Barefoot Investor Debt Reduction Explained and Why I’m Not Using This Strategy
The Barefoot Investor has some specific ideas around debt reduction and how to pay off your debt. How does Barefoot suggest you pay off your debt and what are the key ideas he has to share?
0:00 – Introduction
0:37 – Key ideas around debt reduction
2:31 – Step 1: Set Up Your Bank Accounts
3:55 – Step 2: Domino Your Debts
4:04 – Calculate all your debts
4:34 – Negotiate your debts to get a lower interest rate
5:31 – Detonate your debts
5:59 – Celebrate
6:35 – Why I’m not following this debt reduction strategy
the barefoot investor has some very specific ideas around debt reduction and how you should pay off your debt so in this episode we’re going to look at exactly how barefoot suggests you pay off your debt and some of the key ideas around that if you haven’t read it all yet I do highly suggest this book you can go to onproperty.com.au/free would such barefoot and that will redirect you to purchase the book or you can click the link in the description down below and while you here why not like and subscribe my name’s ryan from on-property I help people achieve financial freedom and I’ve got new episodes coming out every weekday so when it comes to debt reduction there are some key ideas that Scott paper or the barefoot investor wants to get across to you the first of those key ideas is that you want to automate paying off your debts now this requires you to set up your bank accounts in the way he suggests I’ve already done a full video on the barefoot invest our bank accounts explained so go ahead and check that out links will be in the description down below but basically and we’ll talk about it a bit later in the video you want to set it up so 20% of your incomes going towards your fire extinguisher or going towards paying off your debt so this means your debts are going to be paid off automatically over time and then once your debts are paid off you can go ahead and start investing the next thing that he wants to get across is that you don’t need a credit card and by setting up a mojo account and having basically a buffer fund instead of a credit card and by removing credit cards from from your life you’re going to be better at money management and going to end up in a better position he also suggests you Domino your debts which has been called the snowball strategy in the past so the idea with this strategy is that you pay off your smallest debts first so rather than focusing on the debt with the largest interest rate you focus on the smallest pay off that first and then move your way up to larger and larger debts constantly removing debts in your life you also need to keep your minimum repayments on your other debts obviously so you’re not incurring fees and things like that so minimum repayments on other debts pay off your smaller debt first and then once that debts paid off you then use the money you’re using to pay off this all the debt and you put it on the next size debt also he wants you to celebrate each debt and then close each account so if you go ahead and pay off a credit card then go ahead and close that credit card account if you pay off a loan go ahead and close that account and celebrate each time that you do so step number one is to go ahead and set up your accounts so if you don’t know how he recommends you do this go ahead in google or youtube search Bearfoot investor bank accounts explained and my video will come up explaining exactly how to set this up or you can go to onproperty.com.au/session ten which is the episode number their links will be in the description down below as well but to run through it really quickly just set up your accounts the goal here is to live off sixty percent of your income yes just sixty percent of your income for your bills and your everyday expenses you then allocate 10 percent to splurge so this is something that you can splurge on for me that might be coffee for you that might be close or it’s really whatever you want ten percent goes towards happiness saving so these are things that make you happy maybe it’s concert tickets or going on a holiday and then 20 percent goes to your fire extinguisher and this is where you’re going to focus on paying off debt so fire extinguisher is just a word where you can put that 20 percent into a savings account called fire extinguisher but then it goes from there to pay off your debt so this money just goes towards paying off debts and then once your debts are paid off it’s used to invest that’s the basics of the bank accounts again link down below if you want more details on exactly how to do that step number two is to Domino your debts or to pay off the smallest debts first so to do this the first tip he suggests is to go ahead and calculate your debt so this means you need to write down all of the debts that you have now this was a big step that I took in taking control of my debt situation this year I took the time to write down okay how much exactly do I owe how much I owe to this person to that person how much do I owe on my credit card I wrote down all of my debt on one sheet of paper or one Excel spreadsheet so could see all of them and see exactly how much I owe once you’ve calculated all your debts the next step is to then go ahead and negotiate so he recommends that you negotiate your credit card and other loan interest rates to make them lower so call up your bank’s talk to them try and get a lower interest rate on your credit card or on your other loans so that you’re not paying as much interest which is obviously going to allow you to pay off your debt faster or do a balance transfer so if you’ve got a credit card go ahead do a balance transfer so you can get a period of however long it may be maybe it’s 12 months maybe it’s 24 months of 0% interest and transfer that debt over there however he does suggest that you don’t use the credit card because there can be issues if you do a balance transfer then you start using the credit card then you can acquire even more debt and so he suggest you do a balance transfer but he also suggests that you cut your cards and not have a credit card which we already talked about the next thing he suggests is then to go ahead and start detonating those debts so use York fire extinguisher or use the 20% of income to pay off your smallest to your largest debt and be very diligent with that and do it over time basically it’s an automated process in order to go ahead and pay off your debts also while you’re doing this don’t forget to make the minimum repayments on your other loans and your other debts which we’ve already talked about final step is to go ahead and celebrate to drink beer and to burn your statements now he doesn’t say this but probably make a copy first in case you need it for things like applying for a rental or people want to see bank statements or statements of your debt you may want to keep a copy before you go ahead and burn it but definitely take the time to celebrate paying after you’re off your debts because it’s a really big step towards your financial future to remove these debts from your life so as you can see pretty simple process that he recommends in order to pay off your debts it is not very complicated at all lastly I want to touch on why I’m not following this debt reduction strategy and what I’m doing instead so obviously this debt reduction strategy is really simple it makes a lot of sense you just automate paying off your debts a percentage of your income goes towards paying off debt will you ensure that you’re making the minimum repayments and you’re not acquiring any more debt so why aren’t I following this debt reduction strategy the reason I’m not following this strategy is that I’m actually taking a more aggressive approach to paying off my debt so I want to pay off my debt fast so rather than just allocating 20 percent I actually want to do that faster so I currently have no splurge or happiness savings at this point so 10 percent isn’t going to splurge 10 percent isn’t going to happiness I’m living frugally and spending less than 60 percent of my income and basically every spare dollar of mine is going towards debt reduction so rather than just having 20 percent of the fire-extinguisher go towards debt reduction I’m actually living extremely frugally and then every extra dollar that I have is going towards reducing debt in my life and paying off that debt as quickly as possible so that’s the first reason is that I’m trying to be more aggressive and pay off my debt faster the second reason for me is timeline is that some of my debts have due dates in which they need to be paid whether 20% strategy and just paying the minimum repayments indefinitely and then trying to pay off the small step faster wouldn’t work so I have some debts in my life as well as some upcoming fees and things like that which have jus dates so for example my children go to a Montessori School which is a private school so fees for the school are paid each term so I have set amount that I need to pay each term that are coming up now that isn’t technically debt but it’s money that I need to put aside for that has a set due date and some of my debts have that as well so I need to be prepared for that and so what I’ve done is created a cash flow calendar and so basically I took this debt where I wrote down all of the debts as he suggests but I went a step further with that and I wrote down each debt when it’s due date was and what payments effectively I need to make up until that due date to ensure that that debt would be paid off by that time so rather me focusing on the smallest at first I focused on those most urgent debts first and the ones that need to be paid earlier I focused on those first in order to pay off those faster and the ones that can take more time they’re the ones that I’m just making the minimum repayments on so rather than snowballing or rather than Dhamma knowing my debts going from smallest to largest I’m going from most urgent to least urgent so that’s why I’m not following this strategy but I do think this strategy will work for a lot of people out there so I hope that helps explain how Beth would invest our talks about reducing your debt and getting rid of debt in your life and then you can implement some of these ideas to reduce your own debt and move towards your financial goals while you’re here why not check out the video that I did on the barefoot bank accounts explained and exactly how he recommends you set up your bank accounts as well as the other barefoot videos that I’ve done thanks so much for watching and until next time stay positive
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