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How to Pay Off Debt Quickly

We’re joined by Kendall, a personal finance expert and who paid off almost $200,000 of student loans in just 3 years!

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onomy.co x Kendall of Babe on a Budget

Kendall started Babe on a Budget in July 2019 as a way to connect with others as she tackled her 200k+ student loan debt. Since then she’s been able to pay off A LOT of debt, while sharing the tools that have helped her turn her finances around along the way. She’s currently based in Austin, TX and when she’s not talking about money she’s working as a tech recruiter.

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Kendall of Babe on a Budget Blog is a personal finance expert and blogger who paid off almost $200,000 of student loans in just 3 years! In this interview we discuss some of the winning strategies she used and her suggestions for the best ways to pay off debt (& quickly!)

Kendall: I’m so excited to be here talking about some of my favorite stuff!

Onomy: Just to start off at a really high level, what are some of the most common ways that people get into debt?

Yeah, for sure. So I think one of like, the most common ways, and I think everyone can identify with this is having an emergency that you can’t cover, right. So getting into a car accident, making a trip to the emergency room, having a bill that you’ve forgot about, something like that, and then having to put it on your credit card, I think that’s a super common way. I know, like when I was in college, things came up, I’d be like, oh, you know, I didn’t save enough money for this book, or I had a flat tire or something like that. And you have to put it on a credit card. That’s a super common way to get into debt. And one of the biggest reasons why having an emergency fund is so important. So that when these unexpected things come up, you’re not putting it on a credit card, and that you’re able to pay for them, or at least mitigate how much you are putting on a credit card. That’s probably the number one reason people get into debt.

And the other one, of course, is the cost of education. I don’t have to tell you, the cost continues to rise. And more and more people are finding that, paying for education out of pocket is just not an option. So a lot of people are relying on student loans to finance the cost of their education. And then of course, a lot of people also can’t buy a home in cash in Austin, Texas, you certainly cannot. So mortgaging a house is super common as well, although I would say a mortgage is a little less problematic than having other types of debt.

Onomy: What are some of the top strategies that you tend to talk to people about when it comes to ways that they can pay off their debt?

Yeah, so I guess, I’ll talk about this in like two parts. So the very first thing is coming up with like, some kind of plan. People all the time, like, I want to get out of debt, and it’s like, okay, well, do you know how much you owe? Do you have a timeline? And most of the time, unfortunately, a lot of people are like, No, I just want to pay it off. And unfortunately, that’s not enough of a plan to get you where you need to go. So if you are finding yourself in the situation, either with student loans, credit card debt, car loan you want to pay off, take the time, and figure out exactly what you owe. Not like, Hey, I think I’m $5,000 in credit card debt. Sit down, write it out, and open your statements. It’s not fun. Trust me, I’ve been there. And figure out like, exactly what your balances are, what are the interest rates? Who do you owe? Put it all on a piece of paper or in a spreadsheet, so you have everything in front of you.

And then from there, what I really like to do is I like to reverse engineer my money was. So say, I want to be debt free by the time I’m 35. Okay, that’s great. But what does that look like? So run all of that information into some kind of calculator or something. So you can figure out, okay, if I owe this amount of money, and these are my interest rates, and I want to be debt free, by this time, how much do I need to pay a month? That’s a really great way to a figure out if your goals are realistic. So based on your income and other expenses, can you afford to make that much of a payment every single month? And if not, you can adjust. Or you might say, oh, okay, I can actually afford to pay way more than that every month, maybe I can move up that goal day a little bit. So that’s kind of like my very first tip when you get started.

And then in terms of strategy, I would say, there are a couple ways people typically attack their debt. So the very first thing you need to know is that if you want to get out of debt quickly, you have to pay more than the minimum payment. It’s the worst, I get it. But that’s kind of like what you have to do. So, there’s two like main debt payoff strategies that a lot of people use. The Debt Snowball, where essentially, you pay the minimum across all of your debt. And then you target the loan or credit card, whatever with the smallest balance, and try to pay that off. So let’s say you got $50 from grandma for your birthday, throw that at your smallest loan, maybe you’re working some overtime shifts, and you got like an extra paycheck. Throw that out your smallest loan, etc. That’s really effective, I find for people that are really overwhelmed, or maybe have like a tonne of debt, and they need a little confidence to get them going.

I had six figures worth of student loan debt, and used the Avalanche method. So the Avalanche Method is so cool, because essentially you can A) save yourself money but B) sometimes actually get out of debt faster, all you have to do is focus on the loan with the highest interest rate first, instead of focusing on the one with the lowest balance, that’ll typically save you the most money over time. And I know when I ran my own numbers, it was like a six months difference, just for allocating your payments in a different way. So that is something to really look into. There’s tonnes of great tools online that will like kind of show you the different numbers and compare the two strategies. So that’s a great tip.

And then of course, finding ways to get more money and not being cutting expenses. Right. Looking at the subscriptions you’re using. I read a crazy story the other day. So I read something the other day that said on average people spend like 200 plus dollars a month on subscriptions. And a lot of people are not even using them. Maybe you have two Spotify accounts, you didn’t realize you had. A gym membership but you haven’t been to.

So looking at like things like that you can get. Can you afford a lower cell phone plan, can you cut subscriptions, etc. And then for me what was really really important on my Debt Free Journey was increasing my income. So I know you guys talk a lot about resumes and negotiating. But increasing your income I think is like one of the best ways to pay off your loans faster. I know I switched jobs actually twice while paying off my student loans. And without doing that I would not have been able to pay off my student loans as quickly.

Onomy: So when it comes to being able to invest and having to pay off debt simultaneously, what’s your viewpoint on that? How do you sort of reconcile that in your mind?

Yeah, that’s a great question. I do love that you brought up. I think investing like people. It’s such a hot topic now. Like everyone is like, all over. Oh, shit, like to invest? So I have a, I have a couple of opinions on this. And I will say, I always kind of caveat this with saying that personal finance is personal, it really will depend on like, what your specific like goals and values and also like what your numbers are. Here’s my like, kind of rule of thumb. If you are in high interest debt, so for example, you have a credit card, and you’ve got a 22% balance, in all likelihood, the market is probably not going to return you 22%. [Inaudible 11:40] getting that paid off, right? Credit card debt costs people 1000s and 1000s and 1000s of dollars.

If that’s the kind of debt you’re dealing with, I would typically tell people to prioritize paying that high interest debt off first. Once you’ve got that paid off, if you have other debt, maybe a car loan, or student loans, which typically have much lower interest rates, I think it’s fine to start investing while you are paying off debt. And a couple of reasons for that one, you may actually be able to get returns student loan rates right now, especially if you refinance your loans. There are companies that are offering like 1% interest rates. If that’s what you’ve got in your student loans, you can invest. You’re going to get better returns by investing than you are paying off your loans. So I think that that is important for people to kind of like consider what kind of debt they’re in. What are the interest rates and make a reasonable judgment based on like, what does the market typically return? And what are my interest rates to decide what they should prioritize?

The other thing, I think that’s important too — and this is my kind of speaking to people who are in a similar situation to me — I went to law school, I was in school for such a long amount of time, and all of that time I was in school, my peers were investing, I missed out on all of those years. And I had over $200,000 worth of student loan debt. I got very lucky and was able to pay it off quickly. But there are people that will take 10, 15, 20 years to pay off that kind of debt. And you do not want to be in your 40s and 50s. And investing for the first time. So for people who are going to be paying off their loans for a really long time, you don’t want to set yourself up to be debt free, but also not be able to retire.

I tell people too, you don’t want to get in this cycle where you’re always playing catch up. Like you, you push, you push, you push to get debt free, and you are debt free. And now you feel like you’re living like you were in debt, because all of your money is going to retirement because you’re making up for the years that you didn’t invest. So I think it really does depend on your situation. But if you have lower interest, I would start investing at the very least. Get your employer match. I tell people all the time. That’s part of your compensation. If you are able to still make your minimum payments and pay your bills and investigate and get your employer match, definitely do that.

Onomy: Over long periods of time, the stock market has on average a 10% return rate, and to be able to invest some of that money as early as possible, is really going to benefit you down the line!

I posted about this somewhat recently. And it’s so jarring to like, see the numbers. But the difference between if you started investing at 31, or excuse me, 30, vs. 31, 31 vs. 32, 32 vs. 34, and it’s hundreds of thousands of dollars of difference just to start a little bit.

Onomy: Is it better to have an emergency fund or to use your savings to pay off your debt a little bit more quickly and forfeit having an emergency fund?

Yeah, I mean, I think that’s a great question. Personally, I would not, if you have beyond an emergency fund, so let’s say your six months’ worth of expenses for you is, and I’m just making up a number, please.

Onomy: Any examples?

Let’s say you’ve got six months saved worth of expenses, it costs you $5,000, and you’ve got $7,000, leave that $6,000 and throw that 2000 on debt for sure. If you’re talking about savings, and it is just your emergency fund, I don’t think it’s worth it. The last thing you want is to throw all of that money at your debt, you have an emergency, and now you’re finding yourself in debt again, it’s not worth it. I know it can be so, so, so tempting to spend your savings on an emergency fund, or excuse me, spend your emergency fund on debt, but I don’t recommend doing that. If you have excess money. Definitely do so. And if you’re not sure run the numbers, say this is my mortgage, this is my rent, and this is my insurance. This is what my bare bones budget for the month, it looks like. I can cover X amount of expenses. And if you have extra money, take that off the top, throw it at debt and then keep the rest for an emergency.

Onomy: Did you grow up with strong financial role models?

Yeah, so interesting. Like, I think my parents weren’t like, completely and we’re still talking about money. I think they’re kind of mentality it was more like you never know what’s going to behave like happening, you should have money in savings. And I’d say that was like the extent of my financial upbringing. My parents also had a couple like things they were really particular about, they never finance any of their cars, every car that they had they purchased in cash, which is I’ve carried on in my life. So I think that was really great. They also paid off their mortgage earlier. Necessarily conversations I was having with them. But like, I did observe those and carry those habits with me.

I think honestly, having money conversations is like working out. When I first started my page, I was completely anonymous. I was absolutely mortified that anyone would find my page that people would figure out it was me that I would be in $200,000 worth of student loan debt. And I just was like, I’m just going to keep talking about this until I don’t care. Anyone that knows me in my real life knows that like I have no problem talking about it now. My face is all over the internet. I’m telling people how much debt I was in. I know it’s uncomfortable, but like, I feel like I have opened myself to even like receiving more money because I’ve been open about it. Like when I was going through like the meat of my Debt Free Journey. I have friends that were offering me gigs. So it’s crazy that like talking about money really does like open up these other opportunities for you as well.

I also try to remind people like at the end of the day, like, money’s fake, like, it’s just that like we made up like, it’s not that deep, like, just talk about it. And you’re so right, like so many people, you start talking about this stuff, and you realize everyone is like, just as clueless. Everyone is, yeah, still trying to figure it out. And a lot of people are carrying the same kind of like financial baggage that you are.

Onomy: What’s one thing looking back on it now, maybe 10, 15, 20 years ago, even that you would, wish you would have told your younger self or that you would tell your younger self now just about money and managing money?

Honestly, people are probably going to hate this. Because it’s so common, but I like honestly, I wish that I had understood like the power of compound interest and investing earlier like, looking back if I had started investing when I was 18. Like, I would be retired by now like, and it’s so crazy. Because like, the sooner you start, the easier it is. If you start investing $50 a month starting when you’re 18, like you could be set. So that’s my thing. I remember, like putting it off and putting it off and putting it off, because I was like, I’m scared, I don’t understand it. What if I lose my money, etc.?

And you really don’t need that much money to start investing, even if you have a little bit, a little bit goes a long way. And the sooner you can get your money into the market, the better. And I know, we had talked about this, but like, time is your biggest asset when it comes to investing. So the sooner you can do it, the better. And that would be my like one biggest takeaway. And then the other thing would be like, I was so afraid of trying to, like learn about money, because I thought like I wouldn’t understand it. So I put that off for so long. And especially with my student loans, I would have been in a way, way, way better place. Had I like, taken the time to understand my student loans before I was $200,000 in student loans?

Onomy: This has been absolutely amazing. Kendall thank you so much. Really appreciate it!

Yeah, for sure. Take care. Bye!

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