How to deal with debt and stay positive

Bright Dickson (00:11):

That funky music must mean it's time for another episode of Money and Mindset With Bright and Brian, the podcast where we talk about taking charge of your financial and mental well-being. I'm Bright Dickson, a senior purpose advisor at Truist, and I've spent my career helping people reach their full potential by living with intention and with care.

(00:29):

For our very first episode of 2024, I'm joined, as always, by my pal and co-host, Brian Ford, head of financial wellness here at Truist. He’s spent his career helping people reach their full potential by building financial confidence. How are you, Brian? Do anything fun over the holidays?

Brian Ford (00:45):

Yeah, I am doing great, Bright. It's good to be here. Happy New Year to you and our listeners. Boy, I tell you, mine was just filled with food, family, faith, and football, and those are just a few of my favorite things, so I had a great time. But what about you, Bright? How were your holidays? How's this new year treating you so far?

Bright Dickson (01:07):

Yeah, my holidays were pretty chill. I think probably less football than yours, but a lot of food for sure and a lot of family, but all good. And the new year is looking interesting so far. I'm very curious about what's going to happen in this next year. There's lots going on. And I hope our listeners' years are off to a great start as well.

(01:28):

And today we're going to talk about debt. This topic is super important year-round, but it might be especially relevant this time of year. So if you're thinking of a financial New Year's resolution you might want to tackle, coming up with a debt management plan might be near the top of that list. Or maybe you're taking a closer look at the credit card bill for your holiday shopping and wondering what you might do differently if you could go back in time a few months.

(01:55):

And let me say you wouldn't be the only one. I've got a stat here that says that in 2022, nearly one in three Americans took on an average of more than $1,500 in holiday debt.

Brian Ford (02:08):

Yeah, Bright. We know that debt can be a major issue for a lot of folks. And it's not just after the holidays. If it's not consumer debt like those pesky credit cards, maybe it's student loans or medical debt. The fact is that debt is a big part of many people's financial lives and if we don't have a plan to tackle it, it can be the cause of some significant stress.

(02:30):

So we're going to share some tips to help you identify and address some of the more common ways we get ourselves into debt. We'll dive into some strategies for paying off debt and setting yourself up for long-term success. And we want to share how you can cultivate a positive mindset to help you feel and stay on track with your goals. In other words, we've got a full agenda today. You ready to go, Bright?

Bright Dickson (02:54):

Let's do it.

OK, so we mentioned in our intro a few things that can contribute to debt: holiday shopping with a credit card, student loans, maybe a bill from an unexpected car repair. Brian, to start the conversation today, I think we should probably talk a little bit more about the reasons people get or go into debt in the first place. So what kinds of debt are out there and are some kinds better or worse than others?

Brian Ford (03:26):

Yeah, that's a good question, Bright. And I think that's an important thing to distinguish right off the top. I think most of what we're going to be talking about today is consumer debt, meaning the credit card debt that can all too easily rack up from stuff like impulse buys or getting a little overboard on a big expense, overspending on big ticket items like furniture, electronics, stuff like that.

(03:48):

And a lot of people do carry credit card debt. There's some recent data from the Federal Reserve and U.S. Census Bureau. This research states that the average American household carries about $7,900 in credit card debt a year. And I would say this consumer debt is where I see most people getting into trouble. It's the kind of debt we want to be the most careful with.

(04:15):

For one thing, the interest rates, they're considerably higher than they are with other kinds of debt we're going to talk about. But the other thing is that consumer debt is just what it sounds like. Bright, if you think about it logically, we're going into debt for something that typically goes down in value, or the fancy finance word for that is depreciate. So we're going into debt for something that goes down in value as we consume it while the amount that we owe is going up as interest accrues.

(04:44):

Think of a cheeseburger. We put that baby on a credit card, we eat it, and then that thing is immediately worth less than when we first purchased it, but it's potentially costing us more if we don't pay our card off in full as interest gets tacked on.

Bright Dickson (04:59):

Yeah. So I feel like we can probably all agree that we don't want to go into debt over a cheeseburger, but what about an emergency expense that you have to put on a credit card?

Brian Ford (05:10):

Yeah. This is the exact reason why we talk about emergency accounts so often on this podcast. When we have one of these accounts, it really keeps us from having to go into credit card debt when an emergency occurs. We know emergencies happen, and if you don't have an emergency savings account, that's OK, we're going to get one. Later in the show, we're going to talk about some debt management strategies that can help you pay down that kind of consumer debt and then you can start to save more.

Bright Dickson (05:36):

And what about the other kinds of debt? So outside of consumer debt, how do we think about those?

Brian Ford (05:42):

So generally speaking, those are going to be student loans, car loans, home loans. If you're a business owner, you may have a business loan. And I think of these as different than consumer debt. What distinguishes this type of debt from consumer debt besides much lower interest rates is that these things typically either appreciate in value or they can help us build financial confidence. So let's look at a couple of these things.

(06:08):

So in education, it's an investment in yourself and your earning potential. Your home... So if you've got a mortgage, it's not only a nurturing environment to raise a family in, but it can also appreciate in value over time, sometimes considerably. And a car... Let's talk about a car. Certainly, it depreciates after you buy it. However, it's probably depreciating a little slower than that cheeseburger. But more importantly, if you live in an area where you need a car, it also allows you to get to work, earn an income, but also pursue your financial goals. Not to mention that you need reliable transportation to support many of your values, whether it's spending time with your family or at church or pursuing your hobbies, whatever the case may be.

(06:49):

Now with that said, Bright, we still need to be really careful with these forms of debt. Sometimes, I hear financial gurus saying these debts are fine and really it's just consumer debt we want to focus on. And while I agree with them to a certain extent, we do need to be careful with these forms of debt. What I mean by that is we’ve got to be careful with luxury cars, extravagant homes, unnecessary student loans, and sometimes, risky business investments can get us into plenty of trouble as well.

(07:17):

However, Bright, it's possible to be careful with debt and live within our means. And I'll get a little personal here for just a minute. So for example, my wife and I, we both have four-year degrees. I've got a master's degree. Neither one of us took out student loans. We both worked two jobs to pay our way through school. We drive reasonable cars, they're paid off in full. We waited to buy our first house until we had a 20% down payment saved. We used a conservative 30-year fixed mortgage that we knew we could afford. And by the way, we waited quite a while to buy a home, and our friends thought we were crazy and I was like, "Look, I just don't think we can afford it quite yet."

(07:56):

Also, I'll say when I started my own business, I was always very careful with business debt. When it comes to credit cards, I either pay them off in full every month or I just don't use them at all. Now, this was not an easy road. We made significant sacrifices to accomplish all of this, but we are happy with our choices.

(08:14):

And my point here isn't to brag. In fact, I want to acknowledge that we're just normal folks. We were just fortunate to learn very early in life that there's a different way to approach money and this way may not be for everyone, but I share my personal experience here just to illustrate that overall, your debt should be appropriate relative to your income.

Bright Dickson (08:36):

Speaking of, Brian, I'm going to make you proud, I hope, right now by asking about DTI, which means debt-to-income ratio. Just as a reminder for you.

Brian Ford (08:47):

Whoa, I love it. Starting out the new year with some pretty big lingo.

Bright Dickson (08:54):

Yeah.

Brian Ford (08:55):

I like it. We're going to make a financial nerd out of you yet, I am confident of this. Yes, I love that. So you'll often hear about the debt-to-income ratio when you're applying for a home loan. It's a figure that lenders use and it breaks down pretty simply. It's basically just the percentage of income that's going toward your debt payments. This includes your mortgage, everything, anything kind of debt.

(09:20):

So everyone's a little different, but a good rule of thumb is to keep your debt to income ratio below 40% of your income. So if your gross income is $6,000 a month, we're bringing in six grand a month. You want to look at 40% of that. Your monthly debt payments including your mortgage, your student loans, any consumer debt payments you're making should be less than $2,400 a month. But keep in mind that many lenders ideally would like it to be around 35% or less.

(09:49):

So before we get any further into the nerdy financial side of dealing with debt, Bright, I want to ask you about the psychological piece of this. So from a mindset perspective, why is it important to figure out what kinds of debt you may be dealing with?

Bright Dickson (10:03):

Yeah, that's a great question, Brian. So if you're managing debt yourself, it's important to understand where it came from. You've got the number, but there's a story behind that number, and understanding how that story unfolded can help you take the right action to deal with the debt itself, but also to address the root causes that may have gotten you into debt in the first place. Right?

(10:29):

So to answer your question a little more specifically, Brian, I think you have to understand what your mindset was as you accrued this debt. And if we're talking about credit card debt, there may be those times when you have to pay an unexpected medical expense or something like that. It was what you had to do in the moment. But sometimes you do have more choice around it, and I think a lot of times we have more choice around it and we should be able to understand why we made those choices. And I think hypotheticals are probably going to be useful to explain what I mean here.

(11:01):

So let's say you made an informed choice to take out student loans because you value education and that education is going to then help you have the career you want. And if those loans were reasonable and you have a plan to pay them, that's one thing. So that's intentional. That's really considered. And there's a plan involved. Same goes for a reasonable car loan or an affordable mortgage on your house, all of that.

(11:27):

In those cases, you're taking on debt because it's going to help you live the life you want to live and get closer to your purpose. Paying that kind of debt doesn't need to feel as stressful as the other kinds of debt. So you're making investments in your future and well-being and that debt is part of your plan.

(11:44):

But here's another hypothetical. So let's say that you booked a big expensive trip that you knew you couldn't really afford, and then you ordered six pairs of shoes online and now you've got this credit card debt that you really can't keep up with.

(12:00):

OK. So why did you make those choices? Maybe you were feeling some FOMO because of friends or something you saw on the socials. Maybe you were dealing with some insecurities or this self-defeating keeping up with the Joneses thing. Maybe that Instagram ad for those shoes just hit you at the right moment, they're very good at that. In those cases, I think you have to really ask yourself if whatever short-term satisfaction you got from that credit card spending is really worth racking up the consumer debt, especially when you might be able to put that money toward something that's actually more important to you.

(12:38):

If you can identify why you made that choice to go into debt, then you have more control over deciding whether that choice really lines up with your values and your priorities. And I think there can be some fantasy type thinking, some magical thinking around why we go into debt, and you don't want to deceive yourself. So you have to be realistic. Take a look at those choices in order to take more control over the choices you'll make in the future.

Brian Ford (13:03):

Yeah. Totally. I appreciate that perspective, Bright. I like contemplating the why behind some of our actions and decisions. And it reminds me of something that I often do when I speak around the country, specifically when I go to high schools or universities, I'm speaking to young folks.

(13:21):

What I'll do is I'll bring out this big 20-foot-long, 30-pound chain, and I drop it on the stage for drama's sake and it is loud. Usually I then ask for a volunteer. People are pretty unsure of that at that point, but normally I'll get somebody, I'll pull up a big strong guy, I get a volunteer from the audience, and what I do is I just simply say, "Hey, can you pick up that end of the chain?" And I ask them, "Is that very heavy?" And they're like, "Nah, it's not very heavy."

(13:50):

And I'm like, "Yeah, no, that's a new flat screen TV you bought with a credit card and it's not that heavy, right? You're talking about a $30-a-month payment. That's not bad." So put that down. So pick up this end of the chain or maybe the middle part of the chain, which is certainly heavier but not too bad. And I'm like, "Is that heavy?" And they're like, "Nah, it's not too bad." I'm like, "Yeah, that's just a new SUV with all the modern luxuries. You're talking $400 a month. It's heavier, but it's not unbearable."

(14:16):

But then I have them start picking up the chain all at once, and then I start to wrap them up in the chain as these payments accrue and I start to give other examples of debt payments that we can all find ourselves getting into. And let me tell you, the chain starts to get heavy. It gets uncomfortable for this individual.

(14:33):

And I think this is a useful way to think about consumer debt. You pick it up bit by bit and it seems manageable at the time until the next thing you know you're carrying around all 30 pounds of it. These are heavy chains that can keep you from doing some of the stuff that's important to you and living out your values. Now of course, you can avoid the weight of those chains by staying away from consumer debt that you can't handle in the first place. But, Bright, for people who are carrying the heavy chains of consumer debt, what kind of mindset advice do you have that can help listeners stay positive?

Bright Dickson (15:06):

Yeah. So Brian, let me first say that I love a good prop and a good demo, and that giant chain I think is a really great visual for people to think about and think about what debt can feel like. I also want to say that I really like the image I have in my head of you lugging that chain from your car through a parking lot through a building. I like that.

Brian Ford (15:27):

Very true, by the way. Very few people think of that. Yes, it takes a while.

Bright Dickson (15:32):

When you're a facilitator, you’ve got to think about all the logistics of all the stuff. Anyway.

Brian Ford (15:35):

Yes.

Bright Dickson (15:36):

So to answer your question and to build also on what we were talking about a minute ago, finding out the why behind spending and your debt can really help a lot, but you also don't want to ruminate on it. You don't want to dwell on it. So rumination, that word, which is a funny word, it comes from this class of animals that we call ruminants, so like goats, cows, sheep, they're all ruminants. And Brian, I don't know how many cow pastures you've seen in your day. I would bet a few.

Brian Ford (16:07):

A few, yeah.

Bright Dickson (16:08):

Yeah, a few.

Brian Ford (16:09):

I didn't know we were going to be talking about biology today though. This is zoology?

Bright Dickson (16:12):

All of the ologies mixed together. But you know how cows, right, they're sort of famous for just chewing on their cud over and over and over. That's part of their digestion.

Brian Ford (16:23):

Yep.

Bright Dickson (16:24):

That's what ruminating is, right? It's going over something over and over and over and over again. And so when we talk about rumination in a psychological context, it's dwelling on negative events or negative things or negative beliefs or thoughts and just going over and over and over them the same way the cow chews on the grass over and over and over.

(16:45):

And that doesn't help because we can't change the past. When we're ruminating, we're likely not taking action, and so nothing changes and then we ruminate more, right? So it's this self-reinforcing cycle. The best cure for rumination is to take action, and to take action to address whatever it is that you're ruminating on. The specific action will depend on your unique situation, but action is the cure. Action's the way out.

(17:13):

Knowing that, that you can take action, is in itself motivating and you can start to feel better about dealing with the debt and breaking those chains once you take the first step forward. So coming up, we're going to go from the why to specifically how, and we'll talk about some ways you can deal with that debt stress and pay down your debt. Brian, shall we?

Brian Ford (17:35):

Let's go.

(17:45):

All right. Before we dive into some strategies for dealing with debt, let's open up the inbox. Every month, we get some great emails from our listeners. Just a reminder, that email is AskBrightAndBrian@truist.com. We love reading your messages, so please send along your suggestions for future episodes, questions for Bright or myself, and anything else that's on your mind. We may share your message on a future show. OK. So here's what one of our listeners wrote.

Jealous in Dallas (18:16):

Hello, Bright and Brian, I recently listened to your episode about all the money issues that can come up between friends and in friend groups. One of my closest and oldest friends makes significantly more money than I do. We still hang out all the time and can always find activities that are either free or that we can both afford that we can do together. But I do get jealous when I see on social media or hear about her doing more expensive activities with her wealthier friends.

(18:45):

This feels like more of a me problem than a her problem, but is it something I should talk to her about? How can I feel less envious of my friend's higher income and the things it affords her? Sincerely, Jealous in Dallas.

Brian Ford (18:59):

This is a good question, Bright. Let me start out by saying for our listeners who didn't hear the episode that our friend Jealous in Dallas here is referring to, it was called "How To Talk About Money With Your Friends." And it's definitely worth going back to for a great conversation around dealing with these kinds of issues. OK, Bright, what would you say to this listener's particular question? What have you got for us?

Bright Dickson (19:23):

Yeah. Jealous in Dallas, I get this and I think a lot of our other listeners will too, and it's a hard spot and I would agree that this is more of a you problem than a her problem. But it's also something in your relationship and that has to be addressed too. But in terms of how to deal with your me problem here, one thing that I would recommend not just to this listener but to everybody, is to institute in your life some type of gratitude practice. And I think this goes right to the heart of our conversation around your mindset towards consumer debt.

(19:59):

If you're dealing with debt stress or trying to adopt a mindset that will help you better manage debt, you've got to do things to build yourself up. And a gratitude practice can be really helpful to start training your brain to notice less of what you don't have and notice more of what you do have already. We've got to train our brains to do this. And I think that some of this consumer debt comes from this moment of feeling like in some way I don't have enough and whatever this thing is is going to make me feel like I have enough. And we know over and over that that just doesn't work, right? That's the hedonic treadmill again. And having a gratitude practice can help you cultivate and understand and train your brain to recognize how much you do have, and that can help you rein in your consumer spending. And it can help you improve your relationships with your friends.

(20:54):

So for our listener who write in, for our Jealous in Dallas, you could even include that friendship itself as something you're grateful for. And that's a great way to have a conversation with that friend about your feelings because if it's an issue for you, it's an issue for the friendship. And if you approach it the right way and own your part of it and just let them know that this is what's going on for you, that can lead to a really interesting discussion that can bring you actually closer.

Brian Ford (21:23):

Wisdom. So, Bright, from a practical standpoint, what are some examples of a gratitude practice we can adopt?

Bright Dickson (21:32):

So a really popular one, and the one that I use and have been using for years and years is the gratitude journal. It's really simple. Every day, you just write down three things you're grateful for and why. So not only "I'm grateful for my friendship," but "I'm grateful for my friendship because she helps me grow and we have a lot of laughs together and she's my person and she's there for me." So being specific about what it is and why is really helpful in all of these, but also especially in the gratitude journal.

(22:03):

And you just do that every day and you will notice a difference. It's not a miracle cure or anything, but you will notice a difference. You'd also write a gratitude letter to people in your life that you're grateful for. Just go out of the way to thank them and let them know that they're valued and what they've done for you. And if you want to go all out and you think you really need a boost, you can do a gratitude inventory and create a standing list of a hundred things that you're grateful for.

(22:30):

There are so many gratitude practices out there. If you're interested in this, give it a Google. There's some just great ideas. Play around, see what works for you, and choose whatever is best for you and more sustainable. What about you, Brian? What would you say to our friend, Jealous in Dallas? That sounds like a good title for a rom-com or something.

Brian Ford (22:51):

Yes, I like that. I hope she emails us back. I hope we hear more and her signature might even change with some of that really good advice. I like the gratitude inventory. That's something that works well for me. I'll just say also that for a very long time I try my best not to compare myself to others. It's not easy, but after years of conscious practice, I've gotten better at it and because of it, I'm happier.

(23:17):

And I'll say, Bright, it's not just about not comparing myself to others doing better than me. You know, as that tends to breed jealousy. I'm also careful not to compare myself to others who aren't doing as well possibly as me because this can breed laziness, at least for me, and I try and avoid that. So I work hard to avoid comparisons and practice gratitude. It’s a good conversation. I appreciate that.

(23:41):

OK, friends, as a reminder, you can reach us at our email address, AskBrightAndBrian@truist.com. You can remain anonymous or use a fun little sign-off like today's listener, Jealous in Dallas. That was fun. We love getting your messages. All right, Bright, I am ready for our next segment where we will dive into how to get out of debt. You ready for this?

Bright Dickson (24:05):

I'm ready.

(24:06):

OK. So in this segment we're going to explore some strategies for paying off debt and balancing it with your other financial goals. Before we do that, Brian, we've already explored how shifting your mindset can help you take action to deal with debt. Are there any other tips that you'd have for people who are just trying to avoid debt in the first place?

Brian Ford (24:38):

Yes, for sure. I think this is an important point because for a lot of us, the challenge is not just getting out of debt, it's staying out of debt. So one thing I want to talk about before we get into this actual debt reduction plan and something I've seen others do successfully is just realizing what's at stake. So in our financial wellness classes at Truist, I like to ask people, "What does paying 14% interest really mean to you?"

(25:07):

And I give the example of a credit card interest rate of 14% on a $15,000 credit card balance. So what does that 14% actually cost you? One answer I hear is $2,100 an interest per year. That’s a good answer, but it’s not completely correct because you’re not just spending the 14% per year on these finance charges, you’re failing to earn the interest you could have by saving and investing that $15,000. So follow me here just for a minute.

Bright Dickson (25:38):

OK.

Brian Ford (25:39):

So if you invested that $15,000 and then added that $2,100, which is the interest you would've been paying, after 30 years of averaging a 12% return on your money, it would compound to over $1 million. Now I realize this is kind of a crazy extreme example. However, it's important to realize that there is a big difference between paying interest and earning interest.

Bright Dickson (26:08):

Yeah. When you put it that way, Brian, what you're saying makes a lot of sense. So here's another thing. I know you've written before about this idea of delayed gratification, and that feels to me especially relevant to this topic of earning interest and also to debt more broadly. Can you explain this principle of delayed gratification to our listeners? What does that mean in this context?

Brian Ford (26:31):

Yeah, to build on something I was saying in our first segment, we want to be careful going into debt for items that depreciate, that are going down in value, and delayed gratification is the principle at the heart of this issue, the ability to give up something good now for something better in the future. Now, there's nothing wrong with wanting to buy an expensive toy, but you're probably going to be better off setting a specific savings goal, putting that savings goal on autopilot, saving up, and then paying for it in cash.

Bright Dickson (27:04):

Yeah, that makes sense. And part of me too, Brian, I don't like the idea, but it's like, I know you're right, but I don't like it. So let's say that someone has made that mindset shift, right? And they've made the decision to not take on any more consumer debt. What's next?

Brian Ford (27:20):

Yeah. I have a very specific kind of name for this. I call this making a consumer debt commitment. You have to be at a point in your life where you're like, "I'm done and I'm committing to doing something different." And so I'll give you the abbreviated four-step process of what I recommend to folks who are willing to make this consumer debt commitment.

(27:40):

The first step is to set a specific goal that you're not going to borrow money for unnecessary consumer items. I do think letting some of your close friends or family know about your goal so that they can help you stay accountable, I think that's a good thing. Tell someone about it. But set that goal. Second, I recommend taking your credit cards out of your wallet or your purse, keeping them in a safe, keeping them out of reach, making it so that it's not so easy as you go through this process. So that's number two, separate yourself from the cards just for a little while.

(28:11):

Step three is to commit to staying within a budget. Remember, your budget can change over time, but it should feel simple and it should work for you long term. And then step four is the fun one. Once you've started to eliminate consumer debt that you owe, you're going to free up a significant amount of monthly cash flow. Decide now before you even get out of debt where you want that cash to go.

(28:35):

So my advice is to come up with an automatic savings plan, because remember, to stay debt-free, you're going to want to have not only an emergency savings account, but you're also going to want to save up for some of those major purchases ahead of time. So, Bright, you always know I like giving these savings accounts a specific nickname. So for example, if you're saving for a vacation, call it "family travel" or something fun. Or take holiday spending, for example, call it "Christmas 2024." And the best time to start saving for those things is now. I don't think we're breaking any news here on the Money and Mindset podcast, but the holidays are coming again in 2024. Christmas is on December 25th, Bright.

Bright Dickson (29:19):

And yet it surprises me every year, Brian. How does that happen? I don't know. And you know what? Next thing we know, they're going to be playing Christmas music at the supermarket in February just to keep us in that mindset.

Brian Ford (29:35):

No. No. No. We're just talking about savings accounts that are automated. You can set it and forget it. I love Christmas music, but I think only playing it during the holidays is what makes it special. So I don't think we're going to go that far yet. But right now, now's the time to be thinking about it. We just got past the holidays, you might be feeling a little bit of stress about the consumer debt you're in right now. So now's the time to be thinking about that.

(30:03):

So let's set up an account specifically for the holidays. Every month, you can automatically save $20 or $50 or whatever works for you in that account. And by the time November and December roll around, you're going to have hundreds of dollars saved to spend on gifts or a trip to see family or whatever you want for the holidays.

Bright Dickson (30:20):

Yep, it makes sense. Brian, we've talked about staying out of debt and getting motivated to tackle your debt issues. What about an action plan to pay off the debt you might already have? How do you do that?

Brian Ford (30:34):

All right. So let's roll up our sleeves. Let's do this. So, if some of our listeners are wanting to get rid of some of their debt, let me share with you my favorite debt elimination strategy, which I've seen work for thousands of people, and I've used a lot of different ones. This is my favorite.

(30:52):

So the first step is to simply write down all of your debts. Let's just get those on a piece of paper or a spreadsheet. Next, I want you to separate your consumer debt from those other types of debt. So in other words, set aside your mortgage and your auto loan and your student loans for just a minute. We're going to focus first on your consumer debt.

(31:12):

OK, now that we're just looking at a list of your consumer debts, let's focus on those for just a minute. The first thing I want you to do now that you've got that simple list of your consumer debts is I want you to look for those debts that are under $1000. So, the total amount that you owe is a thousand dollars or less. Let's put those at the top of this list, starting at the smallest ones. So this might be a couple of credit cards, some furniture stuff, whatever. I want you to first pay off those relatively small debts under a thousand dollars regardless of their interest rate.

(31:46):

So when you're looking at debts under a thousand dollars, the interest rate, it really doesn't matter too much when you do the math, but what I found is that when you knock out those little ones, you free up your cash flow and start building momentum. And those psychological wins can help propel you forward as you deal with the rest of your debts. So with those debts under a thousand dollars out of the way, you then can start to work on the rest of your consumer debt in order of interest rate, higher interest rates at the top, lower rates at the bottom. So again, you'll start going from highest interest rate to lowest. You'll want to work your way down the list and pay the debts off at the highest interest rates first. That's pretty simple.

(32:29):

Now it's important to remember that you want to keep paying the minimum payment on all of your debts so that your credit score stays intact. But any extra money, you will put towards paying the debt off at the top of the list. And once you knock out a debt completely, you'll put your extra money to the next debt on the list. And as each debt gets paid off, you'll free up more and more money to put to the next debt. And after a few, you'll build tremendous momentum. And eventually, when those consumer debts are completely paid off, you're going to feel amazing. It's been so fun to watch so many people do this.

(33:07):

And when you're done with that, if you want to keep things rolling, sure you can start paying off your other debts like your auto loans, your student loans, your mortgage. I'd recommend starting with your auto loans. Or once you've paid off your consumer debt, you can start to set up some of those automatic savings accounts, those major purchase accounts, or do a little bit of both. But your main goal is to first get rid of your consumer debt. And one more thing I want to add, Bright, just as I conclude this debt pay down strategy is that paying down debt doesn't have to come at the expense of your other financial goals. As we've talked about, by taking on your debt, you're actually freeing up your money and giving yourself the opportunity to save and invest more long term.

(33:46):

So if you're asking yourself the question, "Should I pay off debt or invest?" Your answer should, of course, depend on you and your priorities and your unique financial situations. But by and large, I think for most people the answer is going to be you can do both, which I think takes us right back to the mindset part of the equation. So, Bright, how can folks think about their priority-setting when they're dealing with their debt?

Bright Dickson (34:14):

I think you have to ask yourself what's going to bring the most happiness and security in the long term and make decisions from that perspective as often as you possibly can. I think that's my biggest takeaway from today, is the importance of being really clear-eyed about the decisions that you make and knowing that you're making a decision when you're making a decision. When you understand those motivations for doing something, that helps you understand better how to motivate yourself. And that's true of paying down debt or dealing with any kind of financial challenge or other challenges in your life.

(34:49):

And to me, Brian, this just goes back to our old, time-worn, oldie but goody thing of control what you can control, right?

Brian Ford (35:00):

Yes.

Bright Dickson (35:00):

This is all about, for me, controlling what I can control in the future as I control what I can now from maybe the mistakes or just circumstances of the past. Brian, what about you? What's your number one takeaway from everything we've talked about today?

Brian Ford (35:20):

Yeah. I want our listeners to know if they've got debt, look, take a deep breath. I think a lot of the things that Bright talked about are important. Go back and listen to this episode again. That's just fine. I do that with things that are a little bit more technical. I talked about four steps of the consumer debt commitment. Go back and list those out, write them down, actually apply them.

(35:41):

And then when it comes to getting your debt reduction strategy, again, there's a process to it. Just go back, hit the rewind button, listen to that, and begin that debt reduction process. But it is a process and it's OK to listen to it a couple times. But what I really want our listeners to realize is that there is a big difference between paying interest and earning it. I want them to earn it, and that starts with paying off their consumer debt and then saving and investing for the things that they really care about.

(36:13):

OK. That's a wrap on another episode of Money and Mindset With Bright and Brian. If you enjoyed the show, please subscribe and drop us a rating on the podcast platform of your choice. Thank you so much for joining us today, and thanks as always to my wonderful co-host, Bright Dickson. Thank you.

Bright Dickson (36:31):

Thank you, Brian Ford. And thanks to all our listeners, old and new. If this is your first time listening to the show, we ended last year with a two-part best-of compilation, which is a great way to sample what our show is all about. So definitely check that out. We'll be back soon with another episode. If you miss us between now and then, always you can shoot us an email at AskBrightAndBrian@truist.com. Until next time.

Speaker 4 (37:02):

This episode of Money and Mindset With Bright and Brian is brought to you by Truist.