[Editor's Note: This is a guest post from Jason Cabler, DDS who has guest posted on the blog before. He is a Christian personal finance blogger, author, and speaker, whose blog, Celebrating Financial Freedom, focuses mostly on getting out of debt and living the debt-free lifestyle. Most young doctors, of course, have a significant amount of debt. He recently developed an online video course called Celebrating Financial Freedom to help people get out of debt, which is discussed near the end of this post. Jason has donated a copy of this course as a giveaway for this post. Email me with the words “Celebrating Financial Freedom” in the title if you would like to win it and I will pick the winner randomly from the emails received. [Update 2/6/14: Winner has been selected so don't email me trying to enter.] If you didn't win, you can purchase the course from this link for $87. Be aware that if you purchase the course through links on this page, I get a commission on the sale (same price to you.)]
Getting out of debt can feel like a huge barrier to overcome, even when you’re a professional with a high income. When you decide to commit your time and energy to getting out of debt, it’s very easy to be intimidated by this large goal you’ve set. So how do you overcome that feeling of being overwhelmed when you want to get out of debt, but you’re put off by the time and work it will take to get it done? You have to step back, take a chill pill, and realize that it’s the small victories that lead to big wins.
Pay Off Smallest Debts First
When you apply the philosophy of winning small victories to chipping away at a huge mountain of debt, it simply means paying off your smallest debts first. I realize that some financial experts say that you should pay off the debt with the highest interest rate first. That’s OK, if you want to do it that way it’ll work just fine.
What the Research Shows
However, research shows that tackling your debt by paying off the smallest debts first actually works better. Why is that? Because starting the get out of debt process by winning small victories is much better from a psychological standpoint. Those little wins motivate you to keep moving when the going gets tough. They help you feel good about what you’re doing and motivate you to continue moving forward in a way that other get out of debt methods don’t. How do you start winning those small debt victories that eventually win the war? You make a plan.
The Debt Rocket
Some people call this method of paying off debt a “Debt Snowball” or any number of other names. I call it a “Debt Rocket” because it starts off slowly, but quickly launches you into the blue sky of debt freedom!
How it works:
- List each of your debts from the smallest debt to the largest
- Continue paying the minimum payment on each debt every month.
- Any extra money you have to use for debt should be put toward the smallest debt to get it paid off much faster
You can download free Debt Rocket forms here to start your own plan
Let the Momentum Build
Those simple steps allow you to get your smallest debt paid off very quickly, letting you get a small victory that greatly increases your motivation to continue the get out of debt process.
Next:
- Once you get the smallest debt paid off, take the money you were previously sending toward the smallest debt, and add that to the payment for the next smallest, along with any extra you may have.
- This allows you to get the next smallest debt paid off in no time, because you’re sending in much more than just the minimum payment.
- Continue doing the same thing, building momentum and working your way down the list as you get each debt paid until you become debt free!
I call it the “Debt Rocket”, but as you can see, it’s not rocket science. It’s a very simple, but very powerful concept.
Learn More About Getting Out of Debt
I know you’re a busy professional, but when you take a little time to put together a Debt Rocket plan and stick to it, the small victories will start adding up to life changing debt freedom over time, guaranteed!
You can learn all the steps to getting out of debt in this series of posts I wrote about it. However, you can learn even more about getting out of debt that will change your financial life permanently through my brand new Celebrating Financial Freedom online video course.
What The Course Covers
The Celebrating Financial Freedom course is about 5 things:
- How You Are Manipulated to Get Into Debt, and how it affects your freedom, your happiness, and your future.
- The Spiritual Aspects of Money– How your money mentality affects every aspect of your life, and how it can add to, or take away from your spiritual walk.
- Getting Out of Debt– The 5 step process that will lead you to debt freedom and keep you there.
- How to Get On The Same Page With Your Spouse About Money- Finally eliminate disagreements about money. You will learn how to work together and understand how your spouse thinks about money.
- How Handling Your Money The Right Way Changes Not Just Your Family, But The World as a Whole- Sometimes in very surprising ways.
Warning!: The course is based on Christian principles, so it may not be for everyone. But if you think it might be for you and your goal is to finally take control of your finances and get out of debt forever, then click over and learn more about the course. I think you’ll like what you see. If you have any questions about the course, feel free to shoot me an email and I’ll be glad to answer any questions you may have.
Have you ever started the process of getting out of debt but didn’t follow through? What held you back? If you are out of debt, at what age did you become debt free and how did you do it? Comment Below!
I can’t believe physicians are too dumb to figure out 8th grade math. Pay the loan with the highest interest and actually save money in the process!
I understand the psychological part, but paying more in interest than you have to defeats the purpose….
You’re right, paying off the debt with the highest interest rate does save you some money. But studies have shown that paying off the debt from smallest to largest has a higher rate of success in getting all the debt completely paid off. Either way of paying off debt will work, it’s just that one has a higher success rate than the other.
I agree that what makes sense mathematically may not necessarily be the best behaviorally for people in debt.
For a great many people debt is way beyond the math of the situation and far more a psychological problem.
I think we all face problems where the hard math would have us handle it in one way, but for a set of other reason, we handle the problem in a different way.
Just last week i had a bunch of extra cash laying around and despite the fact that I have a microscopic 2.7% home loan, I decided to put that money into my mortgage rather than invest it. I’m well aware that wasn’t the smart choice from a math perspective. But I already have a TON of money invested in the stock market and it felt good to pay down some debt and at least with the money in my home my wife won’t spend it. I stand by my choice.
I think some weight loss strategies approach things differently. At the core I think everyone knows that weight loss is as simple as calories out exceeding calories in.. but that’s just not enough for most people.
But I think this is a good strategy for someone with a pile of debt and no sensible money management… it’s just that I’m guessing the average reader on this blog is well past the advice needed in this post.
People don’t get into debt because they can’t do math. They do it because of behavior issues. Thus the reason behavioral techniques matter more than mathematical ones (at least for many people) in situations like this. Basically, this person starts with a huge, high interest debt, and because he doesn’t feel like he’s making progress, he gives up.
Sometimes the peace of mind of getting debt paid off trumps the numbers.
from a psychological perspective this system seems empowering but I am always wary of [things like this. Ad hominem attack deleted.]
A lot of people think us professionals should be treating people for free too. We all deserve to be compensated for our work no matter what realm it’s in. Nothing wrong with being compensated for the hundreds of hours spent developing the course material.
The satisfaction of one less email/auto pay reminder is worth the couple hundred bucks in opportunity cost…I blow more than that on less productive frivolities…like the big celebration I had for paying off my (low interest) student loan.
I suspect most readers of this blog don’t need debt advice, but it leads to a more robust resource for the WCI website.
You might be surprised. I get lots of questions on debt management by email.
There are more doctors that struggle with debt than most of these commenters realize.
This Dave Ramsey “Snowball” for paying off debt may be a good idea for some, but paying off high-interest debt first makes much more sense fiscally. If your smaller debts have 10% interest but your $15,000 debt carries 29.99% interest, you NEED to pay off that $15k first.
[Ad hominem attack deleted.]
Either way of paying off debt is fine, both work. However, paying off debt from smallest to largest has proven to have a better success rate at getting you completely out of debt.
As for the “Warning”, I put that in the post because I knew that not everyone who keeps up with the WCI blog is not necessarily going to ascribe to a Christian way of doing things. I wanted to make sure it was understood exactly what the course is all about so there are no misunderstandings.
Not sure why being honest and upfront should make anyone wary.
[Ad hominem attack deleted.]
Sorry, Dave didn’t make this stuff up. These principles are generations old, and he learned them from the Bible, his mentor Larry Burkett, and many others. Dave just made them popular.
There are literally dozens, if not hundreds of others teaching these same principles in books, on websites, and in seminars all over the world.
There is nothing new under the sun
So, it has occurred to me that people that probably consume the most amount of content regarding personal finance/investing are probably the people that need the content the least.
For instance I follow people on twitter like bankrate, wall street journal personal finance, white coat investor, etc.
And article after article after article on most of those websites (excluding this one – although I believe this article today applies to what i’m talking about) are aimed towards people who’s money is absolutely in dire straights.. like they are slathered in debt or don’t even have $1000-5000 in an emergency fund let alone what you need.
And I wonder to myself if anyone who actually NEEDS that advice is even bothering to read it.
I found myself wondering if I’m following the wrong people. Who’s good to follow on twitter, facebook, or blogging that is for people that are WAY beyond the basics? If I see another article that talks about how many people don’t have any money set aside for retirement or that couldn’t write a $500 check if they needed to I might scream.
Where’s the 3rd level advice.. you have almost no debt (mortgage only…) you already max your 401k and backdoor Roth’s and stuff… you’re ready for advanced level stuff… cash management account investing, tax shelters, etc.
This website hits some great financial topics sometime that really help (although not today) but there are very few sites I can find that are like this with higher level advice for higher net worth folks.
I agree that those who read personal finance and investing books are not those who need that information the most.
Unfortunately, most physicians (my target audience) aren’t high net worth folks and still need lower level advice. It would be very difficult to continually post information that the most informed readers of personal finance and investing information have never seen before. There is a law of diminishing returns in learning about this stuff. It’s becoming more and more rare as the years go by that I pick up a gem I’ve never seen/heard before. You might consider gradually transitioning into giving back to others. Why not send me a guest post about the best financial items you’ve learned over the years or the best decisions you’ve made?
good post. I completely agree about the law of diminishing returns. I feel like I’m getting there myself (although you do tend to find a niche every few posts that i haven’t seen/considered which is why I look forward to every post).
I definitely plan to transition into giving back once I have enough money that working is optional for me. That’s probably still 14-15 years away though.
I’m flattered you’d want a guest post from me, but I’m a fairly poor writer overall. I’ll leave the writing to the pros like you!
Z, I suggest following Roccy DeFrancesco, JD, the Founder of The WPI on Twitter, Facebook, and sign up for his blog. His tweets and blog help high net worth individuals save and invest like you’re asking about.
His advice has helped my family a lot.
Roccy is an interesting guy with a lengthy book aimed at docs that he published a few years ago. His book covers lots of interesting ideas for a practice owner.
WCI, the quality:quantity ratio of your blog content is what keeps me coming back. While I’m sure Dr. Cabler means well and has worked hard on his product, I don’t see this kind of post as an asset here; and it’s working against the aforementioned ratio.
Just some unsolicited feedback. Thanks for doing what you do.
This comment seems sort of off-topic, but I don’t think it really is once you consider the big picture…
One of the features you see when you look at the top one percent (which is what most docs and similar professionals should be heading toward) is that one percenters carry very little debt. Probably only their mortgage?
And that’s got to be mostly a behavorial thing…
Maybe, therefore, taking an approach that plays to the irrational side of human behavior really does ultimately lead to more successful long-term debt management.
Maybe, for example, someone deeply in deep, gets onto a positive feedback loop of success if they see they’re eliminating the number of debts and not just reducing monthly interest costs.
One other thing that pops into my mind about this is that in many high income family situations, it’s not just the “old” debt that causes problems. It’s the additions of “new” debt (e.g., a credit card charge that’ll be carried)… so possibly the form over substance act of paying off an individual credit card balance helps more than one thinks because a family member who might otherwise go charge a new purchase on an 15% credit card doesn’t.
I was in some pretty bad debt after residency and I have paid it off using the snowball method. I thought about paying off the higher interest debts first but it does feel good to get some of those monthly payments off your chest. Good post, I have lived it, thank you!
Wow, nice to get a positive comment. This stuff does work!
Wow…people being kinda harsh on this one.
I will just say thanks to both of Jason and WCI on this one.
I don’t agree with it all but understand that there is definitely a psychologic aspect to money. I am more of the unemotional numbers type of guy, but the majority of people (yes even highly educated physicians) are still very emotional and stupid when it comes to money.
Thanks
You’re absolutely right! Even 1 percenters struggle with debt, contrary to what some of the other commenters might believe. It can be very easy for someone with a high income to let the spending get out of hand because there seems to be an unlimited supply.
You would be surprised at how many of your colleagues struggle with debt.
Lots of criticism in the comments. I know getting out of debt is easy for lots of us. We basically never had debt. I’m the same way. It’s just math to me. However, that’s not the case for lots of people.
I just want to point out I have DOZENS of emails from people who are interested in taking Jason’s course (at least for free) in my email box. There clearly are readers of this blog who need this information/assistance in getting out of debt. I’m trying to reach a broad audience. Lots of you are interested in the nuances of the momentum factor, but some are still trying to figure out how to open a brokerage account online.
Thanks Jim. I think the fact that there are dozens interested in the course proves my point that you never know what your peers may be struggling with. Just because you have a high income doesn’t make you immune to financial struggle.
Many of the regular readers here may be doing very well and have it all together, and that’s great. But there are just as many who haven’t paid enough attention financially and need help. Those are the people I aim to serve.
I did the snowball method for my post residency/fellowship debt. we were not living like a resident while I was a resident/fellow. My wife wanted to follow Ramsey’s snowball plan. I checked the calculations doing it snowball versus higher interest first. It only made a difference of a couple of months. I figured if it motivated my wife it was definitely the smarter way to go for my peace of mind.
A couple people have mentioned it, but I’ll raise my hand as one of the idiots who is far from an expert at managing my finances. I’m a few years out of dental school and fell into a lot of the common traps that WCI has mentioned in previous posts. I took the advice of insurance salesmen disguised as financial experts, and ended up taking on some “good debt” that, in hindsight, wasn’t a very good idea. I discovered this site a few months ago and have learned a ton from reading through old posts. I have no idea if Dr. Cabler’s course is legit or not. I can say, from firsthand experience, that the people who would benefit from this type of thing are probably not going to post a comment and admit their mistakes.
I believe you’re right. There are a lot of traps that doctors and dentists fall into after graduation that can get us into real trouble, such as trusting in some of these “financial experts”. We also tend to go out and buy big houses and nice cars as soon as the ink on the diploma is dry, then find out that was probably not the best idea, especially when there is a lot of student loan debt to go with it.
By the way, I can assure you the course is legit and it does work. I’ve been teaching this basic course for years and it’s changed a lot of lives. If you want, you can go to the course’s home page and get a free preview of the course material there: http://www.udemy.com/celebrating-financial-freedom
The winner has been selected at random and emailed. Those who didn’t win can purchase the course at this link:
https://www.udemy.com/celebrating-financial-freedom/?affcode=E0AadVtQQHgT
How to say this in a way thay won’t get labeled an ad hominen attack…
What’s up with all of the Christian/ Bible finance blog/speakers etc? Is there a reason anyone would want specifically Christian money advice or is it just a warning that a lot of the words that follow with have nothing to do with financial matters?
To be more direct, Jason, why do you label yourself a Christian financial blogger and how to expect people to interpret the label?
This is a bit off-topic, but so long as it stays inoffensive, I’ll let it go. There is a whole genre of “Christian Personal Finance.” Most of it is aimed at/written by Evangelicals/Southern Baptists who take a very literal view of the Bible and believe that it basically contains all instructions for life. Here’s a few examples of the genre.
http://www.blogs.com/topten/10-top-christian-finance-investing-blogs/
The Bible contains lots of very interesting financial advice, from advice on financial priorities:
For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows.
1 Tim 6:10
to investing advice:
The man who had received five bags of gold brought the other five. ‘Master,’ he said, ‘you entrusted me with five bags of gold. See, I have gained five more.’ “His master replied, ‘Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things.
Matthew 25:20-21
to advice on loaning money:
Thou shalt not give him thy money upon usury, nor lend him thy victuals for increase.
Leviticus 25:37
to tax planning:
Render therefore unto Cæsar the things which are Cæsar’s; and unto God the things that are God’s.
Matthew 22:17
It’s not that this is unique to Christians either. Here’s a Muslim financial blog:
http://iqtisad.blogspot.com/
and a Jewish one:
http://www.jfssd.org/site/News2?page=NewsArticle&id=6511
But the “Prosperity Theology” movement among evangelicals has really driven this trend among bloggers, motivational speakers, and authors for the last few decades.
As a newly dubbed physician, just six months into my intern year, I just want to say thanks to the variety of posting subjects throughout the weeks. Dr. Cabler, I appreciate your time in helping those around you try and catch the vision of celebrating financial freedom. Sometimes we need repetition…just like med school…before these principles actually stick.
I reviewed the course, and though I didn’t find any ‘groundbreaking’ tricks to instantly becoming debt free, I did find the course very insightful, not too time consuming, and the Christian philosophies discussed not too overbearing.
Above average, similar vein as Dave Ramsey, reasonable resources and much more affordable than Financial Peace University (I did that course in medical school).
Just my two bits.
These “snowball” methods of debt reduction should be for people who are really pretty low on financial savvy. If you need these little “psychological victories” to keep going them you just don’t understand debt/interest/etc and I worry that it is glossing over a much more fundamentally pathological approach to debt and money in general. Dave Ramsey’s audience should be people with a stupid amount of consumer debt, not highly compensated professionals with educational loans. The Prosperity Gospel is just silly. If you want to be rich try to get rich but don’t act like it’s suggested in the Bible.
If you think most docs are financially savvy, I suggest you try explaining how to do a Backdoor Roth to one of your partners. You’ll probably find that you first have to explain what a Roth IRA is, then what a traditional IRA is, then how the tax code works and then you can get into the actual technique. Our level of financial literacy is remarkably low on average. Those who read blogs like this one are on a different level, of course (or at least soon will be.) I agree that many docs have a “pathological approach to debt and money in general.” I’m surprised how many 55-60 year old docs I run into with a net worth in the low 6 figures. 20-30 years of physician level paychecks and essentially nothing to show for it.
Don’t forget, most physicians are NOT in the 1%. Debt management is extremely important for physicians just like any other group of people, if not more important. We have huge debt just from med school that can grow even larger during residency. Furthermore, we tend to have zero to minimal financial education on investing and debt education. Sometimes starting “small” is a good idea, even for highly educated people because we are truly just starting our financial education. Simple is good. Now if you are financially well educated, I think that debt management can avoid emotional decisions.