Most Americans have a considerable amount of debt. But it doesn’t have to ruin your life! We interviewed finance expert, Jackie Beck, to help answer our questions about how to pay off debt and manage our spending. She’s paid off over $147,000 in debt and was able to start saving for retirement! Read on for Jackie’s expert advice!
Your blog,The Debt Myth, informs readers on how to escape the perils of debt. What gave you the inspiration to start the site?
I started the site to help folks stay motivated while they're getting out of debt. I know from experience that it can be a long haul, so I wanted people to have a place to go for support and inspiration. We also have a Facebook group people can join to support each other.
You’ve been writing about personal finance since 2006. What first made you interested in the field?
While my day-to-day finances were slowly getting under a little bit of control, I realized that I was nearly 40 years old with practically no retirement savings. I'd also come off a very long stretch of unemployment, and thought this would be a good opportunity to really learn about managing money and improving my family's future.
On your site, you write that the book “Your Money or Your Life,” by Joe Dominguez and Vicki Robin, instantly became the catalyst for a complete revamp of your finances. What was it about the book that was so motivating for you to make a change?
Oh, it's a great book. I loved the idea of financial independence, and that it doesn't have to mean a choice between having money and enjoying life. Money is supposed to support you living the life you love. So, I started tracking my spending right away and evaluating the value to me of the things my money was going toward. Doing so really opened my eyes.
You managed to pay off over $147,000 in debt. What was the most impactful step you took that helped you get out from under that debt?
We paid off ALL of our debt, including our house, and it was a bit of a haul. The biggest (and hardest) thing we did was commit to not borrowing money, almost no matter what.
The only exception we set out was that we'd borrow money if it was literally life or death, and we couldn't find another way. That meant no borrowing during layoffs, car accidents, hospitalizations, for college, etc. It felt like we were immediately tested, but we DID find alternatives to debt. Once you commit to finding them, it becomes easier. Basically, we stopped the excuses. Of course it also helps to build up an emergency fund and plan your spending, so we did those things as well.
You were also able to create an emergency fund and start contributing to a retirement plan. Why do you think these two elements are so crucial for people to plan for?
Emergencies happen to everyone, no matter how charmed a life you lead, so hoping that they won't doesn't work. Planning ahead for both the unexpected (and the unpleasant) helps you get through them without sending your financial life into a tailspin. Also, many of the things I used to consider an emergency or unexpected (like a car breaking down) turned out be just things I'd forgotten to plan for. That's typical, but the trick is to start planning for them, a little bit at a time, right now.
Regular retirement contributions are critical as well, because life happens and you may not be able to work forever, even if you're someone who doesn't plan to ever retire. Why leave your future up to charity? Start now with at least a 1% contribution to retirement, and increase it by 1% every few months until you're at a number that's going to work for you.
What other resources do you turn to for information about personal finance trends?
I don't really follow trends, but I do look for information that's going to make a long-term difference in my life. I'm a huge fan of the library, and also talking to other people who have been successful financially via the slow-and-steady method. In my own life, that's been my grandparents and members of the Fincon community. People are happy to share their stories.
You came up with the Pay Off Debt app (available for both Apple and Android devices) to help people systematically pay down their debt. The app uses the ‘debt snowball method.’ Can you explain the guiding principles behind this?
Sure, the idea is that you put your debts in order (usually from smallest to largest), and focus all of your energy on paying off the first debt in the list while making minimum payments on the rest. Once that first debt is knocked out, you send the money you were using to pay it off to the next debt in the list. Rinse and repeat until you're debt free.
The Pay Off Debt app helps you organize those debts and see when you'll have them paid off. The debt snowball works because you see progress on one particular debt instead of getting discouraged. Most people aren't terribly patient (myself definitely included), so seeing that progress helps you stick with it. Before you know it, you've caught the get-out-of-debt bug for real and paying off debt actually becomes fun. And when you're done, it's even better. You get your life back.
What are some common myths that people believe about paying off debt that are actually false?
Well I think the biggest myth is that you can't do it. People say things like "You'll always have debt" or "You could never buy a car or go to college with cash," and those are just not true. Maybe you can't buy big ticket items now without debt, but once your financial life is in order you absolutely can. My husband and I (and a whole lot of other people) are living proof.
Another big one is that you have to live like a monk to get out of debt. You don't. We went on trips, bought fun things, and paid for part of my son's schooling while we were paying off the house. You just have to only spend money you already have. So do whatever you want, and whatever pace works for you, but do it with cash. And if you don't have enough cash, figure out how you can bring in more.
Finally, people also don't realize that it's not the interest rate that makes paying off debt hard. It's their habits. Changing the way you think about money and debt comes first, then changing your actions, then your long-term money habits. Do that, and you'll be in a much better place.
You say that it’s possible to reclaim one’s finances in three steps. Can you tell us a little about these strategies?
Sure, the strategies are simple: track your spending, look for patterns, and remember that life doesn't go perfectly. They all boil down to first paying attention to your money and life, and then doing about repeat issues. There's a lot of resistance out there to tracking spending, probably because no one really wants to know that they spend $15 a week on candy bars or whatever. But when you finally do it and just quietly ask yourself whether what you're buying really matters to you, your spending starts to line up with your values. It's OK to buy whatever you want and to indulge! But maybe there's something else you want more that you'd rather put more of your money toward.
Thanks so much for taking the time to answer our questions! Any last minute words of wisdom for our CouponPal readers?
Thanks for having me! I'm sure the CouponPal readers are already awesome at saving money on the things they buy and getting deals, so I'll just say this: don't forget the other end of the equation too, making more money. Put the extra and the savings toward debt, and you'll end up with even more wiggle room in your budget :)