Getting out of debt is shockingly simple. The math is easy.
Showing up every single month is the hard part.
In episode three of Financial Foundations, sponsored by State Farm, we’re tackling debt, with zero shame. I’ll explain where debt sits on your financial priority list, teach you the rule of 7% (which you’ll use for the rest of your life), and break down why credit card debt feels like drowning. Then I’ll walk you through my four-step debt payoff plan, tell you about the time my car loan company made me mail $50 to a PO box in Iowa, and share what to check before you sign for any new debt.
Key takeaways:
Having debt doesn’t make you a bad person
Most of what we want out of life, like a house, a degree, or a business, is out of reach for most people without some kind of debt. I’m a multimillionaire and I have debt, because I took out a mortgage on my first home. Give yourself grace for the debt you have or had. You’re here now, and we’re going to get it paid off.
Your emergency fund still comes first
It feels backwards to save while you’re in debt. But the last thing I want is for you to go into more debt paying for an emergency. Emergency fund first, then high-interest debt, then investing while you pay down lower-interest debt.
Use the rule of 7%
Historically, the stock market has averaged around 7% returns. If your debt’s interest rate is above 7% (all credit cards, some student loans), pay it off aggressively. If it’s under 7% (many student loans, car loans, and mortgages), it may make more mathematical sense to keep making your normal payments and put extra money toward investing for retirement.
Know your principal and your interest
Your principal is the amount you borrowed. Interest is what they charge you for it. Compound interest means your interest earns interest, and with credit cards it often compounds daily at a high rate. So every day you carry credit card debt, it gets more expensive. Most people have never had this explained to them, and that makes it very easy to stay stuck.
Follow the four-step payoff plan
- List every debt from highest interest rate to lowest, with the balance. Don’t know your rate? Call and find out.
- Add up your total monthly debt payments.
- Go back to your three-bucket budget from episode two and find any extra money, even $10 a month.
- Send that extra money to your highest-interest debt, not your biggest balance, and make sure it goes toward the principal.
Make them tell you how to pay the principal
When I sent an extra $50 toward my car loan, my next bill just dropped by $50. To get it applied to the principal, I had to call, and they told me to mail the extra money to a separate PO box in Iowa. Companies make this hard. Call your lender and ask exactly how to pay toward principal.
Debt that advances you vs. debt that’s dangerous
I don’t use “good debt” and “bad debt,” because that’s shame language. Debt that advances you, like a mortgage or a degree, is hard to get those things without. Credit card debt is the dangerous kind because the rates are high and it’s so easy to slide into. Shame hasn’t worked so far, so let it go.
Read the terms and shop your loan
The system makes debt hard to understand, and your financial education is still your responsibility. Before you take on new debt, know the amount, the interest rate, and how the interest compounds. Then shop around. My credit union gave me a rate on my car, and the dealership beat it. In an emergency, a personal loan is often cheaper than a credit card.
Notable quotes
“Getting out of debt is shockingly simple. The equation is not the hard part. Consistency is.”
“If shame worked, it would’ve worked by now. Therefore, we know it’s not an effective tool, we know it’s not an effective teacher, and it’s actively keeping you from where you want to be.”
“Our financial education is our responsibility. It is our responsibility to learn how this works so that we are not a victim to it.”
Catch up on the Financial Foundation series:
Financial Foundations Episode 1: Your Money Blueprint
Financial Foundations 2: Budgeting with Intention
Episode at-a-glance
00:00 Intro
01:03 Getting out of debt is shockingly simple
01:48 Having debt doesn’t make you a bad person
03:24 Where debt sits on your priority list
04:32 The rule of 7%
05:49 The math is easy, consistency is hard
06:33 Principal vs. interest
07:05 Why credit card debt feels like drowning
08:03 Consolidating with a personal loan
08:48 Step 1: List every debt
09:56 Step 2: Add up your monthly payments
10:09 Step 3: Find extra money in your budget
11:28 Step 4: Pay the highest interest rate first
12:31 My car loan and the PO box in Iowa
14:50 Is there such a thing as good debt?
17:11 Systemic problems vs. personal responsibility
17:52 Read the terms before you sign
18:21 Shop your loan
19:17 Join the free challenge
Visit https://herfirst100k.com/ffpod to join our 5 Day Debt Challenge and find any resources mentioned in the show!
RESOURCES:
Looking for accountability and deeper financial education? Join the $100K Club
Our HYSA Partner Recommendation (terms apply)
Behind the Scenes and Extended Clips on Youtube
Leave Financial Feminist a Voicemail
Financial Feminist on Instagram
Take our FREE Money Personality Quiz
Transcript:
Tori Dunlap:
One thing I’ve learned from talking to hundreds of investors, founders, and business leaders is that planning for the future isn’t just about growing assets, it’s also about protecting the people who matter most. Life comes with a lot of important milestones. Maybe you’re buying a house, starting a family, planning for college, or simply thinking more intentionally about your financial future. As those responsibilities grow, it’s worth making sure you protect those that you love. Not sure what kind of life insurance you may need, concerned about how much it may cost? Think life insurance is too complicated? Your local State Farm agent can help answer these questions. They can help you explore your options for life insurance so you can choose coverage that you can adjust as your family’s needs change over time. Financial protection for your loved ones, when it matters most. Learn about life insurance at statefarm.com. Like a good neighbor, State Farm is there. But first, a word from our sponsors.
Getting out of debt is shockingly simple. The equation is not the hard part. Consistency is. So let’s talk about exactly how to get out of debt today. Hi financial feminists. Welcome back to our Financial Foundation series. It is episode three. So if it is your first time here, make sure you listen to episode one and two. These episodes are in order. We’re doing this episodically like you’d watch a TV show, so you’re not going to dive into season three without watching the first two. We want to make sure that you have full context as we get going here. So go back to episode one of Financial Foundations if you’re joining us for the first time.
Today, we are talking about debt and I know, I know we talk about debt and you’re like, I don’t want to keep listening. I just want to tune you out and not acknowledge the fact that I am in debt and that it feels super overwhelming and like a hole I can’t get out of. But I want to level the playing field with you here. The first thing that I want to remind you of, just because you have debt doesn’t mean you’re a bad person. I am not the financial expert who’s going to make you feel bad for taking on debt because the average person cannot progress through their lives without taking on some kind of debt. Fun fact, I am a multimillionaire who now has debt because I took out a mortgage for my first home. I would not be a homeowner, in theory, without taking on that mortgage. And likely the same thing is applicable for you. You maybe had to take on debt in order to get a college degree.
You maybe had to take on debt and get a business loan to start a business. Most of what we want out of life is actually inaccessible for people unless you take on debt. And taking on debt is usually a strategic choice. So I want you to give yourself so much grace. I want you to forgive yourself for the debt you have or had. You are here now and we’re going to work to get that paid off. Now, as a reminder of where debt sits on the priority list, your emergency fund is always first. And I know it seems counterintuitive when you have debt, especially if you have a lot of debt to think, oh, I’m going to pause paying off this debt more aggressively so I can save money. That doesn’t make sense. But as a reminder, I need you to have some money saved because the last thing I want is for you to go into debt trying to pay for an emergency.
So your emergency fund is first no matter how much debt you have, then we’re paying off high interest debt. Then we’re thinking about investing while paying down lower interest debt. Here’s where one of my favorite rules comes into play, and this is something that you will use for the rest of your life. So in this free episode on the Financial Foundation series, if you can log this in the back of your mind, you will use this rule to determine some financial choices for the rest of your life. And it’s called the rule of 7%. 7% on average is what we can expect in stock market returns. Now, it’s been a lot higher than that recently. There are some years where it’s 15%, there’s some years where it is not 15%, but on average you can expect around seven to 8% conservatively from the stock market.
So when we’re thinking about should I pay off debt or should I invest, use the 7% rule, anything above 7% interest for debt. So that’s going to be all credit cards and some student loans, you’re going to work to more aggressively pay off that debt first. But if your debt has an interest rate of under 7%, this is most student loans, car loans, mortgages, it actually makes more mathematical sense to keep making your normal payments, but with any additional money to actually prioritize investing over paying extra. So as a reminder, 7% is the rule here. If your interest rate is above 7%, you’re going to work to pay off that debt first. But if it’s under 7%, it actually might make more mathematical sense for you to keep doing your minimum payments, your monthly payments, but contribute your extra money towards investing for retirement. As I mentioned in the intro, the logic of paying off debt is shockingly simple.
It’s actually very, very easy and intuitive. The hard part is consistency. The hard part is showing up every single month and digging yourself out of the hole. It is not because it’s complicated. It’s not because it’s scary. It’s not because there’s too much math going on. The math’s easy. It is the work you’ve got to put in to be consistent and to make sure that you are prioritizing progress over perfection here. Now in chapter four of my book, Financial Feminist, it is all about debt. It is the debt chapter. But let me give you the TLDR here. Debt is made up of two basic things, your principle and your interest. Principle is the original amount of money you borrowed and interest is what they’re charging you for it. So if you put $1,000 on a credit card, the $1,000 is your principle and then the interest gets charged on that $1,000.
Now, why this feels like you’re drowning is because there’s a lot of places and there’s a lot of kinds of debt that aren’t just charging interest, which is stressful enough, but compound interest, which is when your interest earns interest. So the balance grows even when you stop spending. And this is what’s going on with credit cards. This is what’s happening with credit card debt because uniquely with credit cards especially, the interest rate is super high, the interest gets applied to our principle, and the interest compounds. So every day you’re in debt, especially credit card debt, it is more expensive than the last. And when I did research for my book, the interesting thing is women go into debt because they don’t understand how a loan works. That’s the primary reason. It’s not because they’re stupid, it’s because they quite literally have never had this explained to them.
And I have to believe that’s not an accident because if you don’t know how a loan works, if you don’t know how debt operates, it’s so easy for you to stay in it. So how do we actually pay off our debt? If you’re in credit card debt uniquely, again, you have those three things that are making it really, really hard. The fact that the interest is high, that the interest earns every single time it compounds, but then it also compounds daily. That’s why credit cards uniquely are so expensive. So we have so many resources that can help you pay off debt generally, but especially with credit cards, it might be worth looking into what’s called a personal loan to help consolidate your debt. If you go to herfirst100k.com/ffpod, we have resources there and the consolidation partner that we recommend. Now, here’s how we actually pay off debt.
Step one, you’re going to list every single debt you have from highest interest rate to lowest and then the balance. For instance, I have this credit card that’s costing me 25% interest. It has $3,000 on it. I have credit card number two with 18% interest. It has $10,000 on it, and I have a student loan at 7% interest with $30,000. If you don’t know your interest rate or the balance, there’s no shame. I need you to call and find out. You’re going to call your credit card company, you’re going to log into your student loan portal. It will feel uncomfortable. This is okay. What you are not changing, you are choosing and we’re going to choose something different. We’re going to choose to stop ignoring it. We’re going to choose to stop pushing it under the rug and we’re going to actually acknowledge what’s going on because we can’t actually make a plan until we know the lay of the land.
So that’s step number one, list every debt from highest interest rate to lowest with the balances. Step number two, you’re going to add up your total debt payments per month. You need to have an understanding of how much money is going towards your debt every single month. And step number three, we’re going to look at the budget we made in episode two, that three bucket budget. Remember, bucket number one is your expenses, bucket number two is your goals, bucket number three is your fun bucket, and any extra money that we can play with in that budget, that is what we’re looking for. We’re looking at our budget and we are finding any additional money. Now, this may mean we are being a little more strict with ourselves just for a period of time. I have seasons in my own life where I cut back on my spending and it’s not because I’m depriving myself and it’s not because I don’t want to have fun, it’s because I have different goals.
I want to save more money or I have something really concrete that I am trying to make sure I can afford. And that might mean some temporary setbacks. That might mean me temporarily cutting my budget so that I can afford the thing that is actually going to get me where I want to be. It might mean that I am a little more strict with myself so that I can go on that vacation or so that I can pay off that debt sooner. Step number four, the extra money you find, even if it’s just 10 bucks a month, you are going to put that extra toward the highest interest rate debt, not the largest balance. The reason we are putting our extra money towards the highest interest rate and not the balance is because that is the most expensive debt. The credit card with, for example, the 25% interest, even though it has a lower balance, it is costing you more money because it’s a higher interest, it’s more expensive.
So we are going to prioritize sending additional money towards that higher balance and we are going to make sure if we can, that that extra money goes to the principal. The principal as a reminder is the original amount of money because if we can lower the principal, then we lower the interest. If we had $1,000 and the interest was getting applied to that thousand dollars and now it’s 800, great. We’re not going to have as much interest accrue. So this happened to me when I bought my car. I still drive the same car I bought when I graduated college. It’s a Toyota RAV4. I love my car. And the thing that happened that was so crazy and infuriating is I made my normal monthly payments every month and then I think it was after Christmas and I got some money for Christmas and I said, okay, I’m going to send $50 extra towards this balance because I want to pay off my car sooner. And so I sent my normal payment in December plus a little bit of extra money.
So the payment I think was like $500 a month. I sent in $550 a month and then I got my bill for January and it was $450. And I was like, wait, this doesn’t make sense. I just saved future me like 50 bucks. That’s not what I wanted. I would’ve just paid my normal 500 in December and then another 500 in January. I didn’t understand what had happened. So I called Toyota and I was like, hello, I would like this money to go to the principal. And they were like, oh, oh, well, if you want this money to just go to the principal, that’s fine, but good thing you called because there’s no way to do it online and you have to send the extra money, you have to send your normal $500 payment to this place, but then you have to send your extra $50 to a PO box in Iowa. It was almost like they did it on purpose.
Companies are sneaky. They’re sneaky, sneaky, sneaky. And if I didn’t call and ask, they would’ve made it impossible. Now, since this has happened, I don’t know if they have heard me talking on these episodes, I like to think they have, they make it a lot easier for you to contribute to the principal. But if you’re not sure if you can and not sure how, call your loan provider, call them and ask, how do I pay toward the principal? And make them tell you. One of the questions I additionally get asked about debt a lot is, is there good debt? And I try not to talk in terms of good or bad because again, that’s really shame motivated language. I think that any kind of debt you took out, even the debt that you might regret, likely has a good reason. Maybe you didn’t know how debt works.
Maybe it just got away from you. Maybe you weren’t as financially educated as you are now. Maybe you weren’t listening to Financial Feminists. Maybe you hadn’t read my book. But I think the way that I think about debt is there is debt that advances you and debt that is more dangerous. The debt that advances you is the stuff that is really hard to do without taking on that debt. So things like buying a house or getting a college degree, that is debt used very strategically, but the debt that’s more dangerous, credit card debt being, I think, the primary culprit here, that’s the slippery slope because of how high the interest rates are, how easy it is to slide in, and it’s just really, really difficult to navigate all of the debt landscape, and it’s because it’s on purpose.
One of my favorite bits from John Mulaney says this very well. He’s like, “I took $120,000 for an English degree at 17, 120,000. I paid you more money than the Civil War costs.” And he’s not wrong. It is crazy that we allow 17-year-olds who are bleary-eyed and tired and who have no idea what they’re going to do with their life to say, yeah, I’ll pay hundreds of thousands of dollars for this degree that may or may not actually be worth something to me, and also may or may not be what I’m actually passionate about. So when we think about debt generally, there’s so much shame tied to it, there’s so much anxiety. But if shame worked, it would’ve worked by now. Therefore, we know it’s not an effective tool, we know it’s not an effective teacher, and it’s actively keeping you from where you want to be. So as much as you can, you’ve got to let the shame go, and you got to understand that the debt you took out, it is still your responsibility.
Even wrapped up in all of the systemic issues, the fact that student loans, it’s a crisis. It’s a trillion dollar student debt crisis at this point. The fact that mortgage interest rates are really high, and for the average person, homeownership is not even available to them. The fact that the cost of living is so high that so many people have to take on credit card debt just to get by. All of these things are true. And at the same time, our financial education is our responsibility. It is our responsibility to learn how this works so that we are not a victim to it. So before you take on any kind of new debt, I need you to read the terms. I need you to know the interest rate. I need you to know the amount, and I need you to know how the interest compounds.
How expensive is this debt going to be? Do you fully understand what you’re getting into before you sign on the dotted line, or is this like an Ursula blood oath where she’s going to take your voice? I also need you to shop your loan. You need to think strategically about the way you partner with whomever is lending you this debt. So when I was buying that car, I had already gotten a loan term sheet from my credit union, but the Toyota dealership actually beat the rate. I got a better deal going through Toyota directly. I wouldn’t have known that if I hadn’t done a little bit of shopping. You should be doing this for your mortgage. You should be doing this for any cars. You should be doing this if you do have to take on credit card debt for whatever reason. This is where something like a personal loan for emergencies might be way better, and usually it is, than taking on credit card debt because the interest rates are lower because it doesn’t compound.
And the thing about debt is if you’re not seeing your progress, you’re not going to keep going. It’s like anything else. If you don’t actually see that you are making progress towards your goals and that this consistency is paying off, you’re not going to want to keep going. So I want you to join our free five-day debt challenge. This is so helpful and impactful. It’s going to give you really concrete step-by-step instructions for getting out of debt faster, and we have seen people quite literally cut some of their debt in half at the end of these days. So if you go to herfirst100k.com/ffpod, you can get signed up. It is free. There’s no reason not to. Again, herfirst100k.com/ffpod, and the link is over there. Remember, I said consistency. I didn’t say perfection. We are looking for progress over perfection here. And the next episode of Financial Foundations, we’re talking about credit cards, which is actually one of my favorite things to talk about because I’m about to teach you how to fly to Europe for free. No big deal.
Thank you for being here. Thank you for tackling this one. I’m proud of you. I’m proud of your bravery. Small progress is still progress. You’ve got this and we’ll see you on the next episode of our Financial Foundation series.
A huge thanks to State Farm for supporting our mission here at Her First $100K and making the Financial Foundation series possible. Like a good neighbor, State Farm is there. Neither State Farm nor its agents give tax or legal advice.
Thank you for listening to Financial Feminists produced by Her First $100K. If you love the show and want to keep supporting feminist media, please subscribe or follow us on your preferred podcasting platform or on YouTube. Your support helps us continue to bring this content to you for free. If you’re looking for resources, tools, and education, including all of the resources mentioned in this episode, head to herfirst100k.com/ffpod.
Financial Feminist is hosted by me, Tori Dunlap. Produced by Ellice Ellis and Tamisha Grant. Audio and video engineering by Jonathan Kirk. Marketing and Operations by Karina Patel and Amanda Leffew. Special thanks to our team at Her First $100K, Masha Bakhmetyeva, Rae Wong, Daryl Ann Ingman, Meghan Walker, Marciella Baietto, Demi Ganim, Taylor Toll, Zoe Rezek and Stormy McBride. Promotional graphics by Mary Stratton, photography by Sarah Wolfe, and theme music by Jonah Cohen Sound. A huge thanks to the entire Her First 100K community for supporting our show.
Tori Dunlap
Tori Dunlap is an internationally-recognized money and career expert. After saving $100,000 at age 25, Tori quit her corporate job in marketing and founded Her First $100K to fight financial inequality by giving women actionable resources to better their money. She has helped over five million women negotiate salaries, pay off debt, build savings, and invest.
Tori’s work has been featured on Good Morning America, the New York Times, BBC, TIME, PEOPLE, CNN, New York Magazine, Forbes, CNBC, BuzzFeed, and more.
With a dedicated following of over 2.1 million on Instagram and 2.4 million on TikTok —and multiple instances of her story going viral—Tori’s unique take on financial advice has made her the go-to voice for ambitious millennial women. CNBC called Tori “the voice of financial confidence for women.”
An honors graduate of the University of Portland, Tori currently lives in Seattle, where she enjoys eating fried chicken, going to barre classes, and attempting to naturally work John Mulaney bits into conversation.
