The Enemy of Financial Freedom

August 1, 2023

Credit card debt is enemy #1 to financial freedom.

We all know bad debt is... well bad.

But if we all know it, why do so many of us have it?

Americans have $841 billion on credit cards.

The average American household has $6,473 in credit card debt.

And credit card debt isn't just for the low income either.

Households in the top 10% of income have the highest average credit card debt.

Why is credit card debt terrible?

The interest rate will eat you alive ๐Ÿ‘‡



We know two scary things about credit card debt:

  • The high interest rate makes it extremely difficult to get out of debt
  • It's incredibly normal to have

If you want your money working hard for you you need to get out of credit card debt ASAP.

The other side of being rid of your credit card debt is:

  • Peace of mind
  • Stress-free spending
  • A clear path to financial freedom

So let's pay off your bad debt ๐Ÿ‘‡


Step 1 of paying off your debt is self-reflection.

The most effective way to become debt-free for life is by changing your behaviors.

Review your past spending:

  • Print your credit card and bank statements
  • Go line by line and reflect on the purchase:
  • Where were you when you made the purchase?
  • Why do you think you made the purchase?
  • How do you feel about the purchase today?

Review your current spending:

  • Take a moment to reflect each time you pull out your credit card or your computer auto-fills it for you (turn this off by the way)
  • What emotional state are you in?
  • Is this purchase making you โ€œfeelโ€ good?
  • Could you wait 24 hours for this purchase and see how you feel tomorrow about it?

Changing behaviors is all about bringing awareness to your habits.


โ€‹Step 2 is listing out your debt.

This may be the most difficult part but knowing where you're starting is critical to create a plan.

Get a piece of paper or open an excel spreadsheet and list out:

  • The type of debt: credit card, mortgage, student loans, etc.
  • The outstanding balance: $X,XXX
  • The interest rate: X%
  • The minimum payment: $XX

It may look something like this:



Step 3

Decide on your method for paying down the debt.

The 2 most common methods are:

  1. The Snowball Method
  2. The Avalanche Method

Letโ€™s walk through both with this example:

You hold the above 3 debts. โ˜๏ธ

You can afford the minimum payments on all of them plus an extra $50.

So you have $470 to pay towards your debt every month.


The Snowball Method

List your debt from the smallest outstanding balance to the largest.

Send the extra $50 to the smallest debt.

Make minimum payments on the rest.



Once, the medical bill is completely paid off.

Take the entire payment you were making there ($140), and direct it to credit card 2.



Repeat until all debt is paid off.

This method would take 50 months (a little over 4 years) to pay off all three debts.


The Avalanche Method

List debt from highest to lowest interest rate.

Send your extra $50 to the debt with the highest interest rate.

Make minimum payments on the rest.



Once credit card 2 is paid off, take the entire payment you were making on it ($200) and direct it to credit card 1.



Repeat until all debt is paid off.

This method would take 39 months (3.25 years) to pay off all three debts.


So, which is better?

Mathematically, avalanche method is better: 39 months vs 50 months for snowball method.

But money is deeply psychological.

And some people find the snowball method more motivating.

Because by paying off the lowest balance debt first it gives you a quick win and encourages you to continue.

So the best one?

Is the one that works for you.