Should I Save or Pay Off Debt First? The Answer Isn't One-Size-Fits-All | 518

0:00So we call this store mode and this is where you're at right now. Okay. Where you need to focus on one thing and put all of your eggs in one basket. Okay. So if you don't pay any extra on debt in the next couple of months or until after the bar, that is okay. You've already paid a ton of interest. Like these next couple of months aren't going to make or break it. I know it's going to stink and you're going to hate it. But if that's what has to happen for you to be able to survive and not add to it, then that's just what has to happen. Do you make good money but have nothing to show for it? Are you tired of living paycheck to paycheck?

0:32Do you have big dreams for your financial future? Do you want to get debt-free but you don't want to live on beans and rice? Or you don't want to give up those pumpkin spice lattes? Hey, it's okay if you don't already know how to budget or if you're using credit cards to get through the month. Hey, it's okay if you want to seem like you have your finances all together or you're not on the same page with your spouse when it comes to finances. We know what you're doing probably isn't working. But guess what? you're in the right place. We're Shana and Vanessa. We're best friends, business partners, and master financial coaches trained by Dave Ramsey.

1:03We've been in business since 2019, helping hundreds of amazing people like you create budgets, get out of debt, stop living paycheck to paycheck, and know exactly what to do with their money. In this podcast, we'll share with you everything we know, plus everything we're working on with our clients so that you have the best chance at reaching your financial goals. We want to help you take the guesswork out of your budget, improve your marriages, and even bring your kids in on the conversation. We can help you no matter where you're at, whether you're the single mom who's never had$500 in her savings account or the millionaire who's paid off four real estate mortgages.

1:35And we're not going to shy away from the tough love. We'll tell you what you need to hear and encourage you at the same time. This is the Financial Coaching for Women podcast.

1:48All right, Andrea, thank you so much for coming on Financial Coaching for Women. We're so excited to have you tell us a little bit about yourself and how we can help.

1:56Andrea:So I'm very excited to be here. Thank you so much for having me. I have been listening to your podcast now for several months. And in August, I did the budget system. And so I've been doing it since August. My main thing is I am about$15 ,000 in credit card debt. We don't even think about law school debt. No, because that's about going to be about a hundred thousand. I'm focused on my credit card debt. I've set up the system. So I'm tracking everything and I did the multiple accounts. So I have my bills account. I have my gas and groceries account and I have several savings accounts started. One is vacation.

2:44Andrea:One is annual costs. so I can save up and have money for vet visits for my cats, be able to pay my car insurance with USAA all at once, and just other savings accounts. My big question is, should I focus more on that savings so I can have that bulk of money to start paying things, or should I really start tackling the debt? That's my crux right now. It's a very good question. And it depends on a couple of things. But the first thing I just wanted to say is everybody, a lot of people come with that exact same conundrum. And you're like, both of these seem like a good plan. They're both important.

3:28Yeah, exactly.

3:29Andrea:Yeah. They have almost equal ways. Which do you tackle first? Which one is bothering you the most? The debt. Okay. I think as much as I'm not saying that not saving for those things is not important, because it is. And most of the time we go into debt because we are paying for these unexpected expenses that are popping up. So we completely understand that. You do need to, you can tackle this multiple ways. Okay. I'm just going to lay three of them out there and then we can talk about them. So one way would be throw every penny that you have at your debt. If that's really what you want to do, no savings buckets, obviously keep your budget the way it is for spending and all that.

4:06We need to make sure we can fund our life and then throw every penny towards that. The The second way is you can do both. So you can pay off some debt and also buffer your savings buckets to where you are funding some of that stuff, the most important things first. Okay. So if it's Christmas is coming up, you need to fund. That's absolutely happening. It's a non-negotiable that's happening. You need to fund that. You said something about travel. If you know that there's a trip coming up and you have to save for it, then let's do that. But that just means you're budgeting still in the moment for things while they come up, but you're also paying off debt.

4:39We're not, we can't budget for something five years or even a year down the road because we really can't see that we're not focused on that yet. Does that

4:46Andrea:make sense? It does. Yeah. And I've been doing the minimum payments as you have suggested in podcasts. So I have been doing that, but I haven't really been chunking anything towards the debt. Yeah. So the good thing about like, you've already got the budget system. The good thing about it, there's many good things about it. If we do say so ourselves, but it does the math for you. So So when I'm thinking of making your budget with you, I'm thinking you have your income in there, you put your debt minimums, you already did that, you had your bills and you have your spending. And then like Vanessa said, I'm thinking about which savings I have to do, which ones are non-negotiable.

5:18I'm going to, maybe there's some annual bills that are coming up. Maybe there's a trip that I've already booked. I can't get out of maybe Christmas. What are the things that I have to save for? And I'm going to put those into the budget. Then that number, I still have some leftover maybe. And that is the amount that I can put, then I can put to debt. And then I'm doing a little bit of both. And then once the debt is gone, then I can go back and reevaluate all the savings buckets I want to have. So it's different. What I have to have is definitely coming, which Vanessa said what I would probably use a credit card for if I don't have the money saved up.

5:49Those are the things that I definitely want to do the savings buckets, but I don't have to do all of the savings buckets. And for context, if you have not for some reason been listening to our podcast, which we love you, there are all kinds of them. There's travel. There's pets. There's vehicle. There's annual bills. There's glam up. There's kids.

6:05Andrea:There's gifts. There's so many of them. They're not all have to, right? Yeah, they're not all. And to your point, Andrea, they're not as important to you maybe right now as paying off debt. And this is the reason why I talked about the way that you could do it. One, the step one, which was put everything towards debt. People are not successful doing that because they feel so restrained and so restricted on the everyday budget. And that's why we have set up our system the way we have. And we've told you that you can do both. You can save and you can also pay off debt because you can do both. You just have to set your priorities as to what do I need to save for the right now?

6:43And then what can I also put on debt? And I will say with your debt, one of the things that I was thinking about was, can you call them? Like when was the last time you called to speak to them to see if you can negotiate rates and interest rates, minimum payments, balances, like all of that? Have you spoke to them at all? I have not.

7:01Andrea:So that's something I should do. So we have a podcast. We're about to do another one here coming up soon. So you can wait for that one. Or you can go back to our debt consolidation one. If you type in Budget Besties Debt Consolidation, it'll pop up. It's from a couple of years ago. But again, we're coming out with a newer one. But if it's something you want to get off the call right now and do, then you can look it up and you can listen. And it just really talks about going through and having those conversations because you're in control and you don't need a debt consolidation company to do that.

7:30You can do it yourself. And it's really going to help you with those, just knowing what to say and how to say it to see if that can help you.

7:37Andrea:Okay. Yeah. I'll take a look at that. And that should hopefully give you some more wiggle room in your budget to work with. Yeah. Every customer is different. And so we have clients, they call, and sometimes we think that certain cards are never going to budge. And sometimes they do. And we just don't know. So they call each one, like Vanessa said, say, can you give me a temporary lower interest rate? And maybe they'll do it for a year. Or can you lower my payment? or can we pause interest for a while? Or is there a balance that I could pay off and I'd be done with it? There's all kinds of different plans that they have that they might be willing to offer you and it's worth a call.

8:09It's worth a call. It's time to enter your coaching era because making good money should feel like making good money. Yeah, imagine six months of private coaching where we'll tell you exactly what to do. No guesswork, no confusion, and absolutely no judgment. It's a done-for-you system that actually works. You don't know what you don't know, and that's not your fault. And that's why we're here. Financial coaching with us looks like two coaching sessions a month, personalized recaps, and after-hour support, you can text and email. So you're never stuck wondering what to do next. Together, we're going to build your budget, set up your system, and tackle any challenges that come up along the way, which, by the way, they always do.

8:50If what you're doing isn't working and you're tired of trying to figure it out on your own, sign up for financial coaching at budgetbesties.com forward slash coaching before all of our spots fill up and we will help you go further faster. Six months from now, you'll wish you started today. All right.

9:06Andrea:I can definitely look into that. I'll be taking the bar exam in February. So I actually won't be working for two months. So I was planning on doing the, I know you've mentioned before about deferring a car payment. So I was going to reach out to them to see if I can do that while I study for the bar. So I don't have to worry about that. So I was going to work on that. perfect and smart time to do that yeah that's very smart and there may be other other loans that will do that for you as well so what happens is sometimes they will just put it at the end of the loan instead of and let you skip a payment but the other thing what i thought you were going to say was you have an income holding account or a paycheck savings account so you know what you cost every month right now you already forgot the budget so for those two months if you're not going to be getting a paycheck then we want to have that saved so that you can still have money I'm sure you have already thought of something like that.

9:58I have.

9:59Andrea:And the law school I go to, they actually do what they call is a bar study stipend. So I'm actually going to be applying for that. So I'm going to see if that will pay my rent. And that way I don't have to stress about that. Yeah. Yeah. And then the other thing we would encourage is maybe to save up for that. Because unfortunately, what other people who aren't in your position or who are pre-thinking about this, they would just put everything on credit cards for those two months. and then you like you said figure it out later add that to the law school debt let's just do it it's gonna be so much fun yeah that's not an option for me because i pretty much maxed the cards so already hit that point where i know that's not going to be an option which is why the debt is stressing me out that's a good guardrail yeah like when you because we have so many people that come and they have that revolving where they'll pay 50 use 50 pay or 100 or a couple And it's just, you're not going anywhere with that.

10:51But with what you're going to pay in interest in a couple of months, know that this time we call it, Shana, I'm losing. Like a messy? Is it messy? When you're transitioning, when you're going through something seasonal, what is that called? Store mode. Got it. Thank you. Yes. Okay. She raised my brain. Two brains. Became one. So we call it store mode. And this is where you're at right now. Okay. Where you need to focus on one thing and put all of your eggs in one basket. Okay. So if you don't pay any extra on debt in the next couple of months or until after the bar, that is okay. You've already paid a ton of interest.

11:24Like these next couple of months aren't going to make or break it. I know it's going to stink and you're going to hate it. But if that's what has to happen for you to be able to survive and not add to it, then that's just what has to happen.

11:35Andrea:Okay. Because my other thought was, is since I've done this in the later half of the year was to spend the rest of this year basically doing that savings and then tackle the debt. Yeah. Like after the bar exam. Yeah. Would that be a good strategy? Yeah, for sure. What we want to do is make sure you don't have to go into more debt. That's the most important thing. So having savings for these months that you're going to have less income, hopefully you get the stipend, is important. I would also use this information when I call the creditors. And I don't know something about being a student and I'm going to be without a job or something like that and see if they'll work with you.

12:10And just like the car loan, hopefully people will work with you. Yeah. And then I would just say, let's focus on saving. Vanessa said, it's more important that you save and you can live off of cash instead of credit for the next few months than it is to pay off debt and then have to use again.

12:24Andrea:Because we had no money to for this. Exactly. Yeah. Because it's just me. It's just my income. I make about 60 ,000 a year. So it's not like I have a lot of wiggle room. Yeah. Yeah. And I've got things put aside, like I budget for my cat supplies and things like that. Cats. I think once you can get some wiggle room in your budget, as far as calling your creditors, and you probably will have success with that. There's rarely a time that we've talked to somebody where they haven't been successful in speaking with them. So again, you have to, and they're going to ask, you're going to have to be vulnerable.

12:56This is one of the hardest things I had. I got off a call with a client last week and she said, I never want to owe anyone any money again, because explaining my situation to somebody asking them for help has been the hardest thing. She took a day off of work to do this because it was such a hard moment for her. But what it got her in the end was thousands of dollars deferred and reduced payments. So that way we can be so much more successful in the months to come in her budget. So if you take the time to make these phone calls, I guarantee you're going to have some relief in that, but you're going to have to be vulnerable.

13:28You're going to have to be transparent. You're going to have to tell them you're in a financial hardship and you need some help.

13:33Andrea:Okay. All right. So should I do that now or kind of wait more towards maybe December because I'll be out of work in January and February? No. What's good timing? I would call them and just see what they have to offer. If they're going to offer you six months or a year of lowered interest rate or zero percent, we've seen companies go from 30 % to zero percent interest just by making a phone call and asking. Right. Reducing minimum payments by like$600 a month. We've seen huge success in this. So if you can do that now, and then that's more money in your pocket that you're saving each month to be able to use for these upcoming months, then that's the plan.

14:10And every one of them might have a different answer. So they might say, you need to call back when you actually are out of work or whatever. And then they'll say, then we might be willing to help you. And so everybody's going to have a different answer. So you're just going, you might have to call back in December anyway, which is fine. But yeah, you just, like Vanessa said, the sooner, maybe the better. You just don't know what they might offer you and how much relief it could bring you. Yeah. Based on that conversation, then you can make your decision. If you don't know what they're going to say, I would call.

14:36And also, I just wanted to point out, sometimes they might say, okay, we'll do that, but you have to close the account. And you're going to be like, okay. Yes. And you're going to say yes. Because you're not going, you're going to get this, you're going to get your exam passed. You're going to get your law school. You're going to be so successful. You're going to be your own bank. You already know that we've said that before. And when we say like that you've hit your limits as a forcing mechanism, well, having a closed account is also a forcing mechanism for you to rely on your own money to pay for something cash and to not use credit.

15:04And the other part of that is you have a car loan, you're going to have student loans. Those will, if you feel like your credit score is important, those will maintain that enough. Having a lot of debt and not debt to your income is not good for your credit. So it's fine. Just let them close it, be done with it. You're going to be your own bank. It's all good. Okay. All right.

15:21Andrea:No, that sounds good. Yeah. Very good. Anything else? That was it. Really? Thanks for coming on and sharing your story. And good job getting everything set up. And we're rooting for you. We're excited for you to take this test. And you'll have to keep us in the loop as you move down, move up the ladder in the lawyer, the paralegal bar passer lawyer ladder. Yeah. You got it. I was just watching Scoots last night. So I'm in my room. There you go. Yeah. Thank you, ladies. I greatly appreciate it. You're welcome. Thank you so much. If you're tired of feeling like your finances are all over the place and you're ready for a simple set it and forget it way to budget, we have something special for you.

16:00Watch our Automate Your Budget Masterclass at budgetbesties.com forward slash automate. We'll show you step by step how to finally organize your money, how to set up your accounts and put your budget on autopilot. So your bills, saving and spending run like clockwork. Imagine less stress, more savings, and the freedom to spend money without having to track every dollar or babysit your bank account. Go to budgetbesties.com forward slash automate to start today.