Small Changes, Big Results | Your Wealth Journey Podcast

Welcome to your wealth journey podcast powered by Bradford Financial Center, where we'll always share how small changes equal big results because your wealth journey is our focus.

Hello, everyone. This is Shallon Weis and Jim Tausz, financial planners for Bradford Financial Center. And today, we'll cover the wealth journey topic of budgeting, the smart ways to lay a strong foundation for your financial future. Stay tuned to the last five minutes of this podcast for our five on five segment where we share our thoughts on hot financial topics you need to know. Today, we'll deliver insights on five fast ways to attack your debt.

So building a strong foundation for your financial future might have you joining us as a young adult in your mid twenties to low thirties or someone who has been feeling the pinch of debt and is trying to pull out of that to start building savings. You're not alone. As of November of twenty twenty, consumer debt is at 14,200,000,000,000.0 with Americans carrying an average personal debt of 92,727. So Jim, let's talk about how debt affects your credit score.

Well, debt is, really a big factor in your credit score. They use ratios and that type of thing to decide what kind of a score to give you. And the highest score that you can get is 850, and a lot of people don't have anywhere near 850. That's, of course, an excellent credit score. But if you have too much debt and you have too many things in the fire, so to speak, what will end up happening is your credit score will be negatively affected.

Now in turn, it also affects what happens to you when you go to the bank or when you go to buy a car or whatever else that you decide to invest in like maybe a piece of rental property. What happens to you is if your score isn't good and you want to borrow money to maybe buy that new car, well, maybe you can get the money and maybe you can't. But if your credit score is real bad, they may not want to loan you the money. Simple as that. Or if they do loan you the money, instead of being able to borrow the money for 3%, you're going to end up paying six, eight, 10 percent.

This depends on what it is. Depends on what the score that you have to bring to the table is. And then from there, it's either going to be good news or bad news. So you have to make it good news for yourself. So one of the ways to make it good news for yourself is making sure that you control your debt, make sure the debt that you have is good debt, not bad debt, make sure you're smart about where that debt is going to be placed.

Is it gonna be placed, for example, in a Mastercard or Visa card that charges you a 24% interest? Or is it maybe a better idea that you go down to the bank and for maybe the same type of loan, you can get it for four or 6%? That's the kind of thing that you gotta do. You gotta be smart about it. If you're not smart about it, you're gonna be paying somebody else a whole lot of money that you don't need to be paying, or you're not gonna be able to get the product or the investment that you wanna get because nobody will give you the money.

So let's talk about getting organized and increasing your credit score. We need to look at what debt you do have. You know, maybe you have student loans out there. Maybe you have a lot of credit card debt, and you're paying high interest. But either way, we need to look at it, make a list, and then we can lay out a plan to tackle that debt.

What's the best ways to pay things off and to save you the most money?

Well, part of getting organized in order to get your credit score up is obviously debt makes a big difference on that credit score as we said earlier. So having said that, let's talk about how to get that debt down. There are two major ways of being able to tackle debt. One is called the snowball effect and the other one is called the avalanche method. And let's talk a little bit about the avalanche method first.

Some financial planners will tell you a good way to tackle debt is to take care of your highest interest rate debt first. So what you do is you check and see how much is it costing you to pay this credit card and that credit card and so on. The bank debt that you might have, you might have a consumer debt of some kind, like maybe you bought a new refrigerator, maybe you have a car debt. And they all have an interest rate and a period of time that interest rate is going to run. So the Avalanche Method, what it does is it lines up all of those debts and you look at the length of time that payments have to be made.

Second thing you look at is the interest rate that you're paying on that particular debt. So to pull this thing down into simple terms, if you got a credit card in the Avalanche Method that has a 24% interest rate, that is the first debt that you focus on. Now remember, you got to pay down your debt, but you also have to keep making the payments on all your debt too because that affects your credit score. If you miss a payment for thirty days, sixty days, ninety days, it's bad news for your credit rating. So what you want to do is take any extra money that you have and focus on that 24% debt.

So let's say you also have a car debt and maybe that's the lowest interest rate that you have. And if you have a car debt and you're paying 6% and that's your lowest rate, that's the last one that you're going to focus on. So you'd line them up whether you have 10 places that you owe money or whether you have five places that you owe money, what you do is get that gathered and organized first so that you can attack whatever it is that you need to attack to get the highest interest rates paid off. Now that's going to save you money in the long run by doing it this way because, look, if you send a dollar in and 24¢ of it's going to debt, that's not a very good thing. But when you pay $1 and you take 24¢ that is not going to need to be paid to that particular person that you owe or the company that you owe this debt to, you're gonna save money.

And then you're going to have more money to be able to concentrate on the next debt after you get that one finished off. So that's why people at times will do that method. It's called the avalanche method, not too complicated.

So let's talk about the other effect, is called the snowball effect. So this method, you know, may be a little more motivating because this one focuses doesn't necessarily look at the interest rate, but looks at what debt has the smallest balance. So let's say you've got, you know, five credit cards. One's got 10,000, 1 has five, one's got two, and one has a thousand. So, of course, you keep paying all the minimums on everything.

And then that thousand dollar debt, maybe you do have an extra thousand dollars in the month. You can pay that off in a month or two. And then that same money that you used for all your payments, then you focus that on the next smaller bill. You know, it's you're gonna pay a little bit more in interest than the avalanche method, but it's maybe a motivator to see that you're paying down your debt faster. You know, you've got that thousand dollar card paid off, and then now you've got the $2,000 card paid off.

And that what you're using each month to pay those two off, you apply to the next one. So what you're paying toward the next one is more, you know, the a higher dollar amount. Like the last month, maybe it was 500, but now this month, it's 700 a month that you're paying on that debt. So you just keep snowballing it. That's where that snowball effect comes in.

So you'll, you know, have a sense of faster progress going motivated because we're all human. We need motivation.

I might add to that one little caveat. I you know, I've done a lot of budgeting in my years, and I will tell you that I think the best way to do it is ball effect. The reason is because of what Shallon says, human nature feels good to get debt paid off and then maybe that $1,000 that Shallon was mentioned that you paid off and you were paying $25 a month, and now it's paid off, now you take that 25 and move it up to your $2,000 debt and of course you're going to pay that off and the next thing you know, you got everything paid off and done. Then my suggestion to you is some of those debts, you don't let them come back again. What you need to do is you're gonna need to say to yourself, you know what?

I'm not gonna pay 24% again. This is a bunch of baloney. It doesn't work. It works good for the credit card company, but it's not working really good for my family. And so what you need to do is probably have a card burning session.

Maybe gather the family around and light a fire and get yourself some hot dogs and marshmallows and sit down and, get rid of those credit cards. Burn them up. Cut them up. Throw them away. Let the garbage man take them away, and then start controlling your spending so that you don't get yourself in the fix.

Once you got out of it, stay out of it. You know what? You don't have to tell a lot of times people twice. Tell once that's enough. But if it happens again, what do you gotta do?

Get your head hit with a baseball bat, knock some sense into you? What I'm saying is is you don't want that. You wanna you wanna do one thing. Get rid of the that you have, and then don't walk back into that situation again.

Well, one thing, you can consolidate your debt. Maybe have a few credit cards, and you could, you know, apply for another one where they give that 0% introductory rate maybe for a year or two. But you're gonna have to pay that debt off. So that could be a way to, you know, pay it down sooner as you pay on that 0% until it's paid, and then you got out of that interest that the original card was paying on. Or you could, you know, if you've got, you know, a vehicle that you have paid for, maybe you can get a car loan and pay down the higher interest credit card debt.

Or, you know, maybe you have equity in your home that you could use to pay down your credit card debt. You know, it's just switching one debt for another, but it's lower interest, lower payments. But like Jim said, you don't wanna get back into the same bad habits of racking up credit card debt. You know, maybe you're using your home equity now and your payments, you know, $2.50 a month. You need to be paying extra on that loan, not just the $2.50, and then don't go back and use your credit cards again because now you're in a worse hole.

So you have to be disciplined and have the mindset that you're going to tackle that debt and stay out of that debt.

In our last five minutes, we'll bring listeners a roundup of five smart ideas they can apply to their own wealth journeys. So let's get started with this episode five in five.

So five fast ways to attack debt. The first one is evaluate your expenses. You'll determine what you make versus what you spend. Compare your monthly income to your monthly expenses. Develop your plan and your road map for making more or spending less.

And the next thing you do is you attack the high interest rate credit card balances first, and we've already talked about there are two methods of doing that. One of them is called the avalanche method, which is that's where you tack the highest interest rate first. The other one is the snowball effect method, and that's where you take the lowest credit card or whatever debt that you have and go up to the highest, and then you you focus on the lowest first, then you go to the next one and the next one and the next one. And the money that you have been paying on a monthly basis on those things that you're paying off, what you do is you take the money you're normally paying on the next thing and then add. Now that you got the one paid off, you add that money, and you pay that towards the next thing.

So that's why it's called the snowball effect.

And the third fast way to attack debt is maybe consolidate your credit card debt. You know? Do balance transfer to a lower interest rate card. That'll help you get that debt paid off quicker and not pay any interest.

And then I'm going to add a little bit off the cuff thought here for the fourth one that we didn't really talk too much about, and that is avoid expensive hobbies. You know, it's, good out there to have passions, but, you know, you really need to be careful about getting involved in something that you probably can't afford or may not be able to afford. And then it can really ruin a lot of other things that you could be doing with your money to make money. I'll give you an example. I do know of a couple that they enjoy racing cars.

And every chance they get, they go to the racetrack racetrack with their car and race. Now there's a problem with that if you don't have the money to race. Or if you're good enough and you win them all and you get a big prize at the end, maybe that's fine. But I'm talking about the people that throw money into things that they can't afford to do. And the next thing you know, you're saying to yourself after you've, spent five years doing that and you look at how much money it made you, and you say to yourself, wow.

I spent 15,000 on that in the last five years. I could have had that invested with Bradford, and maybe that $15,000 is now worth $50,000 60 thousand dollars 70 thousand dollars. But, sure a lot fun racing though. But you know what? If it costs you, you better think about it.

Or if you can't afford to spend it, you need to think about it. So avoid expensive hobbies because that can be very detrimental to your financial future.

And the last tip is to cut the cord on unnecessary expenses. You know, subscriptions are hugely costly. You know, as small 5 and $10 month fees add up, you know, we have all of our streaming services and software services and all those things. You know, they cost $5 here, $7 there, $10 there. That adds up to a big amount.

Another thing to cut is maybe, you know, don't go to the coffee shop where you buy a $7 coffee. You know? May brew your own coffee at home and eat at home too. You know, it's fun to cook. You don't need to go out to eat all the time where it's $40.50 bucks a shot.

So those are some other things to cut expenses. And also consignment shops. You know, you can find a lot of nice things that are used that still look really new. You know, you spend your money wisely. You can buy a $5 shirt or a $50 shirt.

It covers the same.

Well, you know what? I'm gonna mention one other really important way to save money, and it's a big deal for every family. So as I go through this, think about it. Just think about what I'm about to say here. A lot of us need a car, and anymore, many families have two cars because mom's gotta go one way and dad's gotta go the other way.

And some people, they think they gotta have a brand new car. Now I can give you an example of something that happened to me a while back. I drive a Lexus, and I've never had a new one. Never. But I've driven Lexuses for fifteen, twenty years.

And I had a Lexus, not long ago that I just sold, by the way, and I've bought another one. But the one that I traded off, I gotta tell you about it. That Lexus was worth $90,000 brand new. 90,000. And what I did is I bought it.

It was two years old, and it had about 32,000 miles on it. And I bought it for $42,000. I didn't pay. Listen to what I'm saying. I did not pay a hundred thousand for it.

I paid 42,000. And the money that I had in between that that I saved, I invested it. And I'm not gonna tell you how much I made on that. But you know what? I had money left over to invest because I didn't buy a new car.

And ladies and gentlemen, I have never had a new car. Be smart with your money. Be smart how you spend your money. There's more than one way to skin a cat out there, and that's a mighty good one right there. So that's my big tip of the day.

Now I know that right now all of you are so excited about this that you probably can hardly believe what you heard, and you're ready to get something going and getting it done. Well, I'll tell you what. You've to go the right place at the right time to do the right thing. So the way to do that is give Bradford Financial Center a call and talk to us. We have the documentation for most of the things we talked about today.

We've got the sheets on the rotating savings. We've got the sheets on the flexible monthly expenses. We've got the sheets on investments and we've got the summary page sheet. And then we have a document that goes with that that tells you a little bit about how each one of those work. And I would recommend that you give us a call.

And I'll give you our address. If you'd like to write us, you're welcome to and maybe have some questions you'd like us to answer. I know just the young lady that knows all the answers. Right, Shalyn? Okay.

So you can find us on bradfordfinancialcenter.com or you can find us on Facebook, Instagram and our address is 215 North Main In Clarion, Iowa 5 0 5 2 5 and our phone number is (515) 532-6661. Or for our 800 number, it's +1 803484419.

And I'm gonna end with this. One way to become successful is to be around successful people. My suggestion is that you don't go to the Walmart clerk and ask them how to do all this. You need to go to an expert. You need to have an expert, somebody that knows what's going on.

And I'm talking about, for example, when you have your accounting done, you need to go to an accountant that knows what they're doing, a CPA that really knows what's going on. When you need a lawyer, get a good lawyer. Don't get a mediocre one or one that's kind of good or maybe can be okay. Get one that you know is good. Also, when you're in the financial planning area, go to a certified financial planner.

These people are the ones that have been educated to do these kinda things, and this is what we've been trained for. So what you need to do is surround yourself with professionals and know what they're doing. If they're worth their salt, they are more than good. They can actually make you way more money than you're ever gonna spend on their service.

Thank you all for tuning in to your wealth journey podcast powered by Bradford Financial Center. Be sure to tune in to our next episode on budgeting where we will explore smart strategies you need to know. Securities offered through United Planner's Financial Services member FINRA SIPC. Advisory services are offered through Bradford Financial Center, a registered investment adviser. Insurance services offered through Bradford Insurance.

Tax and accounting services offered through Bradford Tax and Accounting Network. Bradford Financial Center, Bradford Insurance, and Bradford Tax and Accounting Network are not affiliated with United Planners. Neither Bradford Financial nor United Planners provide tax or legal advice. This podcast is for general information and educational purposes only and not intended to be specific advice for any individual. Consult your financial professional regarding your personal situation.

All investing involves risk, and there is no guarantee that any strategy will be successful.