3742: Forget Your Debt. Just Forget About It. Really. By Paula Pant of Afford Anything on Building Wealth

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[00:00:53] This is Optimal Finance Daily. Forget your debt. Just forget about it. Really. By Paula Pant of affordanything.com. And I'm Justin Malek. Now let's jump right into today's post as we optimize your life. Forget your debt. Just forget about it. Really. By Paula Pant of affordanything.com.

[00:01:22] What if the most common strategies to repay debt are wrong? Two popular methods are used to repay debt. One focuses on the interest rate. The other focuses on small wins. Here's the executive summary. The debt stacking method says you should repay the debt with the highest interest rate first.

[00:01:43] The debt snowball method says you should repay the smallest debt first regardless of its interest rate so you can feel the psychological win of crossing it off your list. I think both of these fall short. So today I'm going to propose a third method. The forget your debt method. The status quo stinks. The debt stacking method makes logical sense.

[00:02:09] You'll save the most money if you repay the loans with the highest interest rate. The problem is that many people have a hard time motivating themselves to repay a large debt regardless of its interest rate. No matter how much money they throw at a big debt, the balance never seems to subside. The person feels like they're not making progress. It's akin to being on a diet but never seeing the pounds melt away. They become discouraged and quit.

[00:02:39] The debt snowball method, which obliterates the smallest debt first, can keep you motivated, but it comes with a large price tag. You'll make minimum payments on high interest debt, which means the compounding balance will climb higher and higher. For anyone who runs a spreadsheet to compare these two options, the hundreds, maybe thousands of dollars it costs to use the debt snowball method is a bitter pill to swallow. Switch your focus.

[00:03:09] The problem with both strategies is that they both focus on the wrong thing. The interest rate method focuses entirely on the numbers but fails to take psychology and emotion into account. The debt snowball method focuses entirely on psychology and emotion but fails to honor the numbers. What if there was a method that focuses on both? Forget your debt.

[00:03:36] Both the interest rate method and the debt snowball method share one trait in common. They force you to think about your debt. Thinking about debt stinks. It causes debtors to feel trapped and shackled. It breeds discouragement. I want you to do the opposite. Forget about your debt. You're already free.

[00:04:02] Debtors' prisons were eliminated in the mid-19th century. But focusing on debt makes people feel imprisoned. You're no more free when you repay your debt than you were when you carried debt. The other way of looking at it? You're just as free with debt as you are without. You still have to put groceries on the table, keep the electricity on,

[00:04:26] fill your car with gas, put clothes on your back, save for retirement, send yourself or your kids to school, write checks to your insurance company, and give the government your tax dollars. Fail to do even one of these things and you're in serious trouble. So why do people feel free when their last debt is repaid? It's because they've spent too much time and energy focusing on debt. They should be concentrating on the bigger picture.

[00:04:56] And that starts with eliminating the D word. Eliminate the D word. Repaying debt is like dieting. If you focus on deprivation, you'll fail. Tell yourself, I shouldn't eat chocolate and cupcakes and warm brownies with a delicious scoop of French vanilla ice cream on top. And I shouldn't eat pizza with spicy pepperonis and ground sausage and fresh mozzarella

[00:05:24] and a steaming bowl of chili with an ice-cold beer. And I shouldn't have bacon, eggs, and a buttermilk biscuit. Neither your brain nor your stomach hears the I shouldn't. If you think about the fact that you're dieting, you'll fail. The trick to dieting is to focus not on the deprivation, but on the abundance. Instead of thinking about all the foods you shouldn't eat, think about the foods you get to eat.

[00:05:53] Blueberries, quinoa, and fresh-caught salmon. Diets don't work. Embracing a healthy lifestyle does. Eat more of what's good instead of less of what's bad. A successful diet requires eliminating the D word, diet. Repaying debt is the same way. The fastest road to discouragement is to focus on debt and deprivation. You shouldn't go to the movies.

[00:06:21] You shouldn't go to dinner with your friends. You shouldn't get a haircut. What a terrible way to live. Successfully getting out of debt also requires eliminating the D word. Shed your debtor identity. Focus on more of what's good rather than less of what's bad. You're not trying to repay debt. You're trying to build wealth. Adopt a build wealth mindset.

[00:06:49] Adopting a wealth-building mentality can be tough if you're used to thinking of yourself as a debtor. You have to switch from a mindset of sacrifice to a mindset of creating abundance. Here are a few pointers on how to do it. Number one, eliminate the D word. Cross out all written references to that word. Announce to your significant other, your family, and your friends that you're not allowed to say the D word.

[00:07:18] Place a jar on your kitchen counter. Every time you say the D word, you have to contribute a dollar to the jar. Number two, read about wealth building. Buy books, read magazines and blogs, and listen to podcasts that focus on building sustainable wealth. Be choosy. Stay away from media that focuses on cost-cutting as an act of deprivation. Focus on media that celebrates wealth building as an exciting opportunity.

[00:07:48] Number three, remember, you're already free. Take a look at your bills each month. You have expenses just like everyone else. Groceries, electricity, and gas. Maybe a payment to your credit card is among your expenses. But guess what? Lots of debt-free people have expenses you don't have, such as caring for an elderly parent or supporting four kids. Getting out of debt won't set you free.

[00:08:16] True financial freedom comes from having passive investments that make enough money to cover your cost of living. Most people don't experience that, and those who do enjoy it have spent a decade or more relentlessly pursuing it. Number four, get excited about opportunity. There's a wealth of opportunity, pun intended, to build your net worth. Pick your favorite methods.

[00:08:43] You can invest in real estate, buy dividend stock funds, or start a business. The options are endless. Focus on the opportunities at your fingertips. Once you switch to this frame of thinking, you'll notice a huge opportunity staring you in the face. The opportunity to save $100 a month or $200 a month in interest payments. This isn't your get-out-of-debt plan. This is one of many opportunities in a grand wealth-building lifestyle.

[00:09:13] If you make a few extra payments on that Mastercard balance, you're not climbing out of debt. You're taking advantage of a stellar opportunity. Number five, make it visual. Post photos of all the wealth-building opportunities you want to capitalize on. If you want to own rental properties, put up pictures of a building in a location you love. Want dividend stocks? Put up a graph of historic returns.

[00:09:40] Want to see how much an extra $100 a month towards your car loan will save you? Draw it, sketch it, graph it, and hang it on your walls. And number six, write an opportunity list and post it somewhere you see occasionally. If you post it somewhere you see every day, you'll grow numb to the sight of it. It will start to blend in with the background. You're better off posting it somewhere you occasionally see, where it will catch you by surprise.

[00:10:09] Stick a copy in your sock drawer. Paste a copy to your glove compartment. Try outlandish. Tape it to the inside of your freezer so you only see it when you open the freezer door. You just listened to the post titled, Forget Your Debt. Just forget about it, really. By Paula Pant of affordanything.com. I'll be right back with my commentary.

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[00:12:05] Please support our show and let them know we sent you. Thank you to Paula. This makes me think about what happens after you reach a financial goal. Say you've been telling yourself you'll relax once a balance is paid off. You make the last payment, and before you've really enjoyed that, you're already thinking about how much more you need to save. And that next goal might be a perfectly good one.

[00:12:31] But I'd be careful about making satisfaction something that always belongs to the next version of your finances. If the rule is that you can only feel good when there's nothing left to improve, that's a pretty difficult rule to live with. And it's a common trap we talk about over on my other podcast, Optimal Living Daily. Instead, maybe it would help to decide ahead of time what reaching a goal will mean beyond setting another one.

[00:12:59] You might stop taking an extra shift or simply let yourself enjoy a day off without feeling that you should be earning more. It doesn't have to involve buying anything. And you don't necessarily have to wait until the whole thing is finished to acknowledge what's changed. If a bill that used to catch you off guard is now something you've planned for, that counts. It's great to leave room to appreciate that, even with other things still left to work on. So thank you to Paula for this one.

[00:13:28] But I'll leave it there for today. Thank you for listening. Have a great rest of your day. I'll be here again tomorrow, as usual, where your optimal life awaits.