“Seek opportunities to work rather than avoid it. We learn by working with intent.
Look for labor rather than for comfort. We grow by laboring with effort.
Try things beyond your current understanding. We advance by trying new things.”
-Brian Knight, host of the Daily Discipline podcast.
Hope everyone had a great week! My advice for this weekend: go easy on yourself, relax, have a beer with a friend. You’ve earned it.
Also, send along this newsletter to a friend if you’re not doing anything else.
How To Quickly Pay Down $6k In Debt and Keep Doing The Things You Love
Do you actually use a budget?
Personal finances are tricky in your twenties.
We don’t have the experience, we make little money, and most of us are neck high in student loan debt.
And hey, you’re 25 years old, you want to have fun with the money you’re making, right?
In 2019, I woke up and found myself $6,000 in credit card debt. Yes, going broke does feel like something you suddenly wake up to. There’s a famous line from Hemingway’s The Sun Also Rises when the character Mike is asked how he went bankrupt.
“Two ways,” Mike said. “Gradually, then suddenly.”
Bad habits have a way of jumping on people when they least expect it.
My gradual progression to $6k in debt was typical: nights out, vacations with the girlfriend, and extravagant shopping sprees for shit I didn’t need.
In short, I didn’t prioritize personal finances.
Credit card debt sucks—In case you needed a reminder. Interest rates and fees prevent you from doing exciting things with your money, like investing or traveling. Plus, debt anxiety leaves you a shell of your former self.
I’m proud to say I’m now clear of all credit card debt—just a few hundred dollars left to pay on one card.
The funny thing is, I didn’t sacrifice anything, change my quality of life, or create a budget to make it happen.
I read a few books and adjusted my mindset about money. That’s it.
Here’s how I did it.
Forget the spreadsheet, forget the finance apps, spend your money consciously instead
How many people actually make a budget?
And if you do, how often do you use it?
I’m not saying it’s a bad idea, but it’s an exercise that leaves many overwhelmed and discouraged. You make the thing (which takes time), then constantly update the thing because, you know, prices fluctuate.
It’s a hassle that complicates its original purpose: to monitor spending.
Instead, develop the habit of spending consciously.
Finance writer Remit Sethi says the problem with young people is they don’t know how to spend their money. “They blow their money on whatever, then reactively feel guilty about it the next day.”
If you look at your bank account and think, “I spent how much on what?” That’s how you know you aren’t spending consciously.
Treat money like Marie Kondo treats a bookshelf. Decide what things you care about and spend towards those endeavors — ferociously cut out everything else.
After looking over my bank statements and noticing the vacations, the shopping sprees, and the bar tabs. I asked myself a simple question: How much do I actually care about these things?
I like going out, but not that much. I only go out once a week now.
I like vacations, who doesn’t, but I’m really into hiking right now so I cut out all vacations unless hiking is involved.
As for clothes, I don’t even care about fashion! Let’s cut that out altogether.
I started spending my money on things I loved. Do you know what happened? I paid off my credit cards and I’m happier because I don’t spend money on stuff I hate.
Pay down the card with the least amount of debt first
Finance gurus might disagree but hear me out.
There are two schools of thought when paying down credit card debt. The first says you should pay minimums on all your credit cards except the card with the highest interest rate—pay off that card first because it costs the most.
I can’t argue with that, but I prefer the snowball method: Pay minimums on all credit cards except the card with the least amount of debt—pay that card first because you will reach zero faster.
The snowball method uses psychology to build momentum and encourage you to pay off the next card. It’s basically a James Clear habit technique transferred to your finances.
Look, it’s not the economic approach, but sometimes it helps to play mind tricks to get you moving in the right direction.
Ask your bank for a lower interest rate
People view their bank like it’s the Kremlin or something – a gutless institution that can live without you.
That’s not true.
Banks are businesses fueled by capitalism in a world where competition is fierce, and prices are flexible.
Give this a shot:
Call your bank, and ask for a favor: “Hi, I want to pay off my card as soon as possible, but I need a lower interest rate to make that happen.”
You: “But I want to pay down my debt, and another bank is offering 0% APR. What should I do! How can you help me?”
Teller: “You know what, something just opened up.”
Honestly, this works about half the time. But give it a shot – it can save you a lot of money accrued through interest if you pull it off.
Automate your bills
This goes without saying, but cut spending on all credit cards.
The only items that receive a pass should be utility bills and WiFi payments.
Because it’s a good habit. Set up automatic payments with your utility companies to your credit card then turn around and set up automatic payments on your credit card.
This system helps you avoid late fees and will boost your credit score.
Figure out how much you will pay down
Here’s the tricky part: figuring out how much debt you should pay down without starving yourself or hindering your quality of life.
The answer will be different for everyone. For instance, I’m a commercial real estate broker who gets paid large chunks of money at closings. Instead of X amount each month, I have to say 30% of this deal will pay off debt.
Here’s what I recommend for salaried employees:
Keep enough money in your checking account for a month and a half of living expenses (including things you care about). Then, submit any excess cash to paying off credit cards.
This step takes discipline, but it’s the fastest way to pay off debt so you can breathe again and start letting your money work for you.
Look, don’t beat yourself up if you find yourself drowning in debt. We do a lot of stupid things in our twenties – finding yourself in $6k of debt deserves a pass if you ask me.
Think of your debt situation as an opportunity to pick up healthy financial habits that will set you up for the rest of your life.
Better now than when you’re 46 anyway.