[Music] when you finally decide to pay off your debt you want that debt to be gone immediately but there are a few ways to get out of debt that will actually leave you in a worse financial situation than where you started so today I'm warning you about some of the worst ways to pay off debt so you can steer clear of these common mistakes and do it the right effective way now before we jump in make sure to subscribe and share this episode with a friend so they can avoid these traps as well all right the first mistake I see a lot is shuffling debt so listen you're not addressing the root issue when you're doing this and a lot of people just move their debt around because you know for different reasons and we'll talk about those but the point here is that just because you're shifting numbers around doesn't mean that your behavior is changing and always remember when it comes to personal finance your behavior change is what's going to take you into the future long term of winning with money it's not going to be the math it is you and your behaviors and your rhythms and your habits around money so when you're shuffling money around you're just prolonging the issue by just taking on different kinds of debt so there's really five ways people do this number one is debt consolidation and so it sounds great because again people go after the interest rate and they say well we can consolidate all your debt in this lower interest rate and while mathematically that's great what ends up happening is a lot of these companies end up charging extra fees and sometimes if you don't pay in the right way and the payment plan and all of it you get yourself in a bigger mess and so you're putting a third party into your financial life and you don't need to do that because again the interest rate isn't your issue your issue is the idea that you know going into debt and then now paying it off and again debt consolidation the only time only time I would look into it is with student loans and that's about it because again people use Deb consolidation with other types of Consumer Debt but they don't address the issue they're just addressing the interest rate next is a personal Lo so again we've seen this a lot where people like go and just take out a big loan and they consolidate all their debt into a personal loan now there are a few exceptions to this option you know we we see some situations but overall overall again I would not choose this path because again you are now taking on another loan even though all the other loans are going into that loan so again it's just this idea of moving your debt around but the sooner you just accept the fact of hey here's all of my debt and keeping it separate even though some interest rates might be higher you actually get more of the behavior change as you're paying it off next is a helck and so what you're doing is you're taking the equity from your home and basically borrowing on that equity and people are doing that in the same way they do a personal loan they take out a helck use that loan to then go and pay off all the other debts but now they still have a helck and what you're doing is you're basically stealing the equity from your home and possibly the future earnings of that equity when you pull it out into a loan also a 401k loan people will go and borrow on their 401k and what's hard about that is if you don't realize the fine print if you leave your job in some companies you have to pay back that loan within 90 days now each company is different but there are some risks involved in this and then also you're unplugging your long-term wealth building play I mean what could be investing there and making you money you're pulling that out into a loan so not smart either there's also the credit card shuffle so this is very common you know you're again you're rotating your credit card debt and paying off One credit card with another credit card because of the interest rate and again it's just this idea of moving debt around so all of these strategies if you've done them you are not dumb or stupid none of that no no no these are very common practices in the world because people are motivated to get out of debt but again that issue specifically is only addressing the math it's mostly addressing the interest rate it's not addressing you as a person and the fastest way for you to get out of debt is when you get those quick wins which is why number two is so important to remember people use the debt Avalanche instead of the debt snowball so what we teach is when you get out of debt you want to list out all of your debts smallest to largest regardless of the interest rate pay minimum payments on everything and attack that smallest debt first and we say that because when you pay off that smallest debt even if it's a $700 credit card debt you pay it off and it's this encouragement I mean it's literally this zap of Hope of realizing oh my gosh I'm changing my way I'm doing something I've never done before we paid it off in full we've never done that okay that's possible so what what else is possible and then you look at the next debt and you say okay let's put some extra stuff you know income and cut expenses and we're going to pay off that second smallest and then it's paid off and you're like wow I can do this because you start to see that you are the magic to you winning with money and those early quick wins is huge for Behavior change versus the debt Avalanche would say to list out your debts by highest interest rate to lowest interest rate so again you're attacking the math side not the personal side so mathematically that would be correct but overall again it's going to take a smaller effect because you don't get as much hope in your in your system and in your life when you're trying to pay off the highest interest rate the third way to not pay off debt is debt settlements and so what ends up happening with a lot of debt settlement companies is they just tell you to stop paying on your debt because they want it you know to go all the way down and go into collections and then they can step in and possibly get you payment plans and different debt levels and all of this but what happens is it completely trashes your credit it puts you not in a great financial situation and again it's kind of one of those like can be a copout type type Industries where they really do prey on people that are struggling and when we see people and talk to people who have a lot of debt you know they they want to jump to one of these companies because it feels like they can help me but as soon as you realize okay I'm the one that can solve this problem I can do this then you realize you don't need these companies and you don't don't need all these tricks you can just do it yourself which is a beautiful thing all right before I share the rest of my what not Tod do list I want to tell you about one of our sponsors delete me I saw a headline recently that really caught my 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you say Hey what if we just did scorched Earth we did nothing like sacrifice a major for nine months for 10 months for 18 months whatever it is and not go out to eat cut subscriptions like anything that is not not really food shelter utilities Transportation insurance or Child Care like let's lower everything then you're going to see progress because that's going to mathematically create margin for you to have extra money to throw at the debt to get out of debt faster but your lifestyle is going to have to look different while you're paying off debt number five is not giving while paying off debt so this is kind of a controversial one but it's one of these things that I just think is really important it's not talked about a lot but when you are looking at your overall Financial picture The rhythms and habits that you create regardless of where you are financially are going to take you longterm where you want to go and giving I believe needs to be part of your financial picture because of what it does to you you know we can talk about math and interest rates and investing and like all this stuff and that's all really great but you the person that's handling your money your motivation around how you handle money and what you do with money is everything and so that's why money can be vilified cuz a lot of people see people with a lot of money and they're like mean rude and shallow and they're like oh I don't want that look what that money did to them but the truth is money didn't do that to them necessarily there was a part of them that was always that and it continued to magnify with money because your character and who you are in the process is going to be everything and I I don't want money to be a sense of of an idol for you or something that completely ruins your life because it can for a lot of people and so working on who you are in the process even if you're in a paycheck to paycheck cycle even if you're paying off debt when you are giving and living life with an open hand you really are going on the spectrum of being selfish to selfless I mean there is something about letting go and giving it it changes you it really does yes it gives you Joy and it's incredible when it happens it's so fun it is so fun but also what it's working in you is everything because as you're growing and Building Wealth I want that to be magnified and if that's not there at all there's nothing to be magnified in that area so be giving regardless of where you are financially now one tool I would recommend if you are trying to get out of debt and stay out of debt is a great budgeting app and my favorite is every dollar because you'll see that budgeting is something day in and day out you're going to be looking at it's you're going to be keeping track of your money know what's going on and be able to plan especially if you're getting out of debt finding that margin so having a great budgeting app to help you is everything and every dollar is my favorite I'll put link down below and check it out cuz you can actually build your first budget for free now if you want to keep avoiding these kind of money traps you'll definitely want to check out my episode on the financial Trend that's robbing you blind coming up next or if you're listening on podcast click the link below all right you guys remember to take control of your money and create a life you love
