In today’s episode, we dive into a topic close to many of our hearts: paying off debt. With millions across the country facing credit card debt, student loans, and more, the quest for financial freedom is more pressing than ever. We chatted with Martin Dasko, a seasoned freelance writer and expert in personal finance, about two common methods for tackling debt: the debt avalanche and the debt snowball. While the debt avalanche focuses on targeting high-interest debt first, the debt snowball emphasizes quick wins and behavioral changes by starting with the smallest balances. Whether you’re numbers-driven or motivated by goals, finding the right approach to debt repayment is key.
Listen below or read the transcript that follows.
Eric Rosenberg:
This is a friendly reminder that today’s episode is intended for education and entertainment purposes only and should not be considered legal or financial advice.
Hello friends. Welcome back to The Good Cents by Payactiv Podcast. As always, I am your host, Eric Rosenberg, and today I’m excited to bring you a chat with one of my very good friends about a topic that’s near and dear to a lot of our hearts, and that’s paying off debt. I’ve paid off debt myself, and I know that millions of people across the country have credit card debt and student loans and car loans and other types of debt that they’d love to pay off and be done with for good. And today we’re going to talk about two methods that are commonly used to do so.
So if you want to get out of debt and take better charge of your finances, give yourself some more financial freedom to do what you’d like to listen on because we’re going to chat with my good friend Martin Dasko, all about two great ways to get out of debt. All right everyone, I am really excited to be here with my good friend Martin Dasko. And Martin, as I mentioned, is an awesome freelance writer. He’s covered a lot of topics. He also has his own blog. We’ll talk about that at the end. But he has covered debt for a lot of years. He’s an expert in this topic and I’m excited to welcome him to the show. Welcome, Martin.
Martin Dasko:
Thanks for joining me. It’s a very important topic. I was actually just reading the other day, American credit card debt has reached over a trillion dollars. I mean, that was a very critical time to address this issue.
Eric Rosenberg:
Yeah. Especially as we’ve gotten into this higher interest rate situation. Anytime interest rates go up, that means debt is costing you more, especially with credit cards. So if you have a locked in long-term loan, your interest rate might be fixed. But if you’re carrying credit card debt or other variable rate debt month to month, that can hurt and we don’t want to see you waste all your money on interest and debt payments. So Martin and I, with all of our research, have found a couple of methods that seem to work best for most people looking to get out of debt. So first I want to talk about the debt avalanche method to pay off debt. That’s my favorite. Martin, how would you describe the debt avalanche for someone who’s looking to get those credit cards and other debts paid off?
Martin Dasko:
It’s interesting that you said that’s your favorite. It’s a polarizing topic, so we’ll get into that too. But some people prefer this method because this method makes the most mathematical sense. The goal is always to lay out all your debt that you have, your different balances and then make your minimum payments. And then with the avalanche, the goal is for the next step is to attack the debt with the highest interest rate first. So the reason that people that are like myself and Eric are into personal finance love this math is it makes the most mathematical sense. You find the highest interest rate and you attack it and you pay it down because that interest rate, if it’s over 20%, that adds up real quick and every month it’s added to your balance and added and added, that could really hurt you financially. So this method just makes the most sense from a logical mathematical perspective.
Eric Rosenberg:
Yeah, and we did an article or not an article, sorry, a podcast once upon a time where we talked about interest rates and understanding how they work. And something I like to think about, because it might be counterintuitive, maybe your highest interest rate isn’t your highest monthly payment or your highest balance. But the reason paying off your highest interest rate first makes the most sense is that is your highest cost per dollar you borrow. So if you have, think about big piles of dollars or hopefully little piles of dollars when it’s debt that you’ve borrowed over the years, if one pile has it, say a 20% interest rate and one has a 15% interest rate. For every dollar in that 20% pile, you’re paying 20 cents a year to borrow it. And for every dollar in the 15% pile, you’re paying 15 cents per year for every dollar you’ve borrowed. So even if that 15% pile is bigger, if you pay off the 20% pile first, you’re going to get ahead in general compared to paying off any other debt first.
Martin Dasko:
And as you mentioned, even if it is lower than the pile with the 20% debt, it could become higher if you don’t address it sooner because the higher rate means higher interest means more and more money goes towards interest payments.
Eric Rosenberg:
That’s true. It’s the power of compounding there. It can take a long time to pay off that high interest debt. If you have credit cards or lines of credit or even personal loans, any kind of unsecured debt, you’re probably going to have the highest interest rates. So paying those off as fast as you can is really important for your finances. The faster you pay them off, the less interest you’ll pay in total, and that means more money to reach other financial goals that are more important to you. And it also frees up cash every month for regular expenses and bills, maybe getting out of that paycheck to paycheck cycle.
So Martin, if you’re looking to, you said attack the highest interest rate debt first I like that analogy,` how would you think about coming up with extra funds? Because when you say going after that highest interest rate first it means paying more than just the minimum. If we’re paying just the minimum on everything, you’re not really doing the debt snowball or the debt avalanche. You’re just paying the least every month, but that’ll cost you more in the long run. So how would you think through coming up with ways to get extra cash to put towards those payments?
Martin Dasko:
Yeah, that’s a good question because when I say attack, I mean that’s your priority. That’s the one you’re going after the most. So you’re putting all extra money towards payments on this balance. So unfortunately, sometimes the money in your budget and your paycheck is not enough, so you have to make more money. And I understand that people might be stressed out, there’s limited time you are working, you’re tired, you don’t have that much free time, but you have to find ways to make that extra money. And one of the best ways right now in my opinion, is anything to do in the gig economy, a lot of these side-offs are a bit unrealistic. Someone will suggest, “Oh, start a YouTube channel.” Well, yeah, but that could take six months to grow. But something like the gig economy, this refers to Uber Eats or something like Rover where you’re walking dogs or you’re pet sitting, you’re making extra money.
So even though you may not have that much free time, you could go on your lunch break, go for a dog walk, or you can have a dog stay with you. So it doesn’t really change your schedule that much. And then there’s Taskrabbit’s, another example. You can pick up odd jobs on Taskrabbit and make that extra money. And those are just three websites right there Uber Eats, Rover, TaskRabbit that help you pick up gigs and any gig that you pick up, the goal is to help your future self. So it’s going to be frustrating. That dog walk might take an hour, might be annoying. Let’s just say you get that $35, that $35 you make goes towards, as I said, attacking your highest interest, but you make that one payment and it adds up over time and you keep on making those payments until eventually the balance with the highest end rate is at zero. And you obviously have that peace of mind now it comes with being debt free and you’re saving more money for yourself.
Eric Rosenberg:
Yeah, that’s all great advice. Yeah. I like how you mentioned the gig economy just because I’ve known you for a long time that you are a serial gigger, I just made up that word, gigger. You have done the dog walking thing, you’ve done the Uber driving thing, you’ve actually started your own side hustle, taking people on coffee tours in your area in Toronto, Canada. You’ve been there, you’ve done it, you’ve done that extra hustle and that has given you a little more financial freedom that gives you flexibility to make more choices in what you do with your money and what you do with your time.
Martin Dasko:
Yeah, I try to stress sometimes people, they talk about side hustle, they try to glamorize it or talk about how you could get rich. Well, the goal is to make money. Some of these side hustles, they’ll just give you a little bit of extra money, which may not seem like much, but it adds up. Like you mentioned my coffee tour, it wasn’t like a venture that got me rich, but just that extra money. It was like an Airbnb experience, which is under the Airbnb platform. Just a little bit of money made there adds up, to say you make another hundred bucks, 200 bucks, put that towards your debt or whatever your goals are. Put that towards building your emergency fund and you’re putting all that money towards your financial goals and it’s slowly adding up over time. One of the key points of a lot of these gigs is you can embrace your creative side or you can channel your creative energy.
For me, I love coffee. I love showing people around, so I got to do that. If you love dogs or you want to see maybe one day you wouldn’t mind being a dog owner you could try Rover. I realized that dog is a lot of word, so maybe I’d rather just stay on the Rover app. Or even if you picked up something like design work on Fiverr, you could tap into something different and try a new strategy for increasing your income.
Eric Rosenberg:
Who knows if you stick at it, you make more doing that side hustle than you do with your current day job. You never know where it’ll take you. So I’m a big fan of side hustles. My whole career started as a side hustle, so I love it.
Martin Dasko:
Yeah.
Eric Rosenberg:
So next, let’s transition a little bit. Martin, in your words, how would you describe the debt snowball method for paying debt? Let’s say we have the same piles of debt, the 20%, the 15%, whatever percent you have, how is the debt snowball different from the debt avalanche?
Martin Dasko:
A debt snowball is very different mathematically as it’s more of a behavior approach. The goal is to pay off your lowest balance first. After you make your minimum payments, put any excess money towards the lowest balance until you pay off the lowest balance. So for example, that low balance could just be something that just say you have a $200 credit card bill for a night out or something. You have that just lingering over you, $200, 300, it’s just lingering over you and you pay off that balance and you get that momentum because now you’ve proven it to yourself, you can indeed pay off your debt. So you get that quick win, you pay off that balance, and then you go towards the next balance that you can pay off, which is usually, according to Dave Ramsey, would just be the next one in the run and you pay that off.
Eric Rosenberg:
Yes, the next lowest balance. Yeah. So the benefit here, while financially you might take a little longer to pay off your debt in total, it feels good to see those payments go away. Your minimum payment, if you pay off that lowest card, let’s say you have a credit card with a $1,000 balance and another one with a five and another one with a $6,000 balance. I’m just making numbers up, but if you pay off that $1,000, that’s going to be a lot easier than a five or $6,000 balance. And it feels good to see one of those towers of payments go away and then you can roll that payment that you’ve been making forward into the next payment. That’s why it got the name snowball. Psychologically, that can feel good. And if you know you’re the kind of person who gets motivated by quick wins, the debt snowball might be better for you. Even though financially you’ll be farther ahead with the debt avalanche method. What kind of person would you think, Martin, is better off to pick the debt avalanche versus the debt snowball?
Martin Dasko:
The debt avalanche works better for people that are more logical and more rational about their finances. Some people, I have friends out there, they can budget every dollar. They’re okay with that. They’re good at budgeting, they track your spending and they make the best possible choice. So if you’re a rational person, it makes more sense. But if you’re someone who’s more on the emotional end or you’re new to personal finance, you’re really trying to figure out how to make it work, it can be frustrating to make these payments on a high interest rate constantly and on balance and not see the immediate impact. So for some people, you want that win, that visualization of just knowing that you paid off that balance and that this is possible for you. Not everybody is logical, and this is one of the flaws or not about the flaws, the debates in personal finance.
There’s people on one end that are very logical just the way you could do it, allocate X percentage to this. And there’s other people that are like, no, it’s about behavior and changing your behavior slowly just so you adapt new habits that you can realistically stick to, so that personal finance becomes something that’s just a part of your life. And it’s easier to stick to something when you see results and you actually feel it is truly making progress.
Eric Rosenberg:
Yeah, totally. Yeah. To summarize that, again, if you’re a numbers brain person, which I think I’m more of a numbers person, my background in finance. For me, that’s why I like the debt avalanche better if I were paying off debt, which I’ve done in the past. I had student loans and car loans, I’ve had loans before and I knew if I paid off the highest interest debt first, I’d be saving the most money in the long run. But I have friends who have come to me knowing I’m the money guy with their financial situation. One was telling me about her credit card debt, I remember a few years ago, and we looked at all of her balances and things and she actually did kind of a hybrid where she picked a few small ones first and then switched to the avalanche method because she would get that momentum early on, get a couple payments knocked out that she didn’t have to make anymore. And then she could make faster progress on those bigger balances with the higher interest rate.
So what really matters most, I guess to make a long story long here, is that you should make progress paying off your debt. There’s no right method between the debt avalanche or the debt snowball or another system if you can come up with one. Payactiv like automation, we have options to automatically save1 every month. If you want to build an emergency fund or save up for a down payment for a new car, maybe you want to not get into debt to get a new car or a reasonably priced used car. As we talked about in a recent episode, we like the automation approach. You can get money coming in, don’t even have to think about it. It goes to your financial goals. As long as you find a system that works for you and something you’ll stick with, that’s probably the best way to get out of debt. Well, what do you think, Martin?
Martin Dasko:
I agree. Personal finance should be personal, right? It’s half the phrase. So you should find things and plans and ideas and systems that you can stick to, and it makes sense for you because when you first start reading about personal finance, you’re learning about these concepts and learning about different strategies. Some of them may seem like a foreign language and they’re like, I don’t know if I could do that. But if you find something that works for you, if you notice that you know what? Paying off that balance, you feel momentum. You feel like the pendulum swinging in your favor, you feel like you’re making progress, go after that. I mean, the goal is to get out of debt. It might take you longer if you do go after the smallest balance and use the debt snowball, but you’re still going to get there and you’re going to stick to it.
We want you to have a sustainable plan. That’s the trick because finding a sustainable plan that you can stick to in the long run. We don’t want you to do a yo-yo budgeting where you get aggressive one month or the next month you get fed up. Because when you feel so restricted, you could also get bored of [inaudible 00:14:29], you could also lose sight of your goals. You’re so deep in the weeds. You’re like, oh, this is frustrating. I’m bored. I’m over this. So you do need little goals, little milestones and things that keep you excited. Try both plans, find what works for you and ensure that you can stick to, because the goal is to stick to whatever plan you pick.
Eric Rosenberg:
Yeah, that’s awesome. Well, thank you so much, Martin, for talking with us about this really important topic today. I know debt, as you said in the beginning, more than a trillion dollars in credit card debt in the US. So odds are a lot of those listening have some credit card debt or some other kind of debt, and we just want to help you get out of it. That’s what financial wellness is all about. So Martin, if people like what you had to say or are interested in learning more, where should they go?
Martin Dasko:
Yeah, you can find me on Studenomics on that YouTube or my blog studenomics.com, just trying to help you make sense of personal finance, making more money, paying down debt, and trying to make it all work with the obvious stress that comes with life.
Eric Rosenberg:
That’s awesome. And I’ve been to those sites and social media accounts many times and highly recommend them. But thank you so much, Martin, for joining us today.
Martin Dasko:
Thanks for having me, and good luck everyone.
Eric Rosenberg:
Well, that was a fun and educational conversation as always. And remember, Payactiv is on your team to help you pay off debt and reach your financial goals. We have tools to help you automate your finances, including automatic savings to build up an emergency fund and tools where you can track and monitor all of your budget and expenses, your income, your outflows, all of your money in one convenient app. Also, remember, if you’re struggling personally to pay off debt, we have free financial counseling available. If you’re a Payactiv member, make sure to check out the Payactiv app2 and learn how you can set up an appointment. That is a huge value.
People often spend thousands of dollars for financial advising, and you can get it absolutely free as a Payactiv member. So if you’re not already using it, head to the Apple App Store or the Android Play Store to download Payactiv. And if your employer doesn’t offer Payactiv as a benefit, be sure to chat with them or your HR department to let them know you’re interested. Thank you all so much for listening till the end. We’re always excited to have you here as a part of our community. And until next time, keep on living that life you’ve earned.
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