205 | How to Get Out of Debt

You don’t have to stay trapped in debt forever.

If you’re feeling stuck and don’t know what to do to get out of debt, I have a simple strategy that will help.

In this episode, let’s talk about my journey out of debt, including the strategy I used and now teach my clients that has helped us collectively pay off hundreds of thousands of dollars of debt.

• • the origins of my debt story
  • the importance of knowing your numbers
  • creating a plan for your money
  • how not having an emergency fund keeps you from getting out of debt
  • how to pay off your debt strategically

The Wealthyesq Group Coaching Program

You’re listening to Wealthyesq. We are a community of lawyers who believe that true wealth is having control of our time. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back to the show. I hope you’re doing well and having an amazing day so far. Today we are talking about the steps you need to take to get out of debt. If you are not familiar with my story, I started my debt journey back at the end of 2016 with over $670,000 of debt. My husband and I had just had our first child and I was interested in this part time program at the firm that I was working with, where you could do a percentage of the billable hour requirement for that same percentage of your salary. And so trying to figure out if we could make the part time salary work was what prompted us to actually look at our finances in depth for the first time we had a basic handle on our finances like we weren’t going into credit card debt or you know, like running out of money or things like that. But beyond that, we weren’t paying attention to the details of our finances. We didn’t have any sort of strategy. It was just like, Is there money in the account cool, then we can buy this thing or we can pay for that thing, right. So when I wanted to drop down to part time, we were looking at our finances to see if we could afford to take that pay cut. And when we added up everything, we had $678,000 of debt and a negative $342,000 net worth and we weren’t in a position to take that pay cut. So a big part of our debt journey came from wanting to be able to make decisions for our family without worrying about the money because I didn’t like that we weren’t able to do this thing. I want it to do because of our finances. So I started looking up different blogs and listening to podcasts and reading books and all that kind of stuff to figure out how to get out of debt and I ended up with this strategy that we use. So as of today, we have paid off the majority of that debt, which was mostly our student loans, and we only have our mortgage remaining which is under 200,000. And we have a really low interest rate on that, so we’re not super pressed about paying it off quickly. But I say all that to say we had a bunch of debt and we took certain steps to pay it off. So I want to share those with you today. So the first thing you want to do is get a handle on where you are financially. If you are anything like we were you likely don’t know the specifics of how much debt you have or the balance on each loan or credit card or the interest rates, or even how much you’re spending each month. Some of my clients also don’t know how much they make each month so not your total salary, but how much of that money do you get and a lot of us don’t have this information or don’t know this information, but it’s critical if you’re going to make a plan to pay off your debt. So that’s the first step figure out where all this money is going. Get the details of your finances so you know what’s going on. And from there, you’ll be able to create a strategy for getting out of debt. The second step is creating a plan for your money each month. That gives you a surplus so you have money left over each month that doesn’t get spent. A lot of times we are spending money and we don’t have anything left at the end of the month or we have very little left. Like going back to my story when we first started and we looked at everything we had like $150 left after all of our expenses and we started using that to make extra payments on our debt. But like I said we had 678,000 So $150 a month was not really making much of a difference. And so we ended up doing other things to create that surplus that I’m talking about. So my husband got a second job. I sold stuff around the house to bring in more income. And then we also were more intentional about how we used our money throughout the month. So we could free up more of it so that we could pay off our debt or use it for extra payments on our debt. So you want to create a plan that gives you a surplus between how much you’re making and how much you’re spending because that’s the money that you’re going to be able to use to pay off your debt with. The next thing is if you don’t have an emergency fund, you want to create one, something that just gives you a little bit of breathing room between you and something going wrong in the month or some unexpected expense popping up. One of the major reasons I see people staying stuck in debt is that when an emergency comes up, they don’t have money available to handle it. So then they end up putting it on a credit card. And when that happens, then you can’t make progress on your debt. Right? Like what will happen is they’ll pay off a credit card or pay a credit card down. But then some emergency some unexpected thing comes up. They don’t have the cash they put it back on that same credit card. So you want to have some money set aside in an emergency fund that allows you to be able to cover things like that like to cover unexpected expenses to cover emergency things that come up without having to rely on your credit cards to do it because it’s really hard to dig out of debt when you are racking up more debt in the process. Alright, next once you have an emergency fund in place, you’re going to start paying on your debt. Because you have all the details of your debt readily available, like we talked about earlier, you’re going to be able to make strategic decisions about how you pay that debt off so you can decide which ones are more important to you to pay off first and which ones you’re okay with leaving be right. So for example, some of my clients will be like, you know, I really care about these two credit cards, like I really hate these and I want to get them gone, but I’m okay with my student loans or whatever the case may be. Sometimes there are debts that feel more pressing or they are more of a pain for us and others that don’t feel as pressing and that’s okay. But when you’re able to see all the information about your debt, you can make those kinds of decisions about which debts to focus on and you’re doing it from an informed place and not just guessing or not doing what I see a lot of people do which please don’t do this. Like don’t pay a little bit extra on all the debt. Right? That’s something that I see a lot and it’s a big mistake. So we want to be strategic, which means you want to focus on one debt at a time and you can focus on whichever one is most important to you. Or you can follow one of the common debt strategies like the Debt Snowball or the Debt Avalanche. But the reason you do that focus on one at a time is because you’re gonna get so much further doing it that way. So you’re going to be able to pay the debt off faster. So you no longer have that minimum payment once you pay that debt off. And so now your monthly expenses are lower, and then you can use that money to pay off another debt or for other goals you have or other things that you need in your life. So focusing on one debt at a time allows you to make much faster progress and helps you to improve your finances along the way. So those are the steps to get out of debt. Get a good picture of what’s going on with your finances. Create a plan so that you have a surplus each month. Build up an emergency fund so you don’t have to rely on debt and end up negating any progress you make with your debt. And then use the info that you collect about your finances to make informed decisions, strategic decisions about which debts you’re going to pay off. So you’re not just throwing spaghetti at the wall to see what will stick. And by following this plan, you’re going to make faster progress which is going to keep you motivated to keep going and ultimately pay everything off. And listen if you are serious about getting out of debt and you want guidance on executing the plan I just gave you, enrollment for my six month group program, the Wealthyesq group is opening on June 17. It is exclusively for lawyers who want to get out of debt and manage their money better and you’re going to get my eyes on your finances giving you personalized strategy to achieve your goals. weekly group calls to make sure you stay on track daily written support a private community on demand video trainings and downloadable resources. You’re going to have all the support you need to get out of debt once and for all and it’s risk free. So you either pay off at least $5,000 by the end of the program, or you get your money back. Head to rho thomas.com/coaching for more information and to get on the waitlist. Alright, so that is it for this week’s episode. Please share this episode with a friend who you think would find it useful so we can get this information in the hands of more lawyers. I greatly appreciate your support. And as we close out friend, I pray that you take the information you learn here, apply it in your life and open up to the realization that wealth is available to you. As you do that consistently week after week. You will continue to take steps to regain control of your time, build wealth and live the life or freedom and choice you deserve. Talk to you later.