2969: Beyond Credit Card Debt by Sierra Black with Get Rich Slowly on Creating A Financial Debt Payoff Plan

[00:00:00] This is Optimal Living Daily Episode 2969 Beyond Credit Card Debt by Sierra Black with Get Rich Slowly.org and I'm Justin Malik. Welcome back to our usual Sunday bonus episode where I share an episode from one of the other podcasts in the Optimal Living Daily Network.

[00:00:18] Today's episode is coming from Optimal Finance Daily, our second ever show. And you can follow or subscribe to that podcast wherever you're hearing this if you enjoy what you're about to hear.

[00:00:29] So with that, let's get right to the post and commentary from Diana as we optimize your life. Beyond Credit Card Debt by Sierra Black with Get Rich Slowly.org I made my last credit card payment this week.

[00:00:47] That final payment ends more than 10 years and $20,000 of credit card debt. Getting out of credit card debt is a familiar story to readers of Get Rich Slowly. You wake up to that fact that your finances are a sinking ship so you learn to track your spending

[00:01:03] and that helps you figure out where your money goes. From there, you scale back your expenses and spending. You look for ways to boost your income. You start a debt snowball. Pretty soon you're paying off debt like it's going out of style.

[00:01:17] And then one day you make the last payment. What next? Beyond Credit Card Debt. For me and probably for a lot of people, that answer is simple. Keep that debt snowball rolling. Many perpetual debtors have managed to pick up loans as well as credit cards.

[00:01:35] I've paid off my credit cards but I still have a car loan, student loans and a family loan to repay. Even though I'm still in debt, this is a milestone for me. It represents a huge emotional step and freedom from high variable interest rates. I'm delighted.

[00:01:52] Paying off that last credit card has loosened a lot of emotional energy. I'm making progress in areas of my life where I'd been stalled. I'm going running almost daily, cleaning my house and tending my garden.

[00:02:04] Kissing that credit card balance could buy didn't free up any time or money. But the weight it lifted has energized me. Keep the debt snowball going seems so straightforward.

[00:02:15] I almost expected this moment to pass by unnoticed with simply a change of address to where I was sending my money each month. In fact, it needed a little more deliberation. Which debt do I pay off now? How quickly?

[00:02:28] The standard approach is pay off the debt with the highest interest first or the debt with the smallest balance. In my case, I put the student loans last because the interest on those is tax deductible. Using the debt snowball spreadsheet available through this site,

[00:02:43] I've ordered my remaining debts in a custom priority that works for me. Applying the money I was using to pay off credit cards to extra payments on my loans will get me clear of debt in another two years.

[00:02:55] I have a confidence I never had before that I will do this. I'll be facing a debt free life. Then what? This is the real beyond debt question. The answer is as simple and complicated as my questions about what to do next with my debt payments.

[00:03:12] A debt free future. Roughly following Dave Ramsey's roadmap for financial success, my debt free future looks like this. Build up an emergency fund. You should have the beginnings of an emergency fund already wherever you are in your financial journey.

[00:03:29] Emergencies will always happen and having a cushion to help you deal with them can get you off the hamster wheel of debt. Once those debts are paid, it's time to bulk up the emergency fund.

[00:03:40] I have my starter emergency fund sitting in an ING account, but almost any high interest savings account will do. Ramsey suggests saving a thousand dollars before mercilessly attacking your debts. I've put aside about five thousand dollars because I'm freelancing for most of my income these days.

[00:03:57] I want a bigger cushion since I have less job security. Ultimately every household should have three to six months of living expenses and savings available to help you weather any financial storm. Save for retirement.

[00:04:11] We all need retirement savings and the sooner we begin saving for our retirements, the harder those dollars saved can work at building wealth for us. Depending on how long it's taken you to get to this stage, you may have some catching up to do.

[00:04:25] Figuring out what to save for retirement is complex. There are plenty of good retirement calculators that will tell you how much to save given the particulars of your situation.

[00:04:34] It's an important and confusing enough issue though that it's probably also worth seeking the advice of a seasoned professional financial advisor. Save for college. If you have kids, your next priority will be their educations. Saving for college is like saving for retirement.

[00:04:50] The sooner you do it, the more bang you'll get from your saved bucks. Most parents won't be able to save all the money they'll need for their kid's tuition. Try to save a third of the cost before they start.

[00:05:01] Expect to pay a third out of pocket while they're in school and let your children pick up a third of the tab through their own work, scholarships or loans. Save for fun. Now comes the fun part. You're an expert saver and you're financially secure.

[00:05:16] Save for that vacation you've always wanted to take. Save for the custom built road bike of your dreams. Save for a vacation home. This might be a long way off for those of us like me still swimming upstream against debt,

[00:05:29] but it's the light at the end of the tunnel. On days when living on a tight budget feels like a burden, it's nice to remember that way off on the horizon is not only freedom, but a whole lot of fun.

[00:05:44] You just listened to the post titled Beyond Credit Card Debt by Sierra Black with getrichslowly.org. I look back on the period I was getting out of debt as the most satisfying part of my money journey thus far.

[00:05:58] It is incredibly freeing to be debt free and can help create momentum to reach other financial goals. But I also remember feeling anxiety over what's next. Paying off debt is pretty straightforward.

[00:06:10] You just throw as much money at your debts as you can starting with the highest interest rate until it's paid off. And you can watch your progress with excitement as those balances wind closer to zero.

[00:06:21] But after debt freedom comes more focus on saving and investing, which is less straightforward. How much money do I actually need in cash? Many say three to six months, but that didn't feel like enough for me and my specific situation. What types of investment should I choose?

[00:06:38] What about asset allocation and retirement vehicles? Should I invest in real estate? It took me a while to figure out the savings and investment strategy that was right for me,

[00:06:48] but I ultimately landed on a year's worth of expenses in cash and a buy hold strategy of low fee total market index funds. I invest in these index funds through four different accounts. My 401k, HSA and Roth IRA, which I fully fund every year.

[00:07:05] And I also have an after-tax brokerage for any excess cash after my monthly expenses. I'm not saying my strategy will work for you, but I'm offering it up to demonstrate that I was also anxious about what's next after debt repayment.

[00:07:19] But now my savings and investing strategy feels as straightforward as debt repayment and yours can too. That should do it for another edition of Optimal Finance Daily. I'll be back tomorrow as usual, so I'll see you there on the Wednesday show where your Optimal Life awaits.