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Taking a multi-threaded approach to staying above water (E19)
400 Plays6 months ago
If you feel like the financial walls are closing in on you, this episode is for you.
Alex started his career with every reason to be optimistic, transitioning from one role to another with a meaningful pay increase each time. That optimism took a hard hit when the combination of student loans, an auto loan, personal loans, and credit card debt led to minimum monthly payments that consumed more than half of his take-home pay. Through Alex's resolve and a multi-threaded approach to taking control of his finances, even amidst various life challenges, he's been able to make great progress on his debts and get to the point where the money he earns this month won't be needed until next month, breaking the paycheck-to-paycheck cycle that dominated his entire adult life until now.
Listen to Alex's story to see what it took and how he made such incredible progress.
If you have a story to share and are interested in being on this podcast, reach out to Jeff at wisemoneymentor@gmail.com.
For more information about Jeff and the coaching services he offers, check out his website at www.wisemoneymentor.com.
Create your podcast today! #madeonzencastr
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Transcript
Introduction to Wise Money Mentor Podcast
00:00:04
Speaker
Welcome to the Wise Money Mentor Podcast. I'm Jeff, a personal finance and budget coach, and the host of this podcast. My goal is to help you get the clarity you need to take control of your finances and feel truly confident that you are using your money to build the life you want. Through this podcast, we share stories and principles that help you do exactly that. I'm excited to dive into this episode, so let's go.
Alex's Early Financial Struggles
00:00:44
Speaker
Alex, welcome to the Wise Money Mentor podcast. I first discovered your story a few weeks ago, Ashley, when I saw a post from you in the YNAB subreddit. And as soon as I saw it, I wanted to chat with you for a few reasons. One is and the story you share just shows a lot of like progress you've made over the last period of time.
00:01:09
Speaker
But it also is where you're still in the thick of it. Like you're still making the progress, but you also found ways to celebrate and get ahead. So I'm going to read a little bit from your post. I won't read it all, but I'll read a bit.
Achieving Financial Stability with YNAB
00:01:21
Speaker
Um, and then obviously we'll jump in and talk about it. So you posted that you achieve rule for, uh, that day. And in YNAB terms, that means aging your money, like getting ahead with your money.
00:01:34
Speaker
And you said, I've been working toward this goal for months and months and it's official. With my paycheck today, I am officially a month ahead. One year ago, I was absolutely drowning in debt. My net worth was around negative $185,000.
00:01:50
Speaker
A private student loan with interest 5% turned into 11% because it's variable.
Challenges with Debt and Job Changes
00:01:56
Speaker
and Having to buy a car during COVID price gouging, student load cosigners, ah so bankruptcy was not an option. I started a GoFundMe because I was having to choose what bills to pay and eating ramen noodles.
00:02:09
Speaker
I got $280 in donations, which was enough to keep my student loans out of default. I had been using YNAB religiously for about a month, but this is when it really started to click. I was at rock bottom. Over the past year, I paid off $5,000 in very high interest personal loans with an average of 32% interest, consolidated my credit card debt from an average of 29% to 15% and paid off 2000 of the 20,000 total.
00:02:37
Speaker
Got a new job with a small pay raise, but was able to keep doing the old job at a reduced rate for a few months. Took up DoorDash to make ends meet, and then found I no longer had to. Got married, separated, and had appendicitis. Bought a more reliable car, then sold it back to the dealer and paid off the remaining 8K in the car loan.
00:02:56
Speaker
nor take advantage of v of a vehicle lease benefit offered by my employer. Haven't missed a single payment on any account since last August and have closed a total of nine accounts. And as of today, I am living on last month's income and I'm no longer paycheck to paycheck. I'm 29 years old. I've never not once in my life since entering the workforce not been paycheck to paycheck. This is huge for me.
Impact of COVID and Student Loans
00:03:23
Speaker
That's awesome. And it really has been. yeah Yeah, that's awesome. I would love for you to introduce yourself, share whatever context you want about your bio, if you will. And then I'd love a quick reaction on like, what are your thinking? What are you feeling as you hear me read that back? Yeah. Hi, I'm Alex. I'm a, uh,
00:03:43
Speaker
Private pilot, that's foremost that debt came from. I don't do that commercially. I am a analyst for a large Fortune 500 company at this time. I used to be in the kind of the startup space a little before that. um And yeah, I've been in a, I got got in a little bit of trouble between COVID happening, two cross country moves back when I worked for an airline.
00:04:09
Speaker
Uh, and then a large amount of student loan debt that I really didn't know what to do with. Um, and stuff just kept happening. So I kept putting it on, on cards and making the minimum payments and well, something else would happen. So let's put that on a card and then make them a minimum payments. And then, well, crap, I'm out of credit cards. So, uh, I guess it's time to look at a firm. Okay. Well.
00:04:34
Speaker
Uh, need a new CPAP machine. Okay. That's another a hundred bucks a month there. And, uh, before I knew it, all it all started adding up. And, uh, I was at ah like, I think 67% of my total income was going straight to minimum payments on debt. It was absolutely brutal. I was making my rent, the lights were on and and the food in the kitchen was ramen noodles and water really.
00:05:03
Speaker
And late July and August of 2023 is when I'm, uh, when I'm at my bot rock bottom, I'm eating ramen noodles and, uh, maybe finding if I could get a good deal on bread, get some mayonnaise on bread. Not sure about if cheese is an option and I'm making pretty good money. Like it's, it's not. It's the income is not the issue. It was the, just the sheer amount of debt load. Um, it just added all up a little by little.
00:05:32
Speaker
And before I knew it, I was absolutely swamped. And, uh, I was trying to, at a certain point, I just went, okay. And then that point was pretty much that I'm sitting at the table going, okay, how am I supposed to afford food to get to make for the next week so I don't starve? And why am I having to bomb meals from coworkers?
00:05:56
Speaker
when I make a pretty reasonable income, I was making more than 80K a year. And salary, but no overtime of course. of And just couldn't afford anything because I had stolen from myself in the future effectively by handling all these emergencies with debt. And I didn't know any other way. Could you walk me through, you mentioned like you still from yourself in the future.
00:06:25
Speaker
walk me through how, as you reflect how you got to that point to where, as you said, like 65, 67% of your income was going towards minimum debt payments because you reflect back, how did you get to that point? Would you say, how would you summarize that? Yeah, well, initially it was, uh, so like there was school that school that had to happen and I had a dream. So I pursued that dream and took out some student loans, federal initially,
00:06:54
Speaker
But then the flying was expensive and federal student loans just wouldn't cover it. So I took out some of those while I was driving a hundred miles each way to work every day. Uh, cause I was working at Atlanta airport going to Auburn. And so spending ended up with driving, driving a used Prius terrible car, great on gas, but still spent 400 bucks a month on gas in that Prius. Uh, then car repairs and then the, uh, had gasket blew on that car. So I ended up, uh,
00:07:23
Speaker
managing to get ahold of, um, my grandma, uh, left me a really beat up Ford fusion and that was fine until it had a steering rack issue. And then the steering rack failed again. And I ended up putting five s steering racks in that car before I sold it for scrap at the peak of COVID.
00:07:42
Speaker
And at that point I've had been, you know, some car repairs swipe the credit card. Okay. Move on. Um, okay. I hear there's more, more overtime out in Denver. I've graduated now. Let me go ahead and move to Denver to try and take advantage of the overtime opportunities. So packed up and went to Denver and rent there higher, right? Uh, moving costs moving truck was a lot more expensive than I expected. More like something like $4,000 onto a credit card. It went.
00:08:12
Speaker
Okay. We'll pay it off when the overtime kicks in. Now the car is dead. Okay. Got to get a car. What if, what were my options? 2021, right? So looked at Carvana. What can I qualify for? My credit score was not at the best. So, okay. $24,550 a month payment. Sure. It'll be fine. We'll get the overtime of DIC season and make it up in winter, winter time. And it just kept building up like that. Well,
00:08:40
Speaker
overtime didn't really materialize like I expected. ah Pay raise didn't really materialize at the airline, and food kept getting more expensive, gas kept getting more expensive, and then I went i finally got some time and went went skiing for the weekend in December of 2022, and I had a concussion.
Turning Point: Realizing Debt Severity
00:09:04
Speaker
And that concussion basically was the wake was a big wake up call.
00:09:09
Speaker
And I was already probably a good 10 K in credit card debt by this point. And my minimum payments were already getting, getting scary, but the student loans weren't due yet. So I didn't worry about it. And so I ended up getting another moving truck and moving back home to Alabama and getting a job with a startup, which was a good pay raise, but you know, had to make rent down there and keep on keeping on and, uh,
00:09:38
Speaker
About three months after I moved back to Alabama, ah the student loans started coming due and in earnest. And first the private student loans started coming due and the payment on that wasn't too bad initially, 600 bucks a month. And then the federal loans started coming due to 300 bucks a month. And then as COVID restrictions eased and inflation kicked in, well, the interest rate on the variable loan suddenly mattered a lot. And I suddenly understood what a variable rate meant um because that payment went from 600 bucks a month to 850 bucks a month.
00:10:08
Speaker
And would you say that, um, so it seems like you finished school, you had student loans, which is not too dissimilar from a lot of people. Yeah. And because of the time we were in student loans, you weren't feeling any pain from having that debt at that point in time. Yeah. My private loans kicked in after, after the six months, I went from when I graduated because those weren't affected by the payment pause, but my federal loans, they were, and that, that held off in that stem the tie for a little bit.
00:10:38
Speaker
but between the interest increase and the loans, the federal ones kicking in. Yeah. When, and then with the move to Denver, the car repair issues that seemed to, uh, just haunt you really over a period of time and need to buy a new car, banking on the overtime payments that never really came. It seems like it was just, would you say that it was a,
00:11:06
Speaker
A lack of awareness of what life costs, encompassing the debt and all of these moves versus what you were making. Like that lack of awareness around stacking those two against each other played a role in terms of building up this like little nest egg of debt, if you will.
00:11:27
Speaker
There was a combination of a lack of awareness and then a just sort of enforced helplessness where I just went, well, I'm already this much in the hole. So it no longer matters because I'm not going to take myself out of it anytime soon. So what's another hundred bucks? What's another 50 bucks? You know, what was, that what was the number? Do you think of your debt where it got to the point where you held that you had that attitude? Like, yeah, it's not a big deal. i find Another hundred bucks isn't going to make a big difference.
00:11:56
Speaker
I think it was probably when I was at about 12 K and credit card debt and about, uh, probably halfway to racking up the student loan debt was when I was like, eh, what's another 10 grand here and there. wow You know, I just, I didn't really understand that there, that the interest rates were variable or any of that, because the way it was phrased was as a private student line of credit. Oh, it's, it's, it'll,
00:12:22
Speaker
It'll all balance out when it turns into a loan it'll and I didn't realize it wasn't going to become fixed or that it wasn't a fixed rate until I actually went back and read the promissory note when I wondered why my payment started going up. Wow. So you had this this combination of the credit card debt you had accrued through the moves and the car stuff and all that, the student loans kicking in, the federal kicking in, and the variable nature of the private student loans.
00:12:53
Speaker
wreaking havoc because his interest rates went up, your interest rate on your debt went up. yeahp And so I imagine like the visual in my mind is you're like standing there and then you have water like flooding in from multiple sides and then consuming more and more and more of your life. Yes.
00:13:13
Speaker
Is that how it like felt? Maybe not water flooding you, but something similar. So we put it this way. Let's say I needed to get gas, right? So I made the minimum payment on a card. As soon as the minimum payment cleared on that card to just get it, just barely will the statement balance. I would go swipe that card at a gas station and fill up a full tank of gas because you could get it to pump in gas over the credit limit. I would do that for every, every tank of us until the, until the credit cards, to a card stopped letting me.
00:13:45
Speaker
That's incredible. yeah I would, ah you know, and if I, if I could get that, uh, yeah. So if I could get the credit limit, when I paid the, made the car minimum payment got below, I would buy groceries or basically up to a couple of dollars below the limit and then use the, use a go above the limit for gas. And that's kind of how you, how you had to do it to get by. It felt like.
00:14:11
Speaker
And I had other friends who were kind of doing the same thing and a lot of people I knew were maybe not in as deep of a boat as I was, but they were doing similar kind of techniques to try to just squeeze by for a little bit longer. Um, but they're really, you know, there was no end in sight. Uh, so other friends took the bankruptcy option, but for my, for me, that wasn't a possibility because my parents coastline on my student loans. So if I tried to bankrupt one,
00:14:41
Speaker
I probably wouldn't be able to bankrupt out of student loans anyway. because that And that was the main problem. And two, if I did, my parents could lose their house because they were co-signers. And I just, I refused to do that to them. That was was was wasn't an option.
00:14:57
Speaker
um it was that It was a rough time. I wouldn't wish that on anyone. That's really heavy. So to like get back to your original, your post,
00:15:09
Speaker
a year ago, all these forces coming together. the student loans, the variable interest rate of the private student loans, your credit card debt racking up gradually little by little over time. And that's when you find yourself a year ago at a hundred a negative $185,000 net worth that was comprised of student loans. So 86,000 from I think the federal bucket and 56,000 from private. About 60,000 from private, I think at that point. Okay, got it.
00:15:41
Speaker
And then car loan. 60,000 from federal, sorry, about 86,000 from private. OK, got it. 26,000 car loan or so. Yeah, your car loan rates. Credit card debt, which was, um I remember you saying about 20K at the time. 22-ish, yeah. And then probably another six grand and for in random personal loans. And then because of, I looked at some retirement during COVID to try to make ends meet and get the second move done, I had some tax debt as well about seven grand in that.
00:16:10
Speaker
Yeah. So all these things, and that's when you find yourself, you're making decent money, but the issue is like 60 something percent of that money you're making is already committed to minimum payments on debt. Yeah.
00:16:25
Speaker
And so you had to live off of whatever's left. So you're getting squeezed out and that's why you're like eating Ramen noodles, timing, the ah filling up of your tank with gas in your car. That's why you're playing all these games. So yeah I'm curious. Like trying to just know that there's better to carry tools in the back of the car, uh, to be able to fix it when I'm breakdown it so I can get to work or to take the tools out so that I can say that little bit of miles per gallon.
00:16:51
Speaker
To try and eke out that last little bit of gas. That's man. You know, things are bad when you're like debating that. Yeah. So I'm curious for, for a lot of people, and as you said, bankruptcy was an option. So for a lot of people who would have all those variables at play.
00:17:09
Speaker
It'd be really easy to just continue to avoid yeah because of the like pain that you would feel, the embarrassment you would feel, the shame you would feel. So I'm curious what was different, like well why did it work at that point in time? It's turning something around. I tried the avoid strategy first. I basically, I just said, okay, you know what? I can't afford these payments on these credit cards. I'm just going to stop making them and I'm going to make the minimums on the student loans.
00:17:39
Speaker
And I'm going to try and just get by for a month and see if I can eat. And so I did that. I stopped making the minimum payments on my credit cards. And, uh, about a week later, I realized that that was the wrong move because the el late fees that racked up immediately within a within a week, they had, they were 400 bucks in late fees on one card, 300 on another card, 200 on the third card. And, uh, I had probably nine different card credit card accounts that had balances on them at that
Expense Review and Financial Management
00:18:08
Speaker
point. And.
00:18:10
Speaker
You know, I realized pretty quick that, okay, that strat didn't work. I, there's no way I can stand here and watch these balances continue to increase until they get charged off. I can't sit here for seven years. I have to eat now and I can't not eat for the next seven years. So this default, my credit report, I need to take a different strategy. Um, and I wish I'd known about line and the the method at the time, but I didn't. So I went old school and pulled lip cell.
00:18:38
Speaker
And I downloaded a, and printed out with what was left of the but printer ink at work. You know, I wasn't printing at home. I was printing at work. So I say bank, um, all my bank statements for the last, I think three or four months. And I just went through and tried to find recurring, recurring payments because I, I was, I, I, the math didn't seem to add up to me. There was more money coming in. There's, there should, there should have been more available to cause it to go out.
00:19:07
Speaker
So where was it all going? So I tab basically was trying to find all these recurring payments. And I didn't, I found the monthly ones. I didn't find all the yearly ones at first. That took a little longer. That was a little later, but I found some monthly payments and I started aggressively going going through. Every single thing that was a subscription service or a recurring payment for something or other and assessing to trying to go, what it was, it what was this for? There were charges that were coming in that I had no idea what they even were.
00:19:38
Speaker
And when when you're debating, can I fill forget fill up my gas? Should I carry tools in the a car so that I can fix something? Or do I optimize the fuel efficiency of the car? like Those monthly subscriptions canceling them has a meaningful can have a meaningful impact on yeah just having cash. like i think I think in ah just the Excel month, I probably cancel about $100 a hundred bucks ah month in subscriptions uh and just things i didn't really even know i had um and that cash flow impact was immediate um i and i was able between that and uh putting up a go fund me and going hey guys i really need some help and getting a couple hundred bucks in donations from friends and family um i was able to
00:20:29
Speaker
make the student make make the student loan minimum on payments and then start chipping away at the, uh, at the late fees on the cards. And I was able to within 30 days of I miss, uh, get all the late fees except one removes, get all the credit card accounts at least current except for one. And that one credit card, uh, unfortunately I found out later was from an issuer who is never going to do good will removals but credit for credit report. Um, so I had a U S bank account go 300 bucks, itd go 300 bucks over for 30 days.
00:20:59
Speaker
And so that, that did my credit report. My credit score took an immediate 50 point hit. Um, and it took another month to get that account current, but, um, and that was probably September. And, uh, I had actually, what's funny is I had tried to want this YNAB thing before way back in my second year of college and never clicked. I didn't really understand it. I guess it hadn't heard enough yet.
00:21:25
Speaker
ah And I thought, I found out, I found a, I saw a post about it on Reddit. Cause I had always been subscribed to the subreddit. I just hadn't really seen posts from it for a while. Um, and probably early to mid-October of that year and went, Oh, maybe this can help me figure out what else that where else I'm bleeding money. And so I went ahead and pulled it up and did the import thing and, uh,
00:21:57
Speaker
With YNAB and I just started tracking for the first probably 15 days, the rest of October, just figuring out, okay, what am I spending money on? And there wasn't much that I was spending money on that was, it was needs because, or that was once because there was, it was all going to needs. But with that, I was actually able to count count and find about another 200 bucks a month in things that I either didn't know I was paying for or various subscriptions.
00:22:26
Speaker
And so that's kind of how it's, how it's, I started getting out of it was just sitting down and taking a real close look at everything and aggressively putting whatever I could and then anything, anything that I could do to, uh, get rid of some payments and go and free up some cashflow. So I had a couple of, uh, really high interest loans, but I, I, and I was trying to kind of cashflow method it. So I was looking at.
00:22:57
Speaker
and I wasn't using any formal tools yet at this point. I was looking at just like, what are my highest payments with the lowest balances? Don't care about interest rate, just what's hurting my cashflow the most right now? And I found out later there's formal tools that actually interviewed with YNAB, undead.it, that you can automatically do this stuff with, but I was just doing it all in an old fashioned way. And eventually I found that I was able to,
00:23:26
Speaker
um
00:23:29
Speaker
sell some stuff that I didn't need around the house, some unnecessary items that I had maybe bought on those credit cards earlier at some point, who knows, years ago, and get some value back for them and then put those dollars, some of them needlessly or needfully went toward food and toward other other essentials. And maybe half of the money from the stuff I sold and or gotten other ways went to ah paying down things that had Fairly low balances and fairly high minimum payments. So mostly those personal loans. so And when I, as I, each time I got something gone and got one of those things paid off, I was able to, okay, a little bit more toward safety and toward, uh, needs and expenses and a little bit toward, uh, continuing to get out. So the snowball started very slow and, uh,
00:24:27
Speaker
But what i what I love though is oftentimes people with a lot of debt, first they really struggle grappling with what a need versus a want actually is. And they feel the stress of,
00:24:43
Speaker
need, it almost feels unfair to them that they're supposed to cut expenses, like as though they're entitled to certain things in their life that are that are needs. So they struggle with that. Anyway, for a lot of people, it's just this really laborious, hard process to even get started. And what I admire about your story is you you blitzed your financial lack of health, if you will. You ah looked at your spending and faced it head on. You found the subscriptions monthly and annual over time, canceled them to free up some cash. You even were humble enough to ask family and friends for help. You door dashed.
00:25:28
Speaker
in order to generate some additional side money. You sold possessions that you have that might have some value just to free up cash so that you could tackle your debt with that snowball approach that with time would free up additional cash from a month to month basis. I just really admire and I think a lot of people who are in a tough spot can learn from Like look at it from all angles. You also consolidated some debt and changed the interest, got the interest rate lower, which also. and That was all very recent actually. Um, so like in the, inter in the interim, because now I'm in the boring middle, but before in the, the very beginning, um, I wasn't necessarily perfect about, uh, cutting everything that I should have. Right. So I would, I canceled all my subscriptions, uh, just flat out. And then within a month problem where I resubscribe to Spotify and then
00:26:21
Speaker
After the second payment went out for that, I was like, Oh no, I don't need this and cancel it again. And then two months later, we subscribed to it because I wanted to listen to something. know So, um, there were, but I actually probably buy just even just having the subscription be every other month instead of every month. In some cases that 16 bucks or whatever, five bucks.
00:26:41
Speaker
or difference or you gave Or you gave yourself a shot of living without it and realized, you know what, actually having that has a material impact on my happiness. And ah and so then when you resubscribed, it was a an intentional thing, not an entitled thing, you know, like it was thoughtful. Whereas for a lot of people, it wasn't always thoughtful. There were definitely times when I resubscribed to something and it was an impulse resubscribe and i then forgot about it for a month. And then when I saw the next payment, I went, oh,
00:27:10
Speaker
You know, yeah. And then ah but there were there as as time went on and I got more and more invested in the method, things became more intentional gradually. It was not even necessarily something that I i even directly noticed happening.
00:27:28
Speaker
um And it all sort of started to build momentum over time, and I didn't you know I still wasn't happy and didn't have my life together and um but I had suddenly I suddenly had a couple I had a couple of bucks since or had savings categories that could have a couple bucks in them and then the money would be taken back out of those savings categories and put toward you know eating food or gas or whatever but
00:27:59
Speaker
The idea was that like there, I am now at least initially able to start trying to assign something you to pull it back out later. At least I'm like making an honest effort to try to set aside money. And then, uh, something weird happened where eventually or suddenly the money was able to start staying in those categories for a little while longer and staying there for just a little while longer. And I wasn't necessarily building up more savings every month.
00:28:26
Speaker
But I was maybe able to pay for another another bill a couple of days earlier than I thought I would be able to. And that just sort of kept happening until ah certain at so a certain point, probably probably six months, six months into my paid my my aggressive pay down was when I realized that I might actually be close to one check ahead.
00:28:54
Speaker
to being, uh, not, not breaking paycheck to paycheck just yet. Still on paycheck to paycheck. My bills are still timed to my, to my stuff. So I was on ah the cycle where I get paid twice a month usually, but sometimes I get paid three times a month, but it's not, I don't care when I get paid in the month because the third paycheck of the month wasn't like a bonus. That felt like, okay, now all my bills are offset by a week from where they were
Debt Management Strategies with YNAB
00:29:15
Speaker
before. And how the heck am I going to make ah you know, credit card payment number four this month. Yeah. But it feels like, it feels like for for your snowball approach here, a lot of people would pay off a loan and take the money that was going towards that loan's monthly payments and just move it to the next loan.
00:29:38
Speaker
Well, it's great for you. What was that? It's great if you can do that, but that's not and that's great on paper. But honestly, in the real world, I don't know that that's actually how it has to work, because there's always going to be something that comes up. And if the risk is if you make that full payment on the next loan with everything and then the emergency happens, then you might be type taking out more debt again to cover that emergency. And so my strategy was basically to that that snowball payment I would hold, intentionally hold some of it back and I wouldn't make the full payment. I would still make the minimum on that card and then I might make an additional payment later in the month. Uh, as, when I, as I knew that, okay, this money actually is safe to use for this, like I'm not going to burn it on something, have to burn it on something else. And I wasn't always perfect with it. I did burn myself a couple of times. I did have to occasionally pull out a credit card and put another couple, a couple hundred bucks on it. But I was a lot better at being able to.
00:30:37
Speaker
pay that back off within that within the month. And it started to become powerful as that sort of rolled. And what I was not noticing that was happening in the background was that my credit score was very slowly starting to increase as my on-time payments happen. And so a critical kind of tipping point basically hit for financial security um kind of the end of June, and part of that was that, i long story short, I was living with my girlfriend, who became my wife, who it turns out was not particularly honest with when it came to finances, or when it came to other things, and they very suddenly left right before my birthday in mid-June, and when that happened,
00:31:31
Speaker
I realized that all my utility bills suddenly went went way down and there was a lot less expenses being spent to cover her needs because there there was a lot of, well, I really need this for this this for my so my side my side business. can Can you help me with an office chair and stuff like that? And I was, of course, whatever you want, I'll make it happen. I'll move money around. And I did that. And that happened but when they when she moved out was Right when I also got a pay raise at my new job, got a bonus ah from my new job, was able to pay out to get out of this this extra car and and not have a $500 a month power car payment hanging over my head. um One of the perks of the work thing was not not having to pay for my own insurance. It comes from work now. So the money that I was spending in car insurance, I was able to leverage that into, okay, we can pay down a little bit more debt faster.
00:32:30
Speaker
And then there was the student loan consolidation deadline that hit on June 30th. I missed it by a day, consolidated that on the first. ah But when that consolidation went through, it temporarily paused my federal student loan payment. And that 300 bucks a month was very powerful that ah that enabled me to ah get something else paid off. And at that time, uh, shortly before that, I'd had appendicitis, my medical, I had some medical debt. So there was always, there was always setbacks. There was always, it was yeah two steps forward, but there was always one step at one step back. But eventually I got farther and farther down the stairs. so And, um, I was able to, I said, there's no way this can work. I've never been approved for this before. I've been, I've tried to do this a few times. I've always been denied.
00:33:19
Speaker
Uh, but I went onto the experience websites and it said, Hey, uh, your credit score is good enough. You could try for personal and for consolidation. And I said, okay, I'll, I'll try. I'll, and went through a few different, uh, vendors talked around a little bit and actually got approved for a consolidation loan at a 14% interest rate, which compared to my 30% average on credit cards, pretty good. Yeah. Um, and also because, uh, when that consolidation loan came through on that and that payment,
00:33:49
Speaker
came through, um, I made that payment and I was able to free up what I had set aside instead as the minimum payments for those credit cards for that month. Because the consolidation loan wouldn't be this smaller payment wouldn't be due until the next month. So I was able to free up credit card minimum payments, put that toward bills ahead a little bit.
00:34:14
Speaker
And so that freed up the the difference basically. And then I was able to, as soon as those, the credit card payoffs cleared, that dropped my credit score, a hundred points instantly. And I was able to then apply for a refinance on my private student loan, which was the variable rate. And I got that down from 11% to 8%. Uh, $200 a yeah two hundred dollars month difference.
00:34:39
Speaker
there are a few There are a few observations that I just want to call out for people who who could benefit from it. The first is, um you mentioned that, hey, say $500 we're going towards a loan payment every month. You paid off that loan. Somebody's default reaction may be, hey, let's take the $500 and now roll it into the next one. That's the whole premise of snowball method. But for you, you're like, oh, maybe we'll take a couple hundred of it.
00:35:06
Speaker
and so keep it in my budget if you will and roll over the remainder to the next loan and you did that because for a lot of people they don't realize in the moment that these surprises are going to come up like these or these not just surprises but these predictable known but seasonal expenses are going to come up yeah like an auto repair and I need to set money aside gradually to try to get ahead and saving for those things so that I mitigate the risk of incurring net new debt
00:35:42
Speaker
that would be really deflating. Now you acknowledge there were some situations where you did have to effectively add some net new credit card debt, but you try to pay off that net new debt in the month in which you incurred it. yeah So obviously give yourself a little grace, but I think for a lot of people, some of the magic of the YNAB method is setting aside money for these non-monthly expenses that are still predictable. You know they're coming.
00:36:07
Speaker
and and building up the buffer in your life to give yourself some optionality. and I think that's an awesome example that you're still in the thick of it. As you said, you're in the boring middle of paying off a ton of debt still, oh yeah but yet it allows you to and simultaneously make progress on past you decisions that hampered future you while also building up some buffer for future you. Like you can do both at the same time, which I really admire. Cause I don't think a lot of people in your situation would even have that mindset. The other thing, the other thing I'd highlight is it sounds like you were really detail oriented and scrappy, whether it's like saving money on the interest rates by consolidating or
00:36:59
Speaker
whatever tactics, like acknowledging, oh, the utilities went down because it's, I now only have to provide for myself from that perspective, not myself and a spouse. Like all these different things, like you found the sources of value in your life, whether it could be in generating new money for you or reducing the money obligations you had month over month to free up enough capital for yourself to build the buffer and make payments on the debt. Yeah.
00:37:31
Speaker
That's awesome, man. I even like went as far as optimizing my checking account because I went, okay, well, with the YNAB method, I don't need a separate
Setting and Achieving Financial Goals
00:37:39
Speaker
savings account. might say What is my savings account doing anyway? Nothing sits in it. And I found out that there are these brokerage cash management accounts where you can use them as a checking account more or less. And now, okay, well, I've made the payment on my bill.
00:37:52
Speaker
And now I'm collecting interest on that money for three days and I'm earning interest on something. That's a new, that's a new thing. Usually I'm just paying that. Yeah. Interest can really benefit you if you're on the flip side. And then when I was getting, you know, I make might get like maybe five, 10 bucks a month in interest, not a lot from doing that, but then I can take that interest and make that another additional payment. It's no flake payment on a debt. yeah And, uh, the one thing that's really powerful for me was, uh, the first time I was able to actually buy something in cash.
00:38:23
Speaker
that I needed for an emergency, basically. So I had bought a kind of terrible, one of the real lawnmowers, the kind you push ah um that has a little cage that spins around ah when I moved into this house in March. And it was not not functional enough to actually mow the lawn. And um eventually I got an angry letter from my landlord that said, hey, if you don't mow the lawn within 10 days, we're going to start start charging you fees. And I said, OK, I have to go buy a lawnmower.
00:38:54
Speaker
right now and I ended up looking at my accounts and shopping around and I was actually able to afford a really nice uh not crazy feltful feature but very nice electric lawnmower and mowing mowing my yard with a lawnmower that was brand new that I paid for out of pocket and didn't set myself back on my bills to do.
00:39:16
Speaker
It was amazing. i was that was That was in probably April of this year. i cant I can envision you with your new lawnmower having paid cash for it, basically. And you're just mowing that lawn feeling like the baddest person in the world that you bought that thing with cash. And it's quiet. That's nice. You know, as i as a coach, as I work with people and I try to introduce some of these concepts,
00:39:42
Speaker
one of my goals is to get them to their first lumpy, like non-monthly expense where they have the cash set aside to pay it and see what it feels like. Cause that dopamine hit of having the cash ready to go for that specific job and paying for it, not sending you back in any way, like you can still eat out, you can still have groceries, you can still do whatever.
00:40:07
Speaker
And while having the cash ready to go, it's pretty intoxicating. So one of the goals that I have as a coach is how can I get this person to that point as quickly as possible so that the next seasonal lumpy non-monthly expense they're ready for and can then ride the wave of that high, like that emotional high.
00:40:33
Speaker
Yeah, exactly. And then, uh, so some of the things I've been just like setting aside as true expenses, I'd actually got a vacation category now, which I never expected to have again. Nice. It gets a whole, uh, you know, 20 bucks a month, but it's worth it. But I've now got a category for my car insurance deductible that I'm still, I'm just slowly putting 10 bucks a month into. And it's not a lot, but my goal is that I'm going to try and get that car insurance deductible up to just, uh, sit at what my duck deductible will be.
00:41:02
Speaker
And then I want to start putting that 10 bucks a month into my health insurance deductible and slowly getting it up to where that makes that deductible. And then I want to get that up built up to where it's the minimum out of pocket on my health insurance eventually over time. And I think the key is like the setting smart goals, specific measurable, uh,
00:41:23
Speaker
time-bound, attainable. Uh, I don't remember what the A is. um have their dos I probably have to let it, but that's okay. actually Yeah. that Those specific goals. Uh, and then setting small goals that are attainable. And then, uh, as I get close to reaching these goal, okay, I'm always looking forward. What's the next goal? What can I, what can I optimize? So I'm looking at, you know, every single month I sit here and I go through my annual bills, even, you know,
00:41:54
Speaker
Like my safe deposit box has been, I've been looking at that for a little while going, do I really need a safe deposit box? I've got 20 bucks in that category. Can I go over to the bank and release that safe deposit box and get the 20 bucks back to be able to put somewhere else? That's, and that's actually about having right now, like right now, just looking at my budget going, do I really need this? Yeah. Do you think that that's a key?
00:42:20
Speaker
Like from your story, I can pick up a few clues as to what are keys for you to navigating the boring middle bite. And for those who don't know what we mean by that boring middle is Alex hit rock bottom was eating ramen noodles was debating, could he get gas or not? And like all that stuff, but he found the resolve to take action. And that's when he started to cut, uh, subscriptions started to, uh, find little ways to free up capital, free up cash.
00:42:48
Speaker
and make continue to make these down or these payments on your debt, build up the buffer. But now you're like past the roller coaster of facing reality and establishing a new normal. And now you're just living in the new normal and acknowledge that it's gonna take time to continue to dig out of debt and get to the savings for deductible and deductible and out-of-pocket max, et cetera. So what advice do you have for anybody who's trying to Like maybe they are or will soon be in the boring middle where it's just a matter of consistency day to day, week to week, month to month. Okay. How do you, how do you stay motivated? There is a, there is one huge pitfall that you can very easily fall into that is, it would be so easy to fall back into this. Um, and that is that as you free up credit card balances, um,
00:43:46
Speaker
You start seeing either there's a risk that you might start seeing those limits as and the limit that limit dollar sign that is not cash and there's a risk that you might start thinking of that as cash again. Treat that credit card as a checking account basically.
00:44:05
Speaker
Don't let that, don't let their of yourself fall into that mentality of, Oh, I can just type the card for that check and make sure you have the cash first because yeah for the cash or that card, you can't use that card. It doesn't, that money doesn't exist until you have the money in cash to cover it. Yeah. Don't take the attitude of I'll figure it out later. I'll just i'll just pay for it and figure it out later. No, you have the approach of I got to figure it out now. Okay. If I have it. And if I can't, if I can't figure it out now, I'm not using the credit card.
00:44:33
Speaker
Because there's a attempt a temptation. Well, you go, oh, well, I have these cards to balance when it's available. Now I can use these for rewards points. I guess you can. And it is actually potentially financially beneficial to do so, but you cannot risk going out out of bounds on that. So like my credit score went up so much that I was actually recently approved for a card with an, a limit that I never thought was possible for me.
00:44:59
Speaker
and it has a rewards profile that's going to be amazing. and I can use the cash back from it to pay down my debt even better, other debts even faster. But there is a risk inherent in having large credit limits available to you. I now have empty credit limits that are equal to probably five times a month of salary. And like I know that if I go out and I have a card that I could theoretically go buy a motorcycle with,
00:45:26
Speaker
if i do that i'm screwed yeah i know i'm screwed if i do that the and what do you think is the difference between someone i guess what are the keys to making sure your mindset and your behavior aligns with the positive side of that equation instead of falling victim to seeing untapped potential and free money if you will from credit limit uh first thing is Until a credit card is completely 100% paid off and has gone through a full statement cycle, it's not a credit card, it's a loan. It doesn't go into the credit card, the credit card account category, it goes into the loans category, it's off budget. It cannot be used for new spending.
00:46:12
Speaker
It can only begin to be used for new spending when it is no longer alone, which means that it's gone through a full statement cycle to allow any grace periods on interest to reset. At that point, it is a checking account. And honestly,
00:46:28
Speaker
this this may make it easier to credit to do something called credit cycling and risk getting your accounts closed, but Honestly, the best way for me in the initial, like, okay, I'm learning how to use a credit card responsibly. My first card I paid off had a $500 limit, not a large limit. And that became a checking account that's designed to go negative. And what I would do is I'd buy the thing with that credit card. Initially, it was just Amazon purchases because of the Amazon credit card.
00:46:56
Speaker
And I would, as soon as the pay the payments, as the amount had cleared and that was the current balance in the card, I would just pay that off immediately. And I'm starting, I'm not, yeah I'm not even at that i'm now at the point where I have a card that I have a larger limit on that has an open opening and I'm using that now to my expenses and I'm now paying that off completely.
00:47:23
Speaker
But I'm not at the point yet where I'm comfortable letting it actually hit the statement with that full balance on it. I'm still ah seeing a negative number in budget, even if it's on the left side, makes me very nervous and I don't like seeing that number. So I, I pay it off immediately. Yeah. I think a few things I'd summarize are, um,
00:47:46
Speaker
like embrace the discomfort of debt and don't let yourself re become comfortable again with debt like try to try to so remain being scared of it even though the debt is the lowest it's been in a really long time because you made progress don't let yourself succumb to the temptation to uh desensitize yourself to debt again I also think you're your Reddit post that started all this is another good example of a trick to stay motivated, which is, and you said it in the post, you said, it's a slow, steady race, but these milestones matter.
Understanding Debt as a Double-Edged Sword
00:48:23
Speaker
yeah And I think that's another great piece of advice for people is find the little milestones to celebrate.
00:48:29
Speaker
Yeah. And celebrating doesn't need to be big, but when you're in the boring middle of, I have a ton of debt and I got to pay it off and it just is going to take month after month after month of consistency. You've got to find these little ways to celebrate. Oh yeah. And even if it's just something, something super minor, like, uh, I've started because I'm now not so I'm not screwed to my computer all the time, got money. So, and I found that I now have a little extra I can set aside. So I started taking golf lessons and.
00:48:58
Speaker
Golf lessons are not cheap, you know, so it might be a hundred bucks and I might, but I also can look at it and go, okay, I can't afford to do this this month. I can't afford to do something somewhere next month, but I can, I feel more comfortable being able to step outside of my comfort zone and get outside and do more interesting things. I'm not quite at the level yet where I feel comfortable taking a one week vacation.
00:49:24
Speaker
But now if I want to drive up to the mountains and go hiking, I've starting to find as I've gotten out of this mess that there is a bunch of activities that I can do that that are free.
00:49:39
Speaker
Yeah, there's a lot of stuff that I can do that's both healthy and free and That's there's even stuff around town. I didn't even know this but there's a disco a disco person my hometown that where I live now That's completely free not even well maintained but it's ah like a two-minute drive from my house I can I can I can even walk there basically and I don't have golf discs, but I can walk on the course and it's still pretty cool to, you know, yeah see all the trees and stuff. So, hey. Yeah. Alex, I think you, should I think you should be really proud of, um, first of all, frankly, the resolve to make some changes. And I know it was an existential resolve of like, Hey, I am only eating ramen noodles and this interest is just killing me. These fees are killing me.
00:50:24
Speaker
And I can't see out of this other than finally tackling it. Like that in and of itself is really admirable. And then the specific tactics you've taken since then to work your way out, whether it be canceling subscriptions, generating new cash flow, ah consolidating debt to ah bet get a more beneficial interest rate.
00:50:47
Speaker
All the things, the little things that have snowballed into meaningful progress to where you are now, as you said, a month ahead. You have about 20,000 lesson debt. You have a stable plan that helps you to pay it off over time. And you're even finding ways to introduce the fun things like those golf lessons or whatever it may be ah to keep life fun and interesting and stay motivated. And I just want to, like, as we wrap up, I want to applaud you, like applaud you for the progress.
00:51:17
Speaker
and ah cheer you on for the rest of the boring middle, if you will, as you continue to work your way out. Do you have any last piece of advice or or guidance for anybody who might be in a similar boat? Yeah. I mean, I just want to you know embrace the zero-based budgeting method. It really does work. people I know probably everyone who's gone on this podcast has said ah how great this method is.
00:51:43
Speaker
There's a reason why everybody is so ecstatic about this thing. It is really envelope budgeting in a computer-based system is literally as close to the bee's knees as you can get. um The other big thing I wanted to bring up is, as I touched on earlier, and I kind of came up with an analogy for this, debt is like fire. and the boring In the boring middle, debt is fire. You can use it as a tool to cook to maybe you help get your meals cooked a little bit better.
00:52:12
Speaker
But it can burn you so fast that it can get out of control so, so fast. And if you don't, if you don't, if you think there's even a chance that you don't have the self-discipline yet to control yourself when it comes to that, leave that account as an off budget loan or close the account. Don't, don't take the risk for an extra 10 bucks a month in rewards points of putting yourself back in the same hole.
00:52:39
Speaker
Yeah, I agree. Alex, thanks for joining me today. I appreciate it, man. Oh, it's been fantastic. It's great to great to be on here and, uh, you know, keep on trucking everybody. We've got this. I believe in you. Yeah. Amen. Best of luck to you, Alex. And thank you for joining.
Conclusion and Listener Engagement
00:53:10
Speaker
Thank you for listening to this episode. If you enjoyed it, be sure to subscribe to this podcast so you don't miss future episodes and please leave a rating and review. If you have a story to tell about your own financial journey and you're interested in doing so on this podcast, please email me at wisemoneymentor at gmail dot.com. For more information about me and the coaching services I offer, check out my website, www.wisemoneymentor.com. Thank you.