Debt is a common source of financial stress for many Americans. Job losses, medical expenses, and even impulsive purchases can lead to insurmountable debt and get in the way of your financial goals.
If you’re in a financial hole due to debt, the only real solution is to change your debt mindset and start digging your way out, one step at a time.
In this episode of Fiscally Savage, Dylan talks about the debt equation, why people go into debt, and how we can deal with debt problems
- [04:36] What is debt?
- [06:08] The true cost of debt
- [07:37] How debt fools us
- [10:17] Why credit card companies hide their interest rates
- [12:38] Why it’s easy to go into debt
- [13:51] Average American household debt in 2022
- [17:45] The importance of cost-benefit analysis
- [21:39] The four steps to dealing with debt
- [27:22] How Dylan applied those steps to get around his debt situation
[00:00:00] Intro: Forget the civilized path. It’s time to break the chains of debt and dependency, take control of our financial lives, and live free. This is the Fiscally Savage Podcast.
[00:00:15] Dylan Bain: Hello and welcome to Fiscally Savage. I’m your host, Dylan Bain. And today, I want to tell you about an anniversary dinner that my wife and I had right after the birth of our first child. When Harper, who’s my oldest daughter, came into this world, our life was in a transitionary period. Not only from the idea that we had just returned back to the United States and we were in a brand new town and a new state. My wife was starting a new career. I was teaching in a new school. And we were making the transition into parenting. And of course, if you’re a new parent, you all know this that your time suddenly is on the baby’s schedule, no longer on your schedule. So when our anniversary came along, we really wanted to do something special. And so, this was the first time we could really sneak away to try to spend time with our relationship. And I took my wife to one of the nicest restaurants in Flagstaff, Arizona.
[00:01:11] And as we are sitting there in this restaurant enjoying some outstanding food, I realized I couldn’t concentrate on the conversation. While my wife was talking and we were trying to enjoy each other’s company, I found myself constantly distracted. And I couldn’t at first figure out why I was distracted. And sure, we had just had a child. It was our first time away from the child. The child’s with a sitter. But I couldn’t concentrate on the meal. And as I kind of felt into that space, I realized that I also wasn’t even comfortable having the meal, which was weird because my father-in-law had given us a gift card to this restaurant so we weren’t even paying for dinner. But it occurred to me that it was the expense that I couldn’t stomach rather than the food. See, money was tight, and I knew that. Our debt was high. I couldn’t pay all my bills. I had just recently started working a second job. Then despite having full-time employment, I didn’t have health insurance. So that was all weighing on my mind. And so, rather than being able to have that dinner with my wife, all I could really think of was the expense and the tick-tick-ticking of the interest on our debt, both credit card and student. And while I was sitting there looking at my lovely wife, I made myself a promise. That I was gonna bring death to our debts and I was going to allow a world to come into being where neither her nor my children ever had to be shackled at a lovely dinner the same way that I was.
[00:02:48] Now, ladies and gentlemen, I tell you that story because it illustrates a point. If you are in debt, you on some subconscious level inside of your body know this because the body keeps the score, and the score is tick-tick-ticking away as that interest compounds every second of every single day. And it’s not that I’m anti-debt per se. But I do believe we need to be honest about what’s happening with the whole debt equation. Because while debt can be leverage, and when I say leverage, I’m talking about leverage for us normal folks, that is, we can leverage it into opportunities, we can leverage it into homes, we can leverage it into mobility. Debt also, and more often for those of us who are just living on Main Street rather than Wall Street, it’s a trap, particularly if you are a “tier zero” person.
[00:03:40] Now, a “tier zero” person, just to kind of recap from last episode, is one of those people who is completely unaware that they are on Maslow’s hierarchy of needs at all. They’re unaware that their job is intrusive to their lives, that their lives are not really their own, and that they are exactly one corporate decision away from disaster, both personal and financial. These tier zero people are the common default person in society. And so, if you are unconscious of the debt, on a conscious level, your subconscious is absolutely keeping the score. Now, I also wanna remind you that your money is time. Money is what you received for exchanging pieces of your most precious, nonrenewable resource, your time, to get. And so, when you’re looking at your money, you need to start thinking about your money as pieces of your life because that’s what you exchanged in order to get it.
[00:04:36] Now, with that in mind, let’s think about what debt truly is. Because debt is money owed plus interest. And that interest, of course, is a percentage that will compound over time on the money that you owe to somebody else. And if money is time and, more specifically, money is your time, then debt is a claim on your future production in time. That is what debt is. When you are in debt, you have traded something of economic value in exchange for that person having a claim on your future productivity. And you mortgage that against your sovereignty because when you’re in debt, you are no longer in control of your own time because you’re no longer in control of your money. That kind of changes the game, ladies and gentlemen, because when you start thinking about that, when you decide to go into debt for whatever reason, if we start to understand it as our future production, it suddenly becomes a lot more precious for us. And that is kind of why this is such a powerful way to frame this. Because we’re just talking about the money owed. We’re not talking about the interest because the interest that you’re paying is going to be paid with your time. And as that tick-tick-tick of the interest goes in the back of your head, you are aware that that ticking is really seconds of your life, but now the ticking is faster because it’s compounding on the time you’ve already promised to give up.
[00:06:08] And that’s where we see the true payment that you are making for the privilege of being in debt. The theft is of your attention. That’s what you’re really paying. It’s your attention. We live in an attention-based economy, and debt is taking that away from you bit by bit by bit. And ladies and gentlemen, let’s just be honest for a second. We live in a society where there is an ongoing, concerted, focused effort to hijack your nervous system to help you ignore the idea that your debt is a mortgage against your sovereignty and a claim on your future productivity while the interest tick, tick, ticks away the minutes of your future life. That effort is led by teams of psychologists, PhD-level economists, banks because your monkey brain is primed for short-term thinking. And just stop and think about this on an evolutionary level for a second. The monkeys that were really concerned about the future at the expense of the present typically didn’t survive because they were more concerned about trying to get something so they could store it for the winter and, therefore, ignore the alligator that ate them. And so, our monkey brains, this is why we have things like anxiety because it was very helpful for us to survive. Well, the monkey that lives today will eventually see tomorrow, but the monkey concerned about tomorrow at the expense of today doesn’t live very long.
[00:07:37] And so, the people who are arrayed against you fully understand that that is how your nervous system works, and they take advantage of this. Let me give you a great example. When was the last time you saw an ad? It doesn’t even matter what the ad is for. Just stop and think about what they were presenting to you. Maybe it was an ad where they’re trying to show that you are prepared for something. Maybe it was an ad that was designed to try to make you think you’re missing out. Maybe it was an ad that was designed to make you think that social acceptance is buying this thing. Maybe it offered you a solution. And those four different things are exactly how they go and hack the monkey brain to get you to buy things with money you don’t have to impress people you don’t like. They prey on your fear of being unprepared. They prey on your fear of missing out. They prey on your fear of rejection. Or they offer you a solution to a problem you didn’t think you had. And of course, all of that together is designed to take advantage of that short-term thinking monkey brain because if you really stop and think about it, buying a certain type of car insurance doesn’t make you a.) more prepared because, let’s just be honest, most car insurance is more or less the same. You’re not missing out on something fun because who likes shopping for car insurance? Your friends aren’t gonna reject you because you went with one car insurance company over another. And car insurance isn’t necessarily offering you a solution in and of themselves. So like, yes, insurance is extremely important and it is offering a solution, but one company over another is not a better solution than the other one. You can see this in diaper commercials. You can see this in car commercials. You can see this in, think about the last time someone actually tried to pitch you on something. In all four of those cases, they are trying to generate an emotional response on a short-term thinking that’s gonna short-circuit you thinking, “Well, hold on a second. If I put this on my credit card, then I’m gonna owe interest.” Instead, you’re thinking, “Oh, I gotta get in on this.”
[00:09:37] And the other part about this is that for a lot of Americans, and I’m an American-centric show but I imagine this applies to most of the developed world, they also pitched the idea, and this is maybe not explicit in advertising but it certainly is explicit in the way society thinks about credit as a backstop. Oh, you don’t have the money? You can just put it on credit. If your tire goes out on your car, just put it on credit. Gotta go to the doctor? Just put it on credit. So much so that we even have taken investment solutions and tied credit cards and debit cards to them to take advantage of this already established way of thinking about that little piece of plastic in your pocket.
[00:10:17] The other way that this effort is being done is by creating friction points to stop you from really thinking deeply about how this system works. Let me give you an example. Pick any one of your credit cards. Go tell me what the interest rate is. You’re probably gonna have to guess because it’s not really easy to find. You can do that with student loans. You can do that with a car payment. You can do that with your home mortgage. It really doesn’t matter. They always hide it. It’s never just right there on the front page. Why? Because they don’t want you to think about it. Because if you thought about it, then you’d be primed to make a different decision. Because when we think about interest, chances are good that that monkey brain immediately flips because we know that interest is dangerous to our financial health and, therefore, we’ll take action accordingly. And creating those little friction points is one way to just keep you focused on, just make the payment and move on. Just make the payment and move on. Don’t think about how your debt structure looks. Don’t think about the fact that this is time that you’re giving away in the future. No, no, no. Just make the payment and move on. Friction points will make sure that you will take less action for their benefit. They’re the ones benefiting here.
[00:11:25] The other friction point is nobody really takes time to explain the difference between an interest rate and an APR or annual percentage rate. And there is a difference. And part of the gain here is this asymmetrical information. They understand the difference between an interest rate and an APR. But for the average person, trying to think with their monkey brain means that they are not going to think too much about it and, therefore, they’ll gloss over financial danger. And the system is set up to do this. And this is explicit. Like if you actually go talk to somebody who’s taken sales training that’s credit-fueled, such as cars or mortgage bankers, brokers, those types of things, they’re gonna tell you that they gloss over a lot of this stuff in different ways they can get around having to explain it to their customers. And if all else fails, just actually explain it to them and watch their eyes glaze over. And they’ll move on because now you’ve overloaded them with information. And ladies and gentlemen, I’m speaking from firsthand experience. My first job out of college was selling mortgages as a mortgage banker prior to the Great Recession. And I have helped train car salesmen and other salesmen in different capacities throughout my career. So I’ve taught these exact tactics to the people who are employing them in the customer market.
[00:12:38] The other way that you can see these friction points is when the friction is reversed. And we all know some credit card companies, that their entire application is more or less handing you a mirror, having you breathe on it, and if it fogs, congratulations, you got a credit card. That’s right, ladies and gentlemen. Money doesn’t grow on trees, but credit card applications do. That was lesson one I learned when I went to college. And just stop and think about it. They’re making it tremendously easy to put yourself into horrendous levels of debt very, very quickly before you even know what happened. And so, when we start talking about debt, I will promise you your heart rate will start to inch up a little bit because we all know on some levels that the jaws of those debt traps are right beneath us at all times. And it’s, quote unquote, good for the economy because it keeps you working, right? It’s these things that they put into place that we know are going to keep people at the grindstone because if they left, all the debt traps gonna be sprung. And people don’t wanna lose their homes, their cars. We are programmed societally to pay all of our debts. And again, I’m not anti-debt per se, but we do need to be honest about how all the pieces are fitting together.
[00:13:51] So this kind of leads us to, how bad is the problem? The honest answer is it’s really hard to tell. I’m super good at data. I’m super good at finding data, processing data, interpreting data, and explaining data. And I gotta tell you this one’s really got me stumped. But my best guess is that the average household in the United States is carrying about $96,000 worth of debt. Now, I use the average here because the medium wasn’t available. I don’t have access to the raw data. And even if I did, I don’t have the software on my personal laptop to be able to process it. And when we are talking about averages, you have to understand that these averages are average households. So they include single people and they include married people. They include people who have paid off all of their debts and they include people who have insane amounts of credit card debt. And average is actually not the best way to think about this because age, demographics, locations, careers, education levels, all those different pieces would be really useful in interpreting this. And unfortunately, I don’t have access to it. But I do know that, on average, an American is carrying about $6,000 worth of credit card debt at any given time. And if you were to run the numbers, $6,000 worth of credit card debt is gonna come out to be about $180 per month. And if you are paying the bare minimum, it’s probably gonna take you more than 14 months to pay off, give or take and depending on the interest rate in terms, which, of course, is the other complicating part of this. I just don’t have all the information.
[00:15:27] The average American household also owes $8,000 in car payments, which comes out to about $650 a month. And I’m gonna be entirely frank here. This shocked me. The average household in America has $8,000 in unsecured debt, which is basically just a signature personal loan. My guess on this, that $8,000 debt is actually a debt consolidation loan, but I don’t know that for sure. And again, these are averages, which means that the credit card number of $6,000 includes a bunch of people like myself who don’t carry credit card debt. So I’m a zero in the denominator there. And as a result, I would be willing to bet you that if I removed all the zeros out of that, that number would be a lot higher.
[00:16:09] All told, about 17% of all income, and that’s income before taxes, ladies and gentlemen, is going to debt repayments of some sort. And you’ll notice what I did not include in that number. I only included credit cards, car payments, and unsecured debt. I did not include student loans or mortgage debt, which is a entirely different bag of crazy.
[00:16:28] And so, if you are in this situation, ladies and gentlemen, you’re probably at this point feeling pretty tight in the chest. You’re probably feeling pretty flush in the face. And you’re probably worried about your future. How can you dig your way out of this? And I’m gonna give you an invitation now to breathe. Just breathe in and breathe out. And just tell yourself it’s gonna be okay. The whole purpose of Fiscally Savage is so that we can take control of our financial life and live free. And I’m gonna share with you all the different tips and tricks that I have used to get myself out of debt over the past decade of my life.
[00:17:12] And breathing is the first part of this process. Because if we can’t breathe and just assess this, then we are not going to be able to get out of it. Because remember, we are working with a short-term thinking monkey brain against an entire institution. And so, if we allow ourselves to be panicked, that’ll put us into the fight, flight, freeze fawn response. And then as a result, they’re just going to be able to take advantage of that. So breathe, ladies and gentlemen. We’re gonna get through this.
[00:17:45] Let’s start by having a conversation that not all debt is created equal. When you’re looking at the options of whether or not to go into debt, the first thing that you need to do is the cost-benefit calculation. And I’m not talking about financial cost-benefit calculations. I’m talking about the emotional and practical cost-benefit calculations. For example, let’s go back to that average car debt of $18,000. That’s not a whole lot depending on the car because, of course, we are talking about the average. A lot of cars in the United States are paid off, but then there’s also the people driving around $75,000 Ford F-150s. Which, not gonna lie, I would love to have one of them but I don’t because I don’t have a car payment. And right now, the cost-benefit for me to buy a pickup truck, even though it would look really cool and I’d really like one, is just not there. I need to take a look at my personal situation and ask myself, what exactly do I need a car for? That is to say, what is the benefit? ‘Cause I know what the cost is gonna be. The cost is going to be the cost of the car plus the interest rate amortized over five years for an average car payment of about $700. Well, I don’t want to put an extra $700 in my budget. I’d rather spend that money on jiu-jitsu for my girls or good food for my family or retirement savings or saving it for my kids’ college or paying off the two forms of debt that I do have, which is, of course, my mortgage and my student debt. I got a little bit left.
[00:19:12] So when we’re looking at this and taking into consideration the cost-benefit, that’s the cost-benefit you have to start looking at. What am I actually getting out of this? Well, in my case, what do I need to car for? To go from point A to point B. I don’t need the Ford F-150 to do that, even though I really want one, even though they’re amazing cars. I just simply would not use a pickup truck as a pickup truck was meant to be. And of course, people will say, “Well, but there’s a cultural reason I want one.” Of course, there is. But you need to be conscious of that’s why you’re buying it. You’re going to have a higher cost of operation and you’re going to pay a higher interest. Again, let’s go back to what that interest is. It’s the tick-tick-tick of the time of your life that you’re going to have to pay back that debt with in order to be able to have a cultural symbol. And maybe that’s worth it to you. It’s not for me to say. It’s not for me to judge. But we do need to be conscious of it. Because, ladies and gentlemen, money is emotional and the debt you’re taking on is a byproduct of those emotions plus your current set of circumstances.
[00:20:14] Going back to the truck, if it’s really emotional to you to be able to have a truck, okay. Well, I’m not gonna tell you “No, you can’t have a truck.” But at least be honest with yourself about that. And ask yourself, what are my values? Are my values to have that truck and be able to show that cultural symbol? Is it because I like the idea that if push comes to shove, I can throw it in four-wheel drive and go through anything? And when was the last time in your life that that was actually not needed? Does the thing that you got to go into debt reflect the values that you carry through and the values you share with your spouse and the values you want your children to see? What is that debt providing for you in return? And that question, ladies and gentlemen, is incredibly important to ask for yourself. Because I look at my mortgage debt. What does my mortgage debt provide for me in return? Well, it’s the house and the yard where my grill sits and my kids play in the backyard and that’s where my gym is. It’s literally housing for my family in a fairly nice neighborhood. Is it worth it to me and within my values to have taken on the debt in order to buy the house? Of course. The only other debt I’m carrying is student debt. And if I look at it, I say I got 50 grand in student debt and that’s provided me with 60 grand more than a year than I was making as a teacher. That’s a pretty good trade-off, ladies and gentlemen. Is the debt providing me value in return? Yes. Is education well within my values? Absolutely. Is high credit card debt? Not so much.
[00:21:39] And when you start looking at this, one of the questions that comes up is, if I am in debt and I am looking at a large credit card balance, what do I need to do to avoid it in the future? Like how did I get here? Which brings me to four steps that you can take right now to start this process of dealing with a debt burden that is not in line with your values where the interest is tick-tick-ticking the moments of your life that you’re going to have to spend to pay it off.
[00:22:08] Number one, forgive yourself. I know that that was probably a surprise to hear, but it’s super critical because a lot of people look at debt as a moralistic equation. And you need to forgive yourself for wherever you found yourself right now. And I know exactly how you feel because I felt that exact same way back in 2015 when I had to sit down and take stock of my situation as a teacher knowing that I was working my tail off. I was not living high on the hog. I was driving a car with almost 300,000 miles on it. And I was still going further and further into debt every single month. And I had to look at that and forgive myself for that set of circumstances. I needed to be clinical and not critical of myself. Because ladies and gentlemen, I will promise you that harsh criticism and judgment will not help you out of this situation because all money is emotional and harsh judgment will only trigger the fight, flight, freeze fawn response. You need to forgive yourself for wherever you find yourself on your debt journey.
[00:23:20] Which brings me number two. You have to look at the issue. You have to stop the bleeding. If you are not willing to look at the issue, ladies and gentlemen, then you’re not willing to create a solution. Because if you’re not willing to look at it, no solution is possible because we can’t chart our way to territory we don’t understand. So after you forgive yourself, you need to sit down and look at the issue. You need to sit down and write down how much money you owe to who and how much it’s costing you because that’s the information we need to stop the bleeding.
[00:23:53] Step number three. Once you’ve looked at the issue, you need to assess how you got here. And ladies and gentlemen, I mean it. No judgment. This is the time where you need to show up for yourself in the way that you truly need it and the way that you’ve needed it probably most of your life. There is not going to be a place in your life where harsh criticism helped you really solve a problem or where someone else’s severe judgment of you helped you out of a problem. It is time that you love yourself when you do this assessment. Assess how you got here. And when you do this step, ladies and gentlemen, really it’s important to hold space for yourself. One of my teachers likes to say that all of the issues, mental and emotional, that we face in this world are due to attachment issues. And money’s emotional, so this is definitely within that realm. A lot of times, we start looking at it and we say, “Well, how did I get here?” Well, ’cause I spend a lot of money on Amazon. Why do I spend a lot of money on Amazon? Because it makes me feel better. That’s right. Retail therapy is a thing. It’s an addiction. It’s an addiction to scarcity on a lot of levels because we do that because it makes us feel like we’re in abundance. And then we go right back to scarcity, which brings us right back to spending more money to make us fool ourselves into feeling that we’re in a state of abundance. And on and on the cycle goes. Cycles like that are only broken, ladies and gentlemen, when you take the time to love yourself and show up for yourself the way you needed someone else to in the past.
[00:25:29] Number four and the last thing. Pick one thing that you can change right now and then do that and only that change for 30 days. I know a lot of people when they do this exercise, and I’ve coached a lot of people through it, we get them to forgive themselves. We look at the issue, we assess how we got here, and then they want to try to do all of it right now. And again, this is an emotional exercise. All money is an emotional exercise. And when you’re going to try to make change, it is important that we give ourselves the opportunities to be successful because if we don’t, we’re going to create a revulsion to trying to do this. This, of course, and you can probably hear this in your own vocabulary or the other people in your life’s vocabulary when they say, “Well, it’s not gonna work anyway,” or “I can’t do that,” or “I tried that once and it didn’t work.” Well, when you unpack that, it’s probably ’cause they tried to do too much, too fast, too soon. So pick one thing, just one, and then do that to help change this scenario for the next 30 days. It could be something as small as making coffee at home and really just indulging in the opportunity to really figure out what really good coffee tastes like. Because if you’re stopping at a Seattle-based coffee chain every day for your coffee, number one, that’s an okay addiction in my book ’cause coffee’s amazing, but life is too short for bad brew. So let’s get online and find some better coffee at a cheaper price. And number two, if you’re looking at that Seattle-based coffee chain, their coffee is not really that great and you are in for a treat when you find better brew. Just one thing.
[00:27:07] So to recap those four steps: number one, forgive yourself; number two, you need to look at the issue; number three, assess how you got here; and then number four, pick one thing that you’re gonna change and then do that and only that for the next 30 days.
[00:27:22] And ladies and gentlemen, I’ve walked this path before. I’m walking it now. I still have my student loans to pay off and I still have my mortgage to pay off. I’ve overcome five figures of credit card debt and they weren’t a low five figures either. And the fruits of this can be seen one idle morning at 3:00 a.m. as I’m driving home from my client site during one of the busiest seasons of the year for public accounting. Then I’m heading down the interstate and I suddenly hear a grinding noise and then a screaming noise as my transmission locks up inside of my Toyota Camry. And I safely navigate the car over to the side and call 911 because I’m freaked out and they send out an officer to help get me off to the side of the road and call a tow truck to bring that car back to the house that I was staying at at the time. And I’m sitting there on the side of the interstate thinking to myself, it’s busy season. This is our Super Bowl of the year as public accountants, and this is when we are doing hundred-hour weeks. That’s why I’m driving home at three o’clock in the morning on a Tuesday. And I realize I don’t have the money to replace the car. And without that car, I don’t have a job.
[00:28:42] And as I’m sitting in the police cruiser, as they’re driving me home with the tow truck behind us bringing the car back to the house we’re renting, I suddenly realized that I had finished paying off all of my credit cards. That, in fact, I had freed up so much of my cash flow between my income advances and my debt reduction that I could afford a car loan and that this was well within my means. In fact, my good actions had helped my credit score so much that getting a loan to get a car was just not gonna be a problem. And having a car with reliable transportation for myself, my family was certainly within my means and certainly within my values. And so, the next day I called my boss. I said, “Hey, I’m gonna be a little bit late.” I took a lift over to the car dealership and walked out with the first new car I’ve ever purchased. That, ladies and gentlemen, is the power of getting your hands around your debt situation. And I want that for each and every single one of you as we take control of our financial lives and live free.
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