising fees for mentioning their services or products during programming. Advertising fees are not based upon or otherwise tied to any product sale or business transacted between any consumer or sponsor. The following sponsors have paid for the programming you are viewing: Christian Healthcare Ministries.   Learn more about your ad choices. https://www.megaphone.fm/adchoices Ramsey Solutions Privacy Policy Learn more about your ad choices. Visit megaphone.fm/adchoices

Credit card companies want you to believe that they are the best option for you. And when you start to believe that, that's when you can wander into debt and you start making them rich off of your interest versus you actually becoming wealthy. Hey guys, welcome to this episode of the Rachel Cruise Show podcast. I'm so glad that you're here. In this episode, we're going to talk about the tricks to ditching debt fast. I'll go over an article about how millennials may be depending on their parents too much financially and what to do to help. Then I'll go over some secrets that credit card companies don't want you to know. But first, let's talk about why I never recommend the debt avalanche method.

Take a listen. I get this question all the time, so I kind of want to explain which each of these are and why I recommend the snowball over the avalanche. So at Ramsey Solutions, we teach the seven baby steps, and that includes the debt snowball. So these are seven steps that help. people get out of debt, build wealth, and become extremely generous. So it's starting off with a $1,000 emergency fund. And then step two is the debt snowball. But a lot of people again ask, okay, well, why not the debt avalanche? Because when you look at both methods of paying off debt,

again, both are paying off debt. So let's just give a thumbs up to that idea. We are paying off debt. The debt avalanche recommends the opposite approach of what the debt snowball recommends. So The debt snowball is where you list out all of your debts and you pay off the smallest debt first. So you list it smallest to largest, pay minimum payments on everything, pay off the smallest one first. The debt avalanche is where you pay off the highest interest rate first. So you're attacking the interest rate instead of the debt amount. So again, mathematically speaking, that would be correct. I mean, if you're looking to pay something off, you would say, okay, well, when I pay off the highest interest rate first,

because mathematically, that makes sense. And it does. mathematically, that is correct. But what we've learned about personal finance is that paying off debt and winning with money is so much more than just math. Because it's not a math problem. It's a behavior problem. We have to fix us, which enter the debt snowball, which is what I love,

is because you're paying off the smallest debt first, which helps you when it comes to your behavior change. So when it comes to paying off debt, the momentum of the debt snowball is a crucial part to winning. So I know it kind of sounds cheesy, but honestly, getting those quick wins is huge because just getting out of debt in general is pretty intimidating, and you kind of think, oh my gosh, can I even do it? And when you pay off that smallest debt and you get that quick win,

hope starts to be part of the equation, you actually realize, oh, wow, I can do this. So again, even though it's a struggle sometimes and it's really tough to get out of debt. When you start to have those quick wins, you actually see, oh, I can do this. So let's take an example of what the debt snowball is. So let's say you have four different debts. Let's say one is a $500 medical bill and you pay $50 on it every month, that's the monthly payment. You have $2,500 in credit card debt. So you pay $63 every month. You have a $7,000 car loan, which is $135 per month going to your carlum and a $10,000 student loan, which is $96 a month. So by using the debt snowball method, you're going to pay minimum payments on everything except for the smallest, which is the $500

medical bill. So you're going to get so focused, you're going to do whatever you can to throw money at that $500. You're going to be cutting lifestyle, you're going to be getting an extra job. You're going to be going to be going crazy. So let's just say you get a side job, and it brings in $500 a month. You're going to add that to your debt snowball. So you're going to be paying $550 that first month towards that medical bill, the $50 minimum payment, and the extra $500 you got from your side job, and it's completely gone. So then that has $550 freed up, again with that extra side hustle, to attack your second smallest debt, which is the credit card bill.

So that means you're going to be paying $613, the $550 freed up, plus the minimum payment of $63. It means in four months, that credit card debt will be gone. And then you have all that money you're going to be rolling over to the third smallest debt, So that means you have $613 to roll over to your car payments, which again, the mental payment there is $135, which means you're going to be paying $748 a month to that car payment, which means in 10 months, you're going to be driving a car that is yours. You own it because you paid it off. And then by the time you get to your largest debt, which is the student loan, you can put $844 a month towards it. all of that added up plus that minimum payment. And you'll be chipping away at that and saying goodbye to

Sally May in just 12 months. Isn't that amazing? I mean, all your hard work and throw an extra money, you just see the momentum starting to build. And that means that you have paid off $20,000 in just 27 months, you guys, two years, two years. And again, that's just having that side gig of $500. What if you get a raise and you throw extra out of? What if, again, you cut your lifestyle and you squeeze any extra money out of your budget, you throw at it? I mean, it's just so encouraging when you see, oh, I can do this. And I know that for sure, debt in general, it can be discouraging.

And with a debt avalanche, again, just getting out of debt in general, I'm all for. But there's a little bit that you just don't see those results as quickly with the avalanche method because you're going completely by numbers. You're going by highest interest rate. So I love the debt snowball. I love getting those quick wins. All right, back to the debt snowball. So I think that this is the quickest way to pay off debt.

I think it's where people become the most successful because, again, those quick wins, you gain momentum, you have hope that you can do it. And it's just an amazing thing to watch. Jade, one of our Ramsey personalities, her and her husband, Sam, are a perfect example of this. She came on the show the other day, but they paid off almost half a million dollars in seven years, you guys.

Absolutely crazy. And they use the debt snowball method to do it. So it works. I hear Jade's story. I hear stories all the time on the Ramsey show. We have debt-free callers that call in every single week. And it is so encouraging. And it's everything from two traveling nurses that they both got degrees in nursing,

traveled and obviously made great money doing that. And they were making like $250,000 total. They paid off like insane debt in like nine to ten months. And then you meet people, you know, and they're making $60,000. And they have $90,000 in debt. And it takes them over $4,000. four to five years, but they pay it off. I mean, it's just incredible. So regardless of the income level,

regardless of the debt level, being debt free is possible. So if you are looking to get into this plan and thinking, okay, where do I start? I recommend checking out Financial Peace University. This is our nine lesson course that helps you not only paying off debt, but so much more when it comes to money. So make sure to check it out because it is the thing that really helps ingrain and motivate you during this journey. So today, I'm going to talk through. if you secrets with you that credit card companies would rather you not know. You see, they want you to feel like you need them. And if you spend on their credit cards that you're a savvy spender,

they will keep you safe and they're here for you because they want you to believe that they are the best option for you. And when you start to believe that, that's when you can wander into debt and you start making them rich off of your interest versus you actually becoming wealthy. So the first secrets that credit card companies don't want you to know is that you don't actually need them at all. Mm-hmm. That's right. It is possible to live without a credit card. I get this all the time. People are like, but you like have at least one. Or like I'll talk about social media and like show a wallet or something. And they're like,

yeah, because you have at least one credit card. There's no way you don't. It's amazing, you guys. Me and many others out there live life without a credit card. Now I get it. I get the temptation of, you know, signing up, and they get us from all these different angles with airline miles and points and all of it. But listen, at the end of the day, what I've learned is mathematically you end up spending more on a credit card. It can lead you down a pathway of debt. And you have the bill at the end of every single month versus just spending in the moment. So let's dive in to some of the secrets that can help you avoid the traps of these credit card companies and for you to finally take control of your money.

So first up, let's talk about store credit cards. Yep, we've all been there in the checkout line, pulling out your wallet to pay, and the cashier says, would you like to save 15% off this purchase by opening a store credit card? And in that moment, of course, it's like, oh, 15%, I don't know. I mean, I could save a couple bucks. That kind of sounds nice. But here's what they don't want you to know. A store credit card is an incentive for you to spend more money at that store.

Mm-hmm. Hear me out. Once you're a card holder, you're going to see all these specials. deals and rewards me flooding your inbox and online and you just think oh yeah I can spend a little bit more you start to justify well it's a good deal in a sale and I get extra off because I'm a card holder so you start to rationalize and reason with yourself to buy more than what you planned on or what you don't need because you have a store credit card and they know this they know the psychology of it and usually these cards have insane interest rates and they are not a

good deal because here's the deal. It makes them more money and not you. So in the long run, they can handle that little percent off because they know you're going to end up spending a whole lot more, a whole lot more than what you say to that small percent. So don't fall for it, you guys. You can do this. Avoid store credit cards. All right. The next secret is that you don't actually need a credit card or a credit score to buy things like a home or even rent a car. I know. Crazy, isn't it? Yep. It has always said, you have to have a great credit score in order to buy a home. But here's what they don't tell you is if you don't have a credit card, if you don't have debts, you're not going to have a credit score. But even if you don't have a credit score, you still can buy a home. It is called manual underwriting. Yes, you can be approved through a mortgage without a credit score through manual underwriting.

friend George Camel, he's done this before. I talk so much about this because it is proven and it has shown over and over again that it is possible. Because it is a little bit of a process because they're going to be calculating your work history. You have to be current on all of your bills like cable, cell phone, electricity for about two years. So you have to have some paperwork to prove that you, the person, can actually pay for the mortgage. So instead of a computer doing it, they enter it in and spit it out if you can or can't do it with a credit score, they're looking at you the person. So you actually can get a mortgage without a credit score.

And also renting a car. Now, some rental car companies won't do it. But some will. Winston and I, we are planning a trip to a good old Florida with our kids. We just got on the rental car's website two nights ago and booked a reservation. And we never have trouble renting a car. We never do because we know the company that we use and it works. And that's it.

So do some research ahead of time. You may have to bring some required documents, maybe if you haven't used this rental car company before. And I promise it is worth it. It is worth it. You may have to jump through a few hoops, but I would rather do all of that and be spending with my money versus the credit card. All right.

The last secret is that credit card companies actually aren't your friend during emergencies. So this is one way people look at a credit card as I say, well, I'm going to hold on to this just in case there's an emergency. But here's the deal. The secret is the credit card turns your emergency then into a crisis. So not only do you have an issue with your car, but now you got your car fixed and now you have a money issue because you used a credit card.

And so it dwindles down this idea that, oh, it's going to fix my problem in the moment, but then in the future you're still going to have a money problem. So here's what you need is an emergency fund, having your own money. I want you to be your emergency fund, not the credit card. So the credit card is not here to save the day, No, it is sitting in your wallet or in your purse just in case something terrible happens where you can be that for yourself. You can have money in an emergency fund.

So start off with $1,000 for your starter emergency fund, then pay off all of your consumer debt and then bump it up to three to six months of expenses. And an emergency fund gives you the protection that you need. Plus, you won't have a bill coming in the mail a few months later from the thing that happened because you just took care of it. So what all these secrets are pointing to is the truth that you can live without a credit card. And honestly, life is just better without them. You spend less.

You spend in the moment, in the present with cash your debit card, and that's it. So for once and for all, you guys, cut it up. Cut it up. If you really struggle with it, I'm telling you, just cut it up. And here's some ways to help you when that happens. Number one, stop spending with credits. So if your favorite way of spending monies with a credit card, again, when you cut it up, it's done. It's over. Pay off the balance, close the accounts, and you are good, you are done. Number two, you're going to want to get on a budget.

If you didn't know, a budget actually gives you freedom. It gives you a plan. You're able to see exactly the money that you have to spend and you stay within that. There's an app called Every Dollar. It's my favorite budgeting app. Make sure to check it out. It is free to start using today. so download it, create a budget, and you actually can see how can I live life within my means, here with a plan, which is the budget. And number three is to live on less than you make. And this is where the budget comes in. It's really important because if you're going to be ditching the credit cards, then you have to be able to have the money to buy the things that you need to buy. And then you're going to realize, oh, there are some things that I don't need to buy that I haven't buy, maybe on a credit card that I really don't need anymore. So it's an

amazing thing that when you make really practical decisions about your everyday behaviors and habits with money, it can change your life. Now, if your credit card is like a security blanket for you, you might be kind of nervous, take the plunge. Just trust me, it will be one of the best financial decisions ever. And this is what I always tell people, too. If you have credit cards and credit card debt, pay it off, close the accounts, get rid of them and live life like that for 90 days, four, five, six months. And if you hate it, you're a grownup. You can go sign right back in and get another credit card. Trust me, we'll be happy to welcome you back in. So you can always go back in if it's terrible. But I have a feeling once you start living without, I don't be realizing, wow, there is a lot of

freedom, a lot of freedom in it. So today we're going to talk about the fastest way for you and your kids to achieve financial freedom. So I started thinking about this because someone called into the Ramsey show to ask if he should move out of his parents' house. Now, a lot of people really struggle with financial boundaries, and it's hard to know if you are helping someone, you know, and giving them financial freedom and all that, or if you're just enabling them and keeping them stuck. Well, for this particular caller, he was 31 years old, making $80,000 a year and he had $42,000 saved. Now, he did live in New York City, so the cost of living and buying a home is very, very high. But George and Jade Ron and they crunch the numbers and they really encouraged him to step out on his own

because it's an amazing thing that happens when you are an adult and you're living on your own, this dignity and independence that automatically is inserted when that happens. But it did start a broader conversation about how to empower kids to achieve their own financial freedom. And it's natural and it's good, right, for people to want to help their kids, and especially if the kids get older and they're struggling financially. I mean, our desire and instinct is to protect our kids, so I get how that happens. But what's hard is that empowering and encouraging and supporting your adult children can sometimes bleed quickly into enabling. So this is not to shame anyone or to judge anyone, because I'm not saying that you should

never help family out when it comes to money. Every situation is different. Generosity is something that we talk about all the time, and that can look many different ways. But I kind of had this general take of, man, there is something to be said about setting your kids up for success and what they understand. Because again, empowering and enabling, there's a very fine line there. And you want to be able to raise your kids in a sense that you're saying, I am training them to be good adults. And let's be honest, whether it's in our schools, in our churches anywhere else in the world, they really don't talk about money.

And it's really tough because I just read a study that three out of four high school grads are starting to become stressed with money and they don't have the tools to know even what to do on a basic level. So this is where I want to encourage you, parents, that you can teach your kids what they need to know before they leave the nest.

And you don't have to be a financial expert yourself on teaching them. because one of the most powerful ways you teach them is that they're watching you. Your example is huge. More is caught than taught. So here are a couple things that you can do to help teach your kids when it comes to money. Number one, teach them about earning money. So instead of giving them an allowance, put them on commission.

So they work, they get paid, they don't work, they don't get paid. So they don't question where does money come from. They automatically know this relationship between hard work and earning money, that the two are married very closely. And the earlier that they can learn that, the better off that they're going to be. And you can even set up little envelopes or little banks that have give, save and spend. You can help them, you know, put money in each of those things when they earn money. Now, if they're old enough, you know, that the piggy bank and the banks and envelopes, you know,

aren't working, you can graduate them to a real bank account. You can do a student checking account where actually you're the one that is science, over everything, but they are able to use, whether it's their debit card, checks, all the things when it comes to their spending. And you can kind of oversee the account, if you will, to be able to see their spending behaviors. Now, this is just a great opportunity to teach them about reconciling their account, keeping track of their spending, learning to save, all of it is so great. Next, you want to teach them how giving is linked to financial freedom. And one of the best things that you can do for your kids is teach them the power of giving before they go off on their own.

There is something to be said about this concept of opening your hands and learning to give and be selfless with your money. And when you can do that, the earlier, the better because that is going to magnify who they are when they leave the home. So if you want your child to grow up to be an independent, responsible human when it comes to money, show them these things and show them how to have a long-term, savings goal. Growing up, it was always our car. So when we turned 16, mom and dad would match whatever money we had saved. And this was great because it taught us delayed gratification, putting money away for something that we wanted in the future. And then also when it comes to spending you guys, let them spend and let them make mistakes. You would rather them make inexpensive small mistakes under your roof versus the first time they ever make a mistake with money.

They're out on their own. So work with them, create a plan when it comes to working, giving, saving, and spending, and it's just something really, really powerful because all of that together, what you're doing is unintentionally teaching them to budgets. That's what it is. They earn money and they learn how to put it in giving, saving, and spending. It's a mini form of budgeting. And what that is is just about being intentional with where your money's going. You have a plan and you do something with the money you earn. And that's true for us adults as well. That's what a budget is. It is a plan for your money. And again, this might seem like really big, stuff and you may think, oh my gosh, but let me just encourage you that consistency is key,

okay? Consistency is key. Yes, could you do this every single week, every single month, every month they create a budget and it becomes part of the rhythm of, you know, your life, especially if you have a teenager, them creating a budget for their spending. Yes, all that is so great. But just there's a lot of grace in here too. I know how crazy life gets. But consistency and just showing up with your kids is so key. And again, Repetition is huge. So if it's just part of the family rhythm, even if it's not perfect,

it's a really great place to start. And if you have been wondering, gosh, how do I help my kids financially without making them too reliant on me? You're not alone. So I hope that this gave you some clarity to empower your kids and teach your kids to stand on their own

and that they can handle their money. If you have little ones, check out Financial Peace Jr. It is a great kit that has chore charts and teaching materials, all this great stuff to help you as a parent when it comes to teaching your kids about money. So again, you guys, that fine line between enabling and helping, it's there.

But teaching your kids at a young age, it's so, so helpful. But thank you guys so much for listening to this episode of the podcast. Make sure to leave a review. If you love it, please do that. It's really, really helpful. And I read them. So I really appreciate all your thoughts. And I'm hoping this podcast is helping you.

So if it is, leave a review and make sure to subscribe so you don't. don't miss an episode. And again, thank you guys for listening. And remember to take control of your money and create a life you love.