280 | The Debt Free Guys

Is it possible to live fabulously without being fabulously broke? The Debt Free Guys say you can. After a year and a half of dating, John and David finally came out of the closet to each other regarding their finances. Between the two of them, they had $51,000 in credit card debt even though they had 15 years of experience in financial services helping others with managing their money. Starting with the first credit card his parents gave him for emergencies, David began a 17-year run carrying credit card debt. Instead of reserving for emergencies, he viewed it as a source of side money and never understood the value of paying it off. Despite never paying the balance off, his credit card limits kept increasing. After accumulating a significant amount of credit card, he began having trouble making even the minimum payments. Once, when his parents wired him money, it was immediately garnished from his bank account because he had failed to make payments. And yet he still didn't learn his lesson. Both John and David came from a time when it wasn't okay to be gay. As a result of being a part of a marginalized community, many parts of society sent the message that they couldn't be who they were. The baggage they carried, as a result, manifested itself in various ways, one of which can be financial challenges. Prudential conducted a study that showed there is a sexual orientation and gender identity pay gap. A university study has also shown that simply being gender non-conforming can limit you from getting a job or being promoted. As a result, gay men sometimes seek validation through their clothing, bodies, cars, houses, and vacations even if they have to finance it. The LGBT community hasn't traditionally fit the image of retired couples financial services companies market to. The community hasn't been encouraged through representation to think about their finances. The premise of the Queer Money Podcast is the get the finance conversation started which is what any community needs to start moving toward financial security. They challenge the community to think about what it is they truly want in life despite how they are told they should look, act, and want. It was the trap they had been living in. Although they were making decent salaries and experts in money, John and David weren't living according to their values. After having the discussion, they decided what they wanted was to be able to retire comfortably, travel without accumulating credit card debt, and give back to the LGBT community in a way that didn't penalize them. David says that even in the financial services industry there is a facade and although the experts know what they should do, they are hiding the truth about who they really are. Even for those who know the tricks to save, it can be hard to put it into practice. When you don't tell the truth about who you really are, you don't seek assistance or help to become the person you are pretending to be. While their credit card debt was at $51,000, John and David were spending $10,000 a year in interest payments. They believe that like them, most people who have similarly high credit card debts have a spending problem, not an income problem. The first step is to sit down and have the conversation with yourself, your partner, or your family about what it is you want your life to look like. The second step was eye-opening. John and David performed a spending analysis tracking when every penny spent had gone in the previous year. They had been living like rock stars, spending money on dining out, happy hours, designer clothing, and travel yet they didn't think their quality of life had been that great. They finally realized they were financial messes when walking into their dark, basement apartment right after considering buying land to build a vacation home on in the Colorado mountains. They questioned where their life was going and confessed their debts to each other. Figuring out what they wanted took three to four months, the spending analysis took a weekend, and it was two and a half years to pay off the credit card debt. Unfortunately, after paying it off, they reverted to old habits and racked up $6,000 on reedit cards again. Realizing they were on the wrong path again, they corrected course and paid that off in several more months. The spending analysis showed that with several small tweaks, they could recoup a lot of their spending. Grocery and dining out costs were cut and when going out with friends, they tried to do it without spending much money so they could maintain the social aspect of their lives. John and David knew that if they could not have fun during the process of paying off debt, it would not last. When confessing why they couldn't spend on activities like before, they found the friends they told were completely fine with it. For some friends, it created an opportunity to have their own money conversation, while other friends did drift away. One of the strategies John and David used was to look for free or inexpensive actives they could do on the days they wanted to be social with others. They were blown away by the number of free and fun activities they found in the city of Denver. Learning that you don't have to spend a ton of money to have a good time changed the way they thought about having a good time. They called it the NSE for Not So Expensive. John and David believe that when you put it out that you are saving for your financial goals, you begin to attract other people who want to have that goal in their life too and build a community of people supporting the lifestyle you want to create. Another tactic John and David used were Milestone Rewards. They would stash away a small mouth of money to have some fun with as a reward when they had met a goal, such as paying off a certain amount of debt. After completing the spending analysis, they realized it would take four to six years to pay off their debt using the snowball or avalanche methods. They knew they needed to do it quickly or they would get bored. It was the high-interest credit card debt preventing them from paying it off quickly, so they came up with the debt lasso method. With the debt lasso method, they lowered their interest rate to as low as possible and consolidated the credit card debt to as few locations as possible. The debt lasso method has several pieces to it. You have to commit to not adding more to your card balances and commit to paying a specific amount every single month toward the balances. Next, similar to the snowball method, if you can pay one off in full in a month or two, do it and get the quick win. Then use the lasso process to pull all of the balances into as few locations as possible at as low-interest rates as possible. Then everything should be automated. When monthly payments are automated, you'll never miss a payment which is when interest rates will be raised. And finally, monitor your accounts so you know when a card is paid off and move payments to the next account or make extra payments when you can. The snowball method works on emotion and has you pay off cards with the lowest balances, one after the other. In contrast, the avalanche process has you pay off the cards with the highest interest rates first. Using the debt lasso method, they did have to pay approximately 3% in balance transfer fees, but they shaved years off the repayment plan saving more in interest payments. Because John and David each had good credit, they were able to consolidate the debt from two to three high-interest cards each to 0% interest for 12-18 months cards and continued to roll the debt to 0% interest cards as needed while paying down their debt. On the Debt Free Guys website, they have created a calculator to estimate how long it will take to pay credit card debt off using different payoff methods. They encourage folks to pay the most money toward cards with the highest interest rates. John and David say that while 0% credit cards may not be plentiful right now, they've found that credit card companies will often send out 0% offers when a credit card's debt has been paid off because they know you likely have other credit card debt. Just be sure to understand the fine print to avoid any unpleasant surprises. It is incredibly helpful for partners to be in the same state of mind when it comes to paying off debt. It's also useful to find a tribe of people who are doing it or an accountability partner. The Debt Free Guys have a weekly call named Money Therapy included with their credit card payoff course. To join the community and get the debt lasso calculator, go to debtfreeguys.com/choosefi. Resources Mentioned In Today's Conversation Buy a ChooseFI ebook bundle and save an extra 15% with code "holiday15" Join the Debt Free Guys community Start investing outside of your retirement accounts with M1 Finance Find the right freelancer for your job with Fiverr and get one free year with promo code "ChooseFI" If You Want To Support ChooseFI: Earn $1,000 in cashback with ChooseFI's 3-card credit card strategy.  Share FI by sending a friend ChooseFI: Your Blueprint to Financial Independence.