Tag: how to become debt free

(upbeat music) – Hi, Peter Boolkah here, and welcome to today's edition of the Transition Guy. Now, today, I want to talk
to you about paying off debt, and that is a topic that
seems to be coming up time and time again, and I have
a lot of people reaching out to me and saying, well,
I'm so badly in debt. I don't know what to do. So I put together a five stage
plan on how you can get rid of debt, and really, it
starts at number one. You see, debt is all about
your relationship with money. It is your mindset about
money, and the question you gotta ask yourself
from a mindset perspective, do you have a saver's
mindset or a spender mindset? And they're two really
different ways of thinking. Savers are people that
will think about, okay, I'm gonna put this away, that away.

They're very much cautious people. They're saving for tomorrow at
the expense of some of today, whereas spenders, they're
quite happy to say, well, I want to go on holiday. I don't have the money, yet I'll put it on the credit card and
think about it later. Yeah, saver mindset is
thinking about later at the expense of today, and
a spender mindset is thinking about today at the expense of the future, and you gotta work out which one are you? Because that will determine
how you handle things, and really, in order
for you to reduce debt, if you've got the spender
mindset, you need to shift that. You need to get some help
into creating a saver mindset, otherwise your old
habits may be the habits that have actually got you
in trouble in the first place and if you continue
having those same habits and that same relationship with money, you're gonna go through the vicious circle and always end up where you've been.

Number two, discipline. In order to get rid of debt, you have to be massively disciplined. Are you an impulsive person
or a measured person? The impulsive person is that
person that sees something and they want to have it,
they'll go and buy it. They won't think about whether
they can afford it or not, they go out there and they get it, whereas the measured person,
they're gonna be thinking, okay, I want it, how am I gonna get it? Or more importantly, can I afford it and how can I afford it? Now, I know that there's
gonna be some people out there that are in the poverty trap
and they're constantly trying to find money and they
can't seem to get out of it, but I'll give you some tactics
on that a little bit later. Number three, value set. Are you exchanging time for money? So a lot of people say,
yeah, but it's okay, I've got a job, so what
am I supposed to do? I get paid this much an
hour, I get this much a week, and that's what I have to live off.

No, it's not what you have to live off, it's what you choose to live off. Yes, you may have to
live off of that for now, but the question's gonna be do you have to live off that forever? No, but that requires change on your side. How do you go from
exchanging time for money to exchanging value for money? So one of the things was I
used to work for McDonald's, and I started off on
something really pitiful.

I think it was £1.30
an hour, and back then, they had different wage brackets
for different age groups. You could've done the same
job, but if you're under 18, you got massively paid less. Well, for two years, I could
either bitch and moan about, well, that's my end and
I'm gonna have to just work on the really bare minimum
wage or I could do something about it, and in McDonald's,
you had the opportunity of the more you learn, the more you earn. So the better you became,
the more useful you became, whether you learnt all
the different stations, then each time you sort
of become more trained, you got a pay raise. Okay, and at the time, it
may have only been five pence an hour, but by the time
you did all the modules, that ended up being quite
a lot of money per hour, and then when you said,
well, every time you sort of took the decision, I want
to step up, I want to sort of learn, and I want to sort of move up in the organization, take on
additional responsibilities, that also came with money.

So that is the whole
exchanging your value. It's saying, okay, do you know what? I'm gonna make myself more
valuable to the organization because if I do that, then
I can earn more money, and the interesting thing is, yes, McDonald's provided training, et cetera, and they did all of
that and that was great. I did a lot of the
education on my own time, and that was interesting. As a 16-year-old, I took
stuff home and learnt it because the quicker I
took this stuff on board, the quicker I would move up.

Number four, it's all about budgets. Are you actually budgeting your life? Now, I run very strict personal budgets. I know what's coming in,
I know what's going out. I know what my affordability is. Okay, as a 16, 17-year-old,
I didn't know that, and a lot of the bad habits,
I mean, I got into debt as a youngster because I
never had the disciplines or the mindset of paying off debt. I just accumulated debt. Probably one of the biggest
challenges I had was that I got a credit card quite
young, and that relationship with that credit card was interesting.

I seemed to be spending,
spending, spending, and then the debt would
rise, would rise, would rise, and before you know it, it
can be quite out of control and can be quite daunting,
to say the least. So you need to budget, you need
to understand your numbers. You need to be brutally honest, where do you stand with that right now? What are the brutal facts? And more importantly, then
what are you gonna do? If you got higher credit
card debts, then you pay off the credit card with the
highest interest rate first. You look at doing a balance transfer if you can get access to 0% credit cards. You do those little things
to start shifting it. You start looking at your utilities. Can I move my utilities over? One of my favorite, it wasn't at the time, but one of my favorite exercises is on your mortgage statement,
look at your annual mortgage statement and
look at how much interest you are paying per year
for where you live.

Then think about it and say,
well, over the entire life span of a mortgage, how much interest
are you gonna be paying? And then start thinking if
you had a saver mindset, and I don't mean saving money in the bank, but if you had the saver
mindset where you started to pay off a little bit
overpayments on your mortgage, how much interest do you think would save over a period of time? Do the exercise. It's frightening, and
finally, I know that a lot of you have got a job,
you're working hard, and you perhaps say, well,
I've got nothing else. I can't do anything else. I'm just at my max.

I want you start thinking, what does your side hustle look like? How can you earn money
for yourself on the side? And I don't mean going and getting a third or fourth job for somebody else. What do you need to learn
so that you can add value to yourself so that you can
start earning for yourself? We're in a beautiful age
where we can do side hustles.

You just need to work
out what your gift is, what your side hustle can be,
and how you can earn more. Now, we can go into far
more detail on this. We don't really have the
time in this episode, but if you want any
more information around how you can start paying off your debt, how you can start adding
more value to your skillset so you can earn more because
you're adding more value to organizations and you
work around your mindset, head over to boolkah.com and get in touch, and if you loved today's
episode, please like it, subscribe, and share it so
that others can benefit also, and finally, always remember that failing to learn is learning to
fail and please stay safe.

(calm music).

i have a story that you're probably not gonna believe my friends are always like oh sad you're so smart with money you probably always knew how to invest money no i didn't i made a lot of bad financial decisions way before i started my youtube channel or became a financial coach showing you all these awesome retirement spreadsheets and strategies i was in a huge financial mess my credit score back in 2014 was 580 and owed about almost 110 000 in consumer debt and that did not include my mortgage and out of that 110 000 i owed about 47 000 in credit card debt and i had a total of five credit cards that were completely maxed out and i was making minimum payments on them and i didn't realize how bad it was until i looked at my net worth at the time and if you're brand new to my channel my name is sai and welcome to my channel so in this video i'm going to show you how i paid off 47 000 in credit card debt in 24 months making 58 000 a year and i'm also gonna share the spreadsheets i use to pay off my debt quickly and i have been debt free since 2016 and it was one of the first steps i had to take before i got on my fire journey to retire early by age 45 not only that i had a spending problem i had to change my mindset about how i use my credit cards and i was literally going to the stores bars and restaurants and just swiping my credit cards and only making minimum payments on him because i thought that was the normal thing to do so let me list the debt that i had back in 2013 and 2014.

I had a personal loan for 8 700 that i took out for my divorce attorney i had a tsp loan for ten thousand dollars which i made a separate video about and i will link that video in the description below i had two car loans and that one of them was for my divorce but i was able to trade them in and downsize my car to the bare minimum and i owed 42 000 total at the time but i was able to get rid of them pretty quickly by taking them back to the dealership then i can make a video about that in the future if you enjoy this video and here are my credit cards i had a capital one mastercard i owed for six thousand dollars i had a military star card for eight thousand dollars and if you're in the military watching this video right now you know this is a common problem in the military i had a capital one visa credit card that i owed about nine thousand dollars i had a chase freedom card that i owe for twelve thousand and i had a usaa mastercard that i owed for twelve thousand and that was a total of forty seven thousand dollars in credit card debt the minimum payments for those credit cards for 470 a month and the interest rates were anywhere between 18 and 27 let me show you the spreadsheets i used to pay off my credit card debt but first if you need help with your personal finances like paying off your debt or creating a retirement strategy you can schedule a free 10120 run to financial coaching session by visiting fisachat.com coaching so the first thing i did on my spreadsheet was listing my credit card debt from smallest to largest by balance and the interest rates were all about the same so i wanted to knock out the one with the smallest balance first and then get to the largest my income at the time was 58 000 a year so my plan was to pay off my 47 000 in less than two years i wanted to pay off at least twenty four thousand dollars in 2014 and then twenty three thousand dollars in 2015.

The first credit card i was going to tackle was my capital one mastercard because it had the lowest balance at six thousand dollars and a minimum payment was 60 a month after i significantly reduced my expenses on my budget and started working on some side hustles to bring in extra income i started to put extra money extra payments into this one credit card while i paid minimum payments on the other four credit cards keep in mind that i had already gotten rid of my car loan so i had an extra 673 a month to pay off my first card as soon as possible as you can see on the left hand side i had a plan to pay my credit cards every two weeks and i was getting paid on the first and the 15th for my primary employer i put one thousand dollars every two weeks to my first credit card and i got to tell you my first credit card was the hardest to pay off because i was still trying to get used to the new budget system so my budget had 50 expenses and 50 of that was going to my debt and this capital one mastercard was my only focus for the first six months from january to june 2014.

When i paid off the capital one mastercard in june i moved on to the military start card and because i continued to make the minimum payments for the first six months of the year my total balance was reduced from eight thousand dollars to seven eight hundred dollars at that point i was still living at a bare minimum by eating ramen noodles almost every day and driving less to work by carpooling with my co-workers so i could save money on gas because i no longer had a minimum payment for the first card i paid off i had more cash to pay towards my military star card so pretty much half of my paycheck went into this credit card and i was paying 1200 every two weeks until november when i completely paid it off so at this point i only paid fourteen thousand dollars out of the twenty four thousand dollars i had originally planned and i gotta tell you i felt pretty discouraged because my debt payoff plan wasn't going as fast as i wanted to so i did some research online and try to find out if there were any other ways to pay off my credit cards as soon as possible what i found was that as an active duty member i could apply for what's called a service member civil relief act or scra the scra could significantly reduce my interest rates with credit cards and i applied for the scra with capital one chase and usaa a few weeks later i got a letter from chase that my interest rates were temporarily reduced to three percent and they refunded thirty five hundred dollars in interest that i had accrued over the last three years capital one also reduced my interest rates to four percent and they also credited my account in the amount of twenty five hundred dollars in interest that occurred over the last four years usa on the other hand didn't give me the scra benefits so but this is fine because i just saved almost six well over six thousand dollars in credit card interest and on top of that they refunded me another 800 from the first capital one mastercard that i had already paid off so i put that towards my third credit card which was the capital one visa card by the way you can get your free fire resources like this spreadsheet by visiting firestation.com contact you can also check out the fireside chat shop and i have all of my stuff on my bookshelf at firesidechat.com shopping so in november my capital one visa card was credited 2500 and i deposited the 800 check that i got from capital one for the capital one mastercard and my chase visa card was already credited 3500 in interest so my minimum payment amounts were also reduced significantly because my interest rates dropped from roughly twenty percent to four percent and i was paying way more principal than interest at that point so by march 2015 i was able to pay off my capital one visa card at this point i had two credit cards left and i owed about nineteen thousand dollars i started to become even more aggressive by paying fifteen hundred dollars every two weeks to my chase visa card and by july i paid off the chase visa card and then moved on to the last credit card which was the usa visa card and you see how my payments increased as i paid off my credit cards right so i paid 1800 every two weeks to my usa visa card from july to december on december 18 2015 i made my last credit card payment and became debt free guys i can't begin to describe the feeling that i had when i made my last credit card payment and i didn't tell anyone about my debt payoff plan i just didn't want to tell anyone about it and i and i decided to went to this sushi restaurant and had all-you-can-eat sushi just for me and i sat there all by myself and started writing down my financial independence and retired early strategy and i was 29 years old at the time and i realized how much time i wasted by paying off my 47 000 in credit card debt but i had something else to look forward to and that is to start maximize my retirement contributions starting in 2016.

So i never had a student loan because i joined the military right after high school the most common debts people in the military have is the credit card debt and car loans i was making 58 000 a year in 2013 and 2014 but i had over 42 000 in car loans and i was spending money like i was making a million dollars a year i never tracked my expenses um closely and decided to ignore my problem until one day i thought it would be fun to create my very first network statement and that didn't turn out very well so generally you have two methods to pay off your debt and the first method is the snowball method and the second one is the avalanche method with the snowball method you pay off your debt from smallest to largest by the by the balance regardless of the interest rates in my case with the credit cards i use the snowball method because these five credit cards have very similar interest rates and when i paid off my first credit card i felt the momentum and motivation to settle my debt fast it helped me psychologically to stay on track to pay off my debt from one credit card to the next the avalanche method can be helpful especially if you have the most outrageous interest rate from the let's say the payday loan at 300 or 500 yes it's real those payday loans are so predatory it should be illegal for them to operate and paying off your debt with the highest interest rate first will allow you to minimize the amount of interest you pay for the long term you can mathematically pay off your debt a lot faster this way but it does take a lot of discipline and commitment to make it happen bankrate did a survey and found that 54 of americans are carrying credit card balances from month to month and half of those people have been in credit card debt for over a year the average person with credit card debt owes about sixty two hundred dollars and that's according to the data from the federal reserves survey of consumer finances i wanted to pay off my debt as soon as possible so i could start investing more into the stock market and i feel so ashamed about my finances i didn't want to tell anyone else including my family about the trouble i was in if you're in the same situation like i was don't give up and stick to the plan and you don't want to be in debt for 10 15 or 20 years right you have to be willing to make some sacrifices for a year two years or three years so that you can start working on your financial independence journey something else that helped me tremendously was realizing the mess i was in when i was still on active duty in the military and i understand that's the privilege that everyone will have you can apply for the scra at any time with your bank and they could help you reduce your interest rates and minimum payments what you want to do though is to pay off one credit card at a time as soon as possible i have been very responsible with my spending since i started my debt free journey in 2014 because i never want to be in that situation ever again and not only i maximize my contributions to my retirement but i can go on vacations overseas or anywhere in the states without taking out any debt if you want to know more about how we save for our retirement and plan to retire early by age 45 be sure to check out these two videos so with that said i appreciate you watching my video don't forget to subscribe and i hope to see you in the next video have a good one [Music]