The first step on the path forward, according to expert Lynnette Khalfani Cox, author of Zero Debt: The Ultimate Guide to Financial Freedom, is getting a handle on exactly how much debt you have—something many people fail to do. Look at repayment options to find one that works with your income and other obligations, and that still allows you to save and meet your goals for the future. “I am often asked which one should I do first,” Khalfani Cox says. “Should I pay off my debt—whether that’s student loan debt or credit card debt—or should I save first? The answer is you really have to do both.” Credit card debt tends to snowball quickly, thanks to the high interest rates on that debt. But Cindy Zuniga-Sanchez, founder of Zero-Based Budget Coaching, recommends paying more than the minimum, and looking for ways to reduce the interest rate, such as using balance transfer offers that buy you time to make a dent in the debt at a 0 percent interest rate. And YouTube star Aja Dang, who paid off $200,000 in debt over two years, reminds people to find room in their budget for small rewards and treats along the path to debt freedom—like the facials she worked into her budget. “There were money goals that I put aside while still paying off my debt,” Dang says. “It allowed me to feel excited about accomplishing something financially. That helped me stay focused.”
Transcript
Lori: I just went way over budget and that’s what kind of tipped the credit card debt to a place where I couldn’t keep up with it anymore. Don: Our student loan debts are this black cloud that’s been over our lives forever Camila: I currently make about $400 payments in total and I just feel like it’s always stagnan.t Stefanie O’Connell Rodriguez: This is Money Confidential, a podcast from Real Simple about our money stories, struggles and secrets. I’m your host, Stefanie O’Connell Rodriguez. And today we’re looking back on some of our expert interviews to talk about debt. We’ve talked a lot about debt on the show —student loans, credit card debt, medical bills, personal loans —and that’s because debt is a reality for so many Americans. Even though it can feel isolating when you’re in it, Americans collectively hold some $14.9 trillion dollars in consumer debt as of the end of June 2021—the highest level on record. So today, we wanted to take a look back on some of our expert interviews where we talk through some of the fundamentals of paying off debt—including how to get started, how to prioritize and how to stay on track to becoming debt free. To start, we’re looking back on my conversation with the best selling author of Zero Debt: The Ultimate Guide to Financial Freedom, Lynnette Khalfani Cox. Lynnette Khalfani Cox: Back in 2001, I had a hundred thousand dollars in credit card debt alone. I paid it all off in three years. When I got out of grad school at USC in Los Angeles, I had $40,000 in student loans, it took me over a decade to pay off my college loans. And believe me, I was not born with a silver spoon in my mouth at all. My mom was a secretary. My dad was a shoe shine man. So in my family, very little means, and loans is how I financed my college education, especially my graduate school education. Stefanie O’Connell Rodriguez:I spoke with Lynnette after talking to a listener who graduated with over $100,000 in student loan debt, which you can hear more about in episode 7. Lynnette and I talked through both the financial and the emotional steps for tackling such an enormous debt burden. Lynnette Khalfani Cox: I do feel that in general, it’s worth it to get a college degree. but I do feel like part of it is a little bit of a reckoning to think about the ways in which we’ve sold the American dream, right? And part of the American dream is I want a house or I want to go to college or I want to send my kid to college. And those are great lofty aspirational goals. But we really do have to be honest about the fact that on the other side of those goals is debt. Because most people cannot afford to buy a house in cash outright. Most people cannot afford to write a check for tuition outright in cash. And if you’re trying to tackle this now, in your 20s to 40s, know that it is surmountable. The second thing I would say is from an emotional standpoint is you have to focus on the stuff that you can control. So sometimes debt itself the overwhelm that people feel is often tied to the powerless feelings or the feeling like, geez, this there’s just so much up in the air, so much I can’t do. So, you know, again, take a deep breath, kind of emotionally do a reset and understand that you’re going to approach the problem in a methodical step by step manner thinking about what you can do, what you can control and the stuff that is within your purview. That’s, you know, not like based on the economy or on the stock market or, you know, what you know, others might do, et cetera. Take a deep breath, pause and say, okay, I’m going to conquer this. What do I need to do? And then that leads us to the practical and the tactical, some of the strategies around financially getting your arms around your debts. So step one for a lot of people is to actually tally up what they owe. Some people have no idea how much they owe. They just know I signed because I wanted to be in school. And so you need to understand, you need to first go to the department of education, check out their website. It basically lets you log into their system and they’ll show you at the federal level —every student loan that you borrowed and they’ll show you the status of it. Is it in deferment or forbearance, anything past due, you know? For any private student loans you want to reach out to your loan servicing agent again, find out what the tally is and what the total is. You’re going to write it all down. You’re going to type it, put it on your spreadsheet. Use your software program, budgeting software tool, et cetera of your choice. But you’re going to just know what the numbers are in black and white. No guesstimating, right? Then after that, you’re going to see what your payment plan options are. What are your repayment plan options? At the federal level, there’s a variety, but they kind of all fit into one of, kind of four buckets. there’s the standard loan repayment program, which is the one that they really steer most people or everybody into, unless you change it. And that’s to let you pay off your student loans in 10 years. In addition to that, there’s the graduated loan repayment program. There’s an extended loan repayment program. Again, those stretch them out over time—20 years, 25 years, some could potentially be 30 years. And I know people hate to hear that because they’re like, I don’t want to be paying anything for, you know, 20 or 30 years. But if you want to have smaller loan payments in the short run, get a little relief for yourself financially, maybe because your income is lower right now, et cetera, you can choose to have one of those payments plans where you extend your payments over time. Tradeoff there is to know that yes, you’re going to be paying more in interest over time, but your monthly payments in the short run will be smaller. And so that might feel a little better for people in terms of cash flow. The fourth sort of rough category is around income-based or income-contingent loan repayment options. Again, these are all based on your federal student loan options. You want to reach out to your lender again on the private student loan side. Those tend to be a little more rigorous, which is why you want to know what you’re signing up for in the beginning. So from a strategic and kind of a tactical standpoint, you’re going to figure out what you owe. You’re going to see your loan options. And then you’re going to assess like, what plan makes sense for you, right? And if you really know, like, okay, well, it’s just that I’m new in my career and I do have a job, but, um, you know, I don’t get paid a ton of money and I have a lot of other bills because I’m in some new city or I’m just starting out. Then one of those loan repayment programs that’s tied to your income actually might make sense because you get to kind of scale it over time. As your income rises, so do your monthly payments.And so that’s good for a lot of people, but again, you’re going to assess and see what kind of makes the most amount of sense for you. I think you want to really start looking at your budget and your overall kind of spending plan of action in a holistic way, right? You want to think about, like, what am I just on the regular, spending my money on. I tell people think about windfalls again as another strategy. What’s a windfall? It’s any sort of unexpected or lump sum of money outside of your normal paycheck. So if you get a government stimulus check, if you get a tax refund check, if you get a bonus on the job, um, even if you get a raise and you want to direct that towards your student loans, all of those things using that extra, quote unquote, you know, extra money to pay down college debt is a good thing, and you’ll be really super glad that you did. Stefanie O’Connell Rodriguez: Now I know when we’re talking about maybe a more aggressive repayment strategy or even just trying to keep up with student loan payments in general, there’s also trying to balance it against saving for the future, both saving for retirement, and saving for the life we want to live and the [milestones we want to achieve. And I’m wondering how you suggest people balance those two things. Lynnette Khalfani Cox: Well, I am often asked which one should I do first? Like, should I pay off my debt? Whether that’s student loan debt or credit card debt, or should I save first? The answer is you really have to do both and the two are not mutually exclusive. So it behooves you to go ahead and pay down debt incrementally if that’s the most feasible way for you to do that. But at the same time, those who don’t save at all, they miss out on two things. One is that they don’t develop the muscles or the skill sets that you develop just by getting into the habits of saving. And so I like to see people sort of use that savings muscle and get used to saving. Increase it over time when it’s possible and know that you’re making progress in a really great way, just by getting into the act of saving, into the habit of it. So the savings component is crucial because you do want to be able to have resources or assets to be able to deal with emergencies and unexpected events. You want that savings to be able to grow for you over time, and you want to chip away at the debt, even that student loan debt, so that it doesn’t compound over time in terms of, in terms of interest and accruing, the balance is getting larger and larger. And I’ll tell you what else, Stefanie, certainly for people of color like myself—I’m African-American—it’s really crucial that we manage our student loan obligations in a really smart and strategic way, because we know that from an economic standpoint, African-Americans in general have lower incomes compared to our white counterparts. Twenty years after the average African-American graduates from college, they still owe 95% of their college debt, versus white Americans who went to college. They typically owe about 6% of their student loans, 20 years later. So I just point out that disparity because frankly, most people do not think that they will have the student loan debt or carry it for as long as they actually do. For the vast, vast, vast majority of the population, it’s not going to be possible to do it like sequentially, right. If you only wait until you do one goal and a hundred percent conquer that goal, then you go to the next thing and then the next, you’ll push your timeline out so far for reaching so many other goals, um, that it probably won’t be as much satisfaction, utility or, just sort of happiness in terms of having achieved the goals. So again, I encourage people to kind of reframe and to think about how they can do things in a way, the way that is positive, possible, and practical for them simultaneously. So, what can they leverage in terms of what they’re doing right now? How can they make their dollars count for them right now? If you have not yet, signed up for your employer’s, retirement savings program on the job, 401k, a 403B, 457, you know, depending on the type of work that you do and your employer is offering a match of some kind, you’re not leveraging your savings dollars to their maximum potential. And that’s just one little shift that you can do. Stefanie O’Connell Rodriguez: Well, it’s also kind of illustrating the point about if we’re only focusing on our debt, all of our financial efforts are backward focusing instead of with savings. Part of it is just like an emotional cue to, to move toward the future, to move toward our excitement, to move toward our values and our goals. While student loan debt can be an enormous burden, it’s just one of many kinds of debt. So after the break we’ll talk about managing one of the other most common (and burdensome) kinds—credit card debt. Plus, we’ll talk priorities—that is, how we can manage debt repayment when we have a bunch of different debts and a bunch of different money goals. Cindy Zuniga-Sanchez: I’m Cindy Zuniga-Sanchez, the founder of Zero-Based Budget Coaching LLC. I am a full-time commercial litigation attorney and I am also a personal finance content creator. Stefanie O’Connell Rodriguez: And you paid off $215,000 of debt. Cindy Zuniga-Sanchez: Yes. Anytime anyone says that number out loud, I have to remind myself like, oh yeah, I did like absolutely insane. Stefanie O’Connell Rodriguez: So now you’re looking back on it from having accomplished it. Tell me about being on the other side of that. Cindy Zuniga-Sanchez: Oh gosh. It’s like the best feeling in the world. There’s few things in life that I’ll never get over. And one is the feeling of graduating from law school, another is a feeling of passing the bar exam and the feeling of paying off all of my debt. I’ll never get over just how it felt when I hit that final, submit payment and was officially done. I cried, I felt all of the emotions, I felt like the weight of the world had been lifted from my shoulders. Stefanie O’Connell Rodriguez: How do you keep staying with it and staying motivated with the heaviness of that burden? Cindy Zuniga-Sanchez: You have to keep your why in mind at all times. That’s all that will keep you moving. It was extremely difficult to see the light at the end of the tunnel. My parents are immigrants. I was born and raised in a very low-income community in the Bronx. You know, we didn’t grow up with much. And I had to keep in mind that my parents sacrificed so much. And so just keeping in mind that I want to be able to provide for them. And then of course, eventually debt pay off. Stefanie O’Connell Rodriguez: You said something about how your debt really facilitated a lot of the freedom you have now. And I think that is really a powerful point of view. Cindy Zuniga-Sanchez: Yeah. A lot of times people will ask me, Cindy, do you regret your debt? And I say no, because I wouldn’t have become a lawyer . Now we can go on and on about the, completely oppressive price of higher education but I think that when you think of the purpose behind certain choices that you made look, some of them are going to be, I think, quite honorable, [such as, you know, treatments needed for a health reason, school, you know, things like that. But some people might say that, oh, you know, try to cast shame on other decisions. Like, let’s say shopping or whatever. You don’t know what that person was going through at that moment. And, and so no matter where or why or how you accumulated that debt, it happened and it’s okay. It’s led you to where you are today and now you just make a plan to move forward. You acknowledge it, you forgive yourself, but then you make a plan to move forward. I think that hands down, when it comes to debt, credit card debt specifically is the one that you want to tackle first, right? Because the interest rates are just so unbelievably high and it can feel very, very much like you’re never going to get out of it because perhaps the payments that you you’re making, it’s barely covering the interest on the credit card debt And so I think that when it comes to credit cards, just for anyone that’s listening, first and foremost, you really need to understand your numbers. pull out your credit card statements for all of your credit cards. and write down the balance on that card. Write down your minimum payment that’s required. Okay. Even though of course, understanding that that will fluctuate, right, month to month, depending on your situation. and then also write down the interest rate. Stefanie O’Connell Rodriguez: And what is having a high debt balance mean for your credit score? Cindy Zuniga-Sanchez: A lot of times people ask me, ‘Cindy, my credit score is just suffering. How do I get it up?’ And I tell them. I’m like, ‘The number one thing that will make it go up…’ and they’re like, ‘Oh my gosh, yes, please tell me the secret. Tell me right now.’ And I say, ‘Pay off your credit cards.’ That’s it. Pay them off and pay them off on time Now we have a goal, right. We have a clear goal, which is, we want to make sure we get this credit card debt down and you will see that credit score just start skyrocketing. And that could be a good motivator too. Stefanie O’Connell Rodriguez: How do you kind of balance that prioritization of saving for emergencies and unexpected expenses against a credit card that might have, you know, a 25% interest rate. Cindy Zuniga-Sanchez: And it’s, it’s tough right? But what I try to recommend is first and foremost, you always want to have your emergency fund. Save one month of your necessary living expenses. God forbid you lose your job, right. And for one month you need to cover your rent, your groceries, just the bare minimum. How much is that? So if for example, that amount is $2,000. Well, then this is what I would say. And then $2,000 is a lot of money. Right? But you start small and you put that in your budget. This month, I have decided to put $200 in my emergency fund. I need to do that because otherwise my lights are getting cut off. that is the kind of fuel that you want to have. And then of course, however you want to pay off that credit card debt, right? Because the interest is accumulating. if that interest was $60 and your minimum payment is $50, you’re not even covering the interest. That means that even if you don’t put a single additional purchase on your credit card, It will grow next month —the balance will be higher. Cindy Zuniga-Sanchez: So I would say two things at the very, very, very least commit to putting definitely more than the minimum payment, because you really want to actually start chipping away at that debt. But another thing is to consider looking at a debt repayment calculator. You could just plug in your numbers there and see, okay. If I just made an additional. Just 40 bucks, just 40 bucks payment, additional to my credit card debt. What impact could that have? Run the numbers you would be surprised. You’d be surprised at the impact that just a small, additional payment can have on your overall debt payoff. Stefanie O’Connell Rodriguez: I do wonder if there are any strategies for paying off credit cards that you would recommend beyond making more than the minimum payments. Cindy Zuniga-Sanchez: I would say definitely consider a balance transfer. a balance transfer is basically what it sounds like it is where you take the balance that’s on your credit cards and you transfer that amount to another credit card with an introductory rate of 0% interest. Now I want us to walk through this because there are so many caveats with it and I want people to be very careful before they just jump into it. Right. So you often will see these offers for balance transfers—0% interest for, 18 months, right? Basically what it is is a bank says, hey, we’ll take on your debt essentially. Right. Just bring it over to us. And that way you’ll be done with that 25% interest that you’re paying that literally feels like you’re drowning, right? And then you come with us and you have no interest accumulating for, let’s say something like 18 months. And that could be phenomenal, right. Because now the interest is not accumulating on that debt. But there’s a catch, there’s always a catch, Listen , girl, If you don’t pay off your credit card debt in those 18 months, you now get faced with a nice fat statement that says you’ve been kicked back up to 25% interest. Stefanie O’Connell Rodriguez: Any thoughts on personal loans? Cindy Zuniga-Sanchez: So I don’t mind a personal loan, but I want you to be very mindful of the terms. Because I’ve had clients that have done this. They’ve told me I also have a personal loan and I’m like, okay, what’s that for? And they’re like, well, I took it out ‘cause I went to pay off my credit cards, and I did, but then I racked up the credit card debt again. So now I have credit that credit card debt is back here alive and well, and now I also have the bank loan. So that is what I want you to be mindful of. You need to walk in with a plan because in either of those situations, in the balance transfer situation or the personal loan situation, if you do not walk in with a plan, you could actually wind up being in a worse position than you did when you were, you know, when you step into at all. Stefanie O’Connell Rodriguez: I think it’s really hard to stay engaged with your money when all it seems to be is a negative experience. any thoughts on how to make it a positive experience? Cindy Zuniga-Sanchez: I think that you need to convert that energy of negativity, of shame, of guilt. You need to turn that into something positive. But for me, personally, I need to do that in a tangible way. And so maybe that’s something that could be good, right. Is, is, is doing kind of like these sort of family activities around it. So that you’re also not living with it kind of like on your own, right. I’m not saying like put your, you know, guilt and shame on your children. No, of course not. But you want to have charts, sticky notes, just set actual goals for yourself so that once you do hit them, you can reward yourself. Stefanie O’Connell Rodriguez: Speaking of rewarding yourself and making your relationship to your debt pay off journey a positive one, in episode 21 we spoke to YouTube star Aja Dang about the strategies she used to stay on track toward her goal of paying off over $200,000 of debt in just two years. Because a debt pay off plan is only as good as your ability to realistically stick with it. Aja Dang: So I paid off my credit card, my car loan and my undergraduate loan. And that’s when I burnt out. ‘Cause I didn’t feel excited about everything that I had accomplished. So what I ended up starting to do was financially putting aside money to treat myself. So it could have been anything from like a really nice dinner, or honestly, it was like, my very first goal was like laser waxing or laser hair removal. That’s what I wanted to save up for myself. So they were like money goals that I put aside while still paying off my debt, but it allowed me to like, feel excited about accomplishing something financially, even if it was as small as like a hundred dollars here and there. That helped me kind of stay focused. I would actually make kind of like flow charts. So let’s say I wanted to put aside a hundred dollars for a dinner that I would get to eventually I would kind of divide that up into maybe $20 small blocks. And every time I was able to put $20 aside I would highlight that. And I actually did that on my debt free journey as well. When I had my huge $150,000 undergraduate loan, I broke it into very many, $200 boxes. And every time I put aside or paid off $200 toward that loan, I would highlight it. And then that for me was also a motivator because instead of like, just seeing your debt go down it’s like a game. I’m very competitive. I need to be able to see like the goal line. When I first built my budget, I kept my facials in my budget, even though I was $200,000 in debt And when I showed my first budget, I got comments like you have to take it out. Like this is unacceptable. You have to take out. And I’m thinking but why? Because I can afford that and still contribute. You know, at that time I was not contributing that much over my minimum because I wasn’t making as much money as I did at the end of my journey, but I can still put money towards my debt. Me having a facial every month isn’t preventing me from doing that. So it’s also like don’t listen to other people. It’s your money, it’s your journey. you can always take advice from people, but at the end of the day, it’s your decision, what to include in your budget. And then what you want to save for—you know—separate your fun goals from your actual financial goals. Stefanie O’Connell Rodriguez: I love your story about the facials. I love that you built it into your budget, and I want to talk about how we can conceptualize that responsibly. So what is that tipping point between this is a priority and a value for me that I want to keep in my budget, versus I am now just justifying things that I, if I over justify it, I’m not actually going to make progress on my financial journey. Aja Dang: So for me, it’s kind of like, obviously when you put something aside, that’s not a quote unquote necessity, you’re sacrificing something else. Right. So my facials, while, you know, facials are expensive, but mine, I would consider affordable at $85. So that’s why I kept it in there. But me contributing that $85 is taking away from food or it’s taking away towards additional payments towards my debt. And when you think about it, that way you think whether or not it’s important enough to replace, you know, that money going to something more as a quote unquote necessity, right? So like, getting my nails done. I don’t really care about doing that. So that was something that I could easily throw aside or getting my haircut. I can go a year without getting my haircut. So that was to the side, but for me, a facial was something that was non-negotiable and I was willing to sacrifice other necessities for that. Stefanie O’Connell Rodriguez: And I also love that you didn’t let someone else tell you that that shouldn’t be a value for you. Aja Dang: Yeah. What I learned really quickly sharing my journey is that people have an opinion about what women spend their money on. So at some point you just have to like close off other people’s opinions about what they deem is necessary and just go with what you want. ‘Cause ultimately we’ve been saying, if you cut out everything that you love and enjoy out of your life, then you’re for sure going to give up on your debt free journey. That I can guarantee you. I always tell people to just do what you’re comfortable with. I think that’s also the major problem that I have with a lot of the financial advice out there. It is very like, you have to do this. This is the right way. Do this, do this, but it’s not really taking into account people like their lifestyle, how they feel. I always say, this is what I did, and this is why, but if that doesn’t align with you, then, you know, here are some other options. So the biggest piece of advice I could give is find your community and surround yourself with people whether they be it like your best friend or like complete strangers online that will just be there to support you and no judgment whatsoever. ‘Cause obviously it’s really easy to feel judged when you’re talking about money and your financial situation, but you know, places like your podcast or like my YouTube channel where you can like go in the comment section and just say, hey, listen, I had a uh, a really bad month. I went over budget, you know, my AC broke down. My emergency fund is depleted and I’m feeling really frustrated. People will surround you and will encourage you. And we’ll give you advice. Or we’ll just say, you know what, me too, I’m right there with you, but we can figure this out together. So it’s always like the number one thing you have to do besides building up your emergency fund before paying off debt is finding your community. Because if you don’t have people that can like surround you and support you judgment free, then it makes the process significantly more difficult. Don’t listen to anyone that makes you feel bad about yourself and your decisions. I’m so sick of people telling me what I’m doing wrong, or, you know, what I should be doing. And it’s like, well, you know what? This is my journey though. And your advice is, you know, appreciated. But that doesn’t mean that what I’m doing is wrong. So that’s kind of my guiding light is like, you take all the advice that you can get and like listen to it. But ultimately the decision is yours whether you want to utilize it or not, and go about your own journey. I was not perfect in my journey and I know you, like you as in like whoever’s listening, won’t be either. And I mean, I think with life in general, the more you dwell on your mistakes, the harder it is to like move past it. But once you get into that flow, it’s just easier to live, live life. Stefanie O’Connell Rodriguez: Debt, of any size and of any kind, can bring up overwhelming feelings of shame, fear, guilt, helplessness, depression, anxiety—and these feelings can be all consuming, which is why it’s critical to understand and accept that you are not your debt. Your net worth does not dictate your self worth. And where you stand today is not permanent and it does not control where you can go in the future. Debt does not have to be forever, and the strategies we’ve talked through here can help you create a plan, so that you can live your life empowered and excited about your future, instead of feeling trapped by your past debt. Now If you run into those feelings of fear, doubt and overwhelm at any point in the debt payoff process, take some time to reconnect to your “why” —imagine what your life will be like after becoming debt free —how might you feel and what might you be able to do —using those feelings to stay motivated and on track in the face of challenges and setbacks. And celebrate every small victory, every on time payment, every debt payoff milestone along the way. Finally, find some support. Read books and listen to podcasts. Follow your biggest inspirations on social media. Read the stories of other people who’ve gotten out of debt —whatever keeps you inspired and accountable to the financial journey that brings you closer to debt freedom. has been Money Confidential from Real Simple. If you have a money story or question you’d like to share, you can send me an email at money dot confidential at real simple dot com. You can also leave us a voicemail at (929) 352-4106. Come back next week when we will be asking what can be a literal million dollar question: Is now a good time to buy a new home? Be sure to follow Money Confidential on Apple Podcasts, Spotify or wherever you listen so you don’t miss an episode. And we’d love your feedback. If you’re enjoying the show leave us a review, we’d really appreciate it. You can also find us online at realsimple.com. CREDITS: Real Simple is based in New York City. Money Confidential is produced by Mickey O’Connor, Heather Morgan Shott and me, Stefanie O’Connell Rodriguez. Thanks to our production team at Pod People: Rachael King, Matt Sav, Danielle Roth, Chris Browning and Trae Budde.
