Financial Experts Share Their Easy Steps to Manage Debt: It 'Cannot Define You’
Credit cards. Student loans. Soaring interest rates. Many women feel overwhelmed by mounting bills and financial insecurity, exacerbated by a record number of job losses in 2020 due to the pandemic. During the first installment of #MoneyTalk, a panel discussion about managing personal finances organized by the employee resource group Women @ Meredith, Catey Hill, editor of Millie, recently asked three financial experts — Dasha Kennedy, Alexa von Tobel and Winnie Sun — the best strategies for tackling debt. [Meredith is PEOPLE's parent corporation.]
"I keep working with clients now that have a tremendous amount of credit card debt and student debt and everything else," says Sun, founder of Sun Group Wealth Partners. "I think the first thing is to recognize that this debt cannot define you…your next chapter is going to be the thing that defines you. But that doesn't mean that we don't face up to what it is."
Below is some professional advice from Sun, Kennedy and von Tobel to help you face up to your finances with a simple plan to tackle debt.
Rank Your debt
"List your debt from the highest interest rate all the way down, and then take a 50/50 approach," Win advises. "If it's student loans, if it's credit card debt, whatever it is, pay off 50 percent of what you have available to pay off. Let's say you have $500 that you can use, right? Take $250 of that, pay off towards the highest interest-rate debt, and take the other $250 and sock it away into your emergency fund," she says, "because if there's anything we've learned from this pandemic it's the importance of having an emergency fund." She adds, "So, you don't want to just basically put everything towards your debt because right now you might need some money just in case in the next six months. And I would rather you have a little bit more of a cash cushion."
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Remember, Not All Debt Is Created Equal
"The only thing I would add," says von Tobel, co-founder and managing partner of venture capital firm Inspired Capital, "is not all debt is created equal; it's all about your interest rate…There's good debt and there's bad debt. Your good debt is things like a mortgage and a student loan. And the reason for that is there's actually an asset underneath it — your home, if you own it for 10 years, we hope goes up in value. Your brain — you, the investment in your education — is actually getting more valuable over time, hopefully, based on that education."
She advises, "Your goal in life, as you go forward, is to have no credit card debt ever…Credit card debt accrues daily, not monthly, not annually. So, if you make two payments during the month, you actually save 15 extra days of that compounding daily."
Courtesy Winnie Sun; Courtesy Dasha Kennedy; Courtesy Alex von Tobel
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Communicate with Your Lenders
"One of the things that I have empowered the women in my community to do is to simply communicate with your lenders," suggests Kennedy, financial advocate for African American women and creator of The Broke Black Girl. "See if there's any hardship programs available that you could actually benefit from until things look better for you financially. In some cases, you definitely can cut back in certain areas, use the additional money to pay off debt, find ways to make some additional money to pay off debt."
However, she adds, "if that is not an option for you, definitely do not overlook the power of communication and in calling your lenders and contacting them. And honestly, lenders love that." Hill agrees: "I've heard so many success stories of people picking up the phone and it does really work…it's sometimes a simple phone [that] call can save you a ton."
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Run Your Finances Like You Run Your Social Life
Practical advice that can be game-changing, according to von Tobel, is to "run your finances like you run your social life, which is sit down, look at your calendar, and plan it out," she says. "Every January have a money summit where you say, 'What am I going to accomplish this year?'" Von Tobel also emphasizes that "you also should contribute to your 401(k), contribute to an IRA, make any contributions to your kids' 529 plans, whatever amount you can. And then every three months, plan to do the following: check your credit score, which you can do for free on Credit Karma. Once a year, check your annual credit report … to make sure there's no issues. And then every three months simply do a check-in."
She explains, "Maybe your goal for 2021 is to pay off all your credit card debt…Write it down. When you write things down and then actually set up the check-ins, it's a really good way to hold yourself accountable."