Winter is coming to an end so I apologize now for bringing up snowballs and avalanches but there is no better time than now to get out of debt. Jackie Beck is the creator of the app-store hit, Pay Off Debt by Jackie Beck which has helped over 53,000 people break free from debt. Today on the show Jackie shares her story and explains the difference between the debt snowball and the debt avalanche and which one might be best for you to finally conquer your debt.

Welcome to The Maple Money Show, the podcast that helps Canadians improve their personal finances to create lasting financial freedom. Today’s sponsor is Wealthsimple. With no fees on deposits and withdrawals and higher interest rates than the big banks, Smart Savings is a better way to save. You can find out more about Wealthsimple at maplemoney.com/wealthsimple. Now, let’s chat with Jackie about paying off debt…

Tom: Hi Jackie, welcome to The Maple Money Show.

Jackie: Hey, how are you doing?

Tom: Great. We’ll get into this soon, but I know you paid off a lot of debt and focused a lot on paying off debt since then on your blog. Can we just hop right into it by you telling us about your debt story?

Jackie: Well, my debt story is kind of long. I basically started out like a normal person just getting into debt thinking that was the normal way to do things. Like, if you buy a car you take out a loan, or if you go to school. I did go to undergraduate school without taking out a loan but for graduate school I did. Then to buy a house you take out a loan. It seems like the typical way to do things. Also, we had the credit card issues. I originally got a credit card that was supposed to be just for emergencies but eventually things like pizza became an emergency. It just really got out of hand. I did try very hard to get out of debt for a long time, unsuccessfully. Finally, I figured it out. What actually helped was losing my job. I was unemployed for about four years so I learned how to live on basically nothing. When I finally got a job again, it was a part-time job. But I was so excited to be having any money I felt super rich. I said, “I am going to pay off my student loan because I never want to be in this situation again.” I just kept living on basically nothing—and I’m really not exaggerating either. I only had about $400 a month in income. But I paid off my student loan in about five months after having it hang around for more than 10 years. That really got me excited. And, my husband got excited too about the idea of getting out of debt and thought maybe he’d pay off his car. So it just kind of went from there. We kept paying off one thing after the other. We accidently used the debt snowball (because I hadn’t heard of it) but that’s what we did. We started with one debt, moved on to the next one and kept adding the payment we had been paying to the next one. Eventually, we got to the point where we were thinking about paying off our house. I remember my husband saying, “Okay, that sounds great but how are we going to do that?” I said, “I don’t know but let’s just do it. Let’s just start by sending in some extra money.” We actually started by sending in an extra $35 a month. Once we really started to focus on it at one point I think we sent in $8,000 in one month. We both got better jobs. We worked extra. We had side-hustles. I had the blog. It just really increased from there more and more. We ended up paying off our house in about three and a half years. It was really nice. So I am super glad to be out of debt. I never want to be in that position again. It is so great to be free to do the things you love to do.

Tom: Congrats on that. I still have a mortgage, a very sizable mortgage but I kind of go on the idea that that is “good” debt, depending on whether or not you can truly afford it. Some people go too much on the idea of good debt and buy too much house—or more house than they can afford. I don’t want to use it as a crutch but it’s certainly better than credit cards and all of that.

Jackie: That’s kind of a pet peeve of mine—the whole good debt, bad debt thing. I think it’s all just debt. It’s all risky so it just depends how much risk you want to take.

Tom: Even more so here in Canada, mortgage interest isn’t tax deductible. It’s even less of a good debt than it can be considered in the States.  We’re paying that interest and principal and there is no tax benefit at all to offset that a bit.

Jackie: There’s actually not for lot of Americans either because even though it can be tax deductible, that’s only if you itemize. And the vast majority of people do not itemize.

Tom: Fair enough. You mentioned the debt snowball. Can you go into that? I know there is a debt snowball and a debt avalanche. Can you explain both of them and why they’re different?

Jackie: In a sense they are kind of the same. They have the same basic idea. You pay off the debts in order and each time you finish paying off one debt you put the money you had been sending to that debt toward the next debt.  Over time, the amount you’re sending towards debt gets larger and larger. The main difference is that with a debt snowball you put your debts in order from lowest balance to highest balance regardless of the interest rate. With the debt avalanche, people usually put it in order from highest interest rate to lowest interest rate no matter what the balance is. One is mathier while the other is more emotional. But I think the debt snowball is much more motivating because if you’re in debt, you’re not making the most rational choice necessarily anyway because, why would you choose to pay interest? You’re paying extra for everything you own. That’s not super rational but most people don’t think about it that way. I didn’t, but it’s true. I think if you stick with the debt snowball then you’re more likely to actually stick with getting out of debt. It kind of depends on how you got into debt (in the first place) which one makes more sense to use.

Tom: Yes, it’s much like you said about the debt snowball by accident before knowing what it was. I did the debt avalanche being so numbers-based in my life. All I could see was that it costs more. To me, that was the motivating thing. It was better to pay off a debt that was in double-digit interest than it was to pay off a credit line that was in single digits. But I totally get the idea that for the majority of people, the debt snowball is probably a better way to go because they’re not as number-focused. I often suggest that, but I just didn’t do it myself because of my mindset.

Jackie: It also depends on the actual debts you have. I’ve run the numbers for a lot of different people and sometimes it’s only like a month or two difference whichever way you do it. It really depends on the interest rates of your debts and the balances. So it can vary a lot.

Tom: The biggest point is to get to that end state, right?

Jackie: Right, exactly. Stick with it until you’re done.

Tom: That’s where the real savings is, is when it’s at zero. I mention my debt a bit on show before but one of my biggest issues was, say I’m spending on a credit card—I would pay off the credit card with my credit line. Then I would pay off the credit line. But it became this constant cycle where I had this habit of paying debt but I didn’t necessarily have the habit of stopping. It was just this bad cycle. The debt never got too high but I was constantly borrowing and paying it off. I’d like your thoughts on that. I think this goes along with your debt mindset reset, if you can go into that as well?

Jackie: That’s super common. A lot of people pay off one debt by borrowing somewhere else. In reality, they’re kind of moving it around. But at least, in your case, you were paying where you had moved it from too. The biggest thing is if you want to get out of debt, you have to stop borrowing. That’s the number one thing. It’s actually something that so many people don’t do. For example, they might have an emergency come up or it’s something they just forgot, like me, when I’d forget to pay my car tags every year. I would forget they were due and suddenly there’s the surprise bill that happens every single year. And, somehow it always came as a surprise. You have to be able to stop borrowing and that means actually building an emergency fund and changing the way you think. That’s where the whole debt mindset reset comes in. It’s really about thinking differently. You have to think, “Okay, I’m only going to spend money I already have.” That’s one thing people think… that you have to be frugal to get out of debt. And I am not remotely frugal. What you have to do is only spend money you already have. You have to stop borrowing. Then you have to keep making those payments, and obviously, make payments toward your debt to get it paid off faster. The debt mindset reset is a little email course. It’s free. It’s just goes into that idea in more detail and talks about changing the way you think in regards to the things you do.

Tom: Exactly. You mentioned the idea of no longer borrowing. Now that you’re debt-free, what’s your opinion on credit cards? I’m a fan of them as a tool. But again, I realize that doesn’t work for everybody. Where are you at with that personally? Do you use credit cards or do you swear off all debt completely?

Jackie: Well, I did not use credit cards for many years. Actually, I cut them all up when I got divorced from my first husband. The accounts were all closed and I never reopened them for many years. Eventually, I did reopen one after I had an incident with my bank with debit card which just was not pretty. Since then I have used them and I just pay them off right away as soon as I get the bill. Actually, I pay them off beforehand. I have them set up to auto-pay from my checking account so they’re paid right away. I don’t think credit cards are evil or bad. Although they can be. They can be bad but it depends on you. For many years I didn’t use them because, yes, they’re a tool but so is a chainsaw. And if you don’t know how to use it you can get hurt. You’ve got to be careful and if you find yourself constantly bleeding, that’s a sign that this is not for you. It just depends on your situation.

Tom: That’s why I don’t have a chainsaw. There are loads of benefits to a credit card but it is a dangerous thing if you treat it like free money. Again, I’ve said it on the show before; credit cards were my problem early on. I thought it was free money. I was just too young. You get a credit card before you barely have a job so it’s a lot of money you have access to.

Jackie: That is another thing. It’s bad if you don’t feel the pain. If it feels like, “Oh, hey, here’s all this free money. No big deal. I can get whatever I want…” That’s not a good thing.

Tom: Honestly, I can even catch myself doing that now sometimes. I’m a natural spender but I do keep myself in check. You’re right though; there is not a lot of pain when you pull out a credit card. Nowadays you just tap them. It’s a little too easy compared to pulling out real money. Thankfully I’ve been able to keep that under control. If I was out of control I’d be spending like crazy because it’s something that’s sort of still in me naturally. But I fight those urges because I don’t want to be in debt ever again. Say someone wants to pay off all their debt, what are your thoughts on organizing it? In the past I’ve found even something like bills in general, there’s just so much going on. And if you have multiple debts where you’re paying an interest payment here and an interest and principal there, how do you get it all organized? Do you just sit down with all your different statements?

Jackie: Yeah, I would sit down with all your statements and set up your debt snowball or debt avalanche. Set up your plan. Also, I actually automated all the minimum payments from my checking account. Just automate it and you won’t have to worry about that. Then the one you’re focusing on, you can sit down every time you get paid or every time you make some extra money (or both) and send money in toward that debt to reduce the balance. That way you get to feel like it’s all being taken care of at a minimum but you also get to feel excited you’re making this progress by sending the extra money in. And go ahead, feel good. I used to be excited when I sent an extra $5 in. Every little bit helps. Use those times to celebrate and stay focused.

Tom: I like the idea of automating the minimum payments. When I was paying off debt, one of the problems I had was, I missed a payment because I couldn’t keep track of it. I was paying off one debt with another debt and paying off that debt so it becomes this weird juggling game. Thankfully, I didn’t miss it by a lot. At least here in Canada—I don’t know if it’s the same in the States, but if you’re within 30 days it’s not necessarily a huge problem on your credit score. So I was able to pay it on time. It wasn’t even for a lack of money. It was just a lack of organization.

Jackie: Even now, any bills I do have like the electricity… it’s all automated because I have ADD. I know I’m not going to remember that stuff so I don’t have to remember it. I just make sure I check the statement every time it comes in to make sure it got paid. That way I don’t have to realize it’s been six weeks since the bill sat on my desk. Automating is really good for that.

Tom: One thing I’ve been doing, whether it’s the credit card bills or just bills in general is I’ve been making sure I review everything every two weeks. I used to do this monthly—sit down and pay the bills, anything that wasn’t automated. But it became a problem because if you miss something and you’re off by a whole month, that’s too much. So every two weeks I sit down and review everything. Even the automated stuff. I don’t fully trust everything to actually happen. So, yeah, every two weeks I review all the different bills of any sort just to make sure everything is good.

Jackie: That’s definitely smart.

Tom: You mentioned saving up for an emergency fund.  When do you suggest doing that? Do you do that before paying off your debt, during or after?

Jackie: Well, if you don’t have an emergency fund at all, I would do that first, for sure. At least a small one. I would make building an emergency fund, an emergency because something is going to happen. It happens to everybody. Everybody has emergencies and if you don’t have that fund then you’re in trouble. A lot of times what happens is people build up a small emergency fund, find themselves in an emergency then feel terrible that they used the money. Or worse, they don’t want to use it so they borrow it. Stay focused on your goal. If you want to get out of debt, no more borrowing. Even if you have to use that fund, you’re still further ahead than you would have been otherwise. So, just rebuild it. But, definitely start with a small emergency fund, focus on debt, and then build a bigger emergency fund. Unless you can see an emergency looming on the horizon— The first  emergency fund I built was actually about six months before I lost my job. I could see the writing on the wall that the business was going to close or be sold and I felt like I really needed an emergency fund so I got a second job and built one. I would have been in big trouble without that so it really makes a big difference. That’s why I say to do that first.

Tom: That sound good. It stops you from that cycle of debt like I was in where something was always coming up so you’re always still borrowing. You’re always one step behind and paying all the interest along the way.

Jackie: The other thing is that something always comes up so you have to realize it’s not unusual. You need to start putting those things that come up into your budget so it’s not a surprise when your car tags come due and things like that.

Tom: What are your thoughts on keeping the credit open? I can see some positives where having that available credit room is good for your credit score and it kind of acts as another emergency fund. I know that’s not a great option but what are your thoughts on that versus the mindset of some people who are better off to close it?

Jackie: I wouldn’t look at it as a backup. Personally, I will never borrow money again. The only thing I’d borrow money for ever again is if it was literally the only way to save my life or my family. That’s it. Literally dying, which I hope never happens. But I think if you’re worried about your credit score you’re really worried about being able to borrow again. So, if you want to stay out of debt, I wouldn’t worry about that. People also act like it’s going to be the end of the world if you close a credit card or (God forbid) all your credit cards. Well, I’ve closed every single one of mine and nothing terrible happened. It’s not the end of the world the way people make it out to be. I think you just have to do what you want to do with your life. If you want to go back into debt, sure, then worry about. But, if you don’t, it’s not a big deal, really.

Tom: I’ve had people who have credit cards with annual fees tell me they’re not even using it but paying the annual fee and they’re worried about closing it and having that hurt their credit score. And I’ve told them the annual fee is an actual number (in comparison to the credit score). If you’re paying $100 a year for an annual fee, that’s a given. You can save that by not having that card anymore.

Jackie: Yeah, doing anything related to money can hurt or help your credit score. It’s not the giant thing people need to worry about so much. Sometimes people say you need a high credit score so you don’t have to pay so much in car insurance because car insurance companies will use your credit score somehow to determine your rating sometimes. But all the money you’re saving by not having debt is going to really offset that so I’m not terribly worried about that.

Tom: I do like having a good credit score. It’s one of those things I just like to feel like I’m gaining. But you can have a great credit score just by using a credit card responsibly. You never really have a debt. You know you’ve got that money and you’re just using it as a form of payment only. That way you can pay it off in full every month.

Jackie: And you don’t have to carry a balance on your credit card.

Tom: Exactly. That’s what I mean. I’ve never had a credit card balance. Even at my worst I knew that it was better sitting on the line of credit than on the credit card. Even at my worst I knew the numbers of the credit card debt were the worst of them all. Well, aside from payday loans—and I won’t even get into that. One more thing I wanted to go over with you is, you have an app, the pay off debt app. Normally we do this at the end of the show but we’re getting there anyway, I’d like you to specifically go over this app so you can explain how it can help people do a lot of this.

Jackie: Sure, it’s called, Pay Off Debt By Jackie Beck. If you’re looking for it you have to put my name in there too because apparently it’s not good to have your app named a keyword phrase. It’s for iPhone and Android and it lets you decide how you want to pay off your debt. You can put them in there then put in your balance, your interest rate, the minimum payment. Then you can organize the debts in the order you want to pay them off. It’s set up to use the debt snowball by default but you can change it to the highest interest rate first. Or you can rearrange the debts manually to whatever order you want. For example, people who owe their parents or something might want to pay them off first so you put it however you like. It will show you how long it takes to pay off each individual debt and how long it will be before you’re completely debt-free. You can add an additional payment amount, turn the snowball on or off and you can see how long it takes in different ways. So it’s a super easy way to compare the different methods. Also, the main thing is that it really helps you stay motivated because you’ve got it right there with you all the time. You can sit there and think, “Okay, if I send in an extra $20, what kind of difference will that make?” It’s just nice to be able to look at it often because you want to keep getting out of debt on the top of your mind, and celebrate your progress. There is also a little section in there where you can add a picture. So, if you want to get out of debt so you can start a family or buy a house… whatever it is, you can put a picture of your reason for getting out of debt. I think it’s super important to keep focused on that because it’s going to be tough. Everybody has setbacks. For everyone who tries to get out of debt, it’s perfectly normal and you need to stay focused on why you’re doing that. The app really helps with that too. Also, just a little note… The icon says, paid, instead on the name of the app. That’s because I want people to look at that and think about how great it’s going to feel when their debt is paid off. So it’s all about staying motivated.

Tom: That sound great. I wish they had something like that when I was paying off my debts. I was impressed enough that I was able to put together a spreadsheet to keep track of everything. Well, thanks for being on the show. Can you tell everybody where they can find you online?

Jackie: Sure. My website is jackiebeck.com and I’m on most social media @realjackiebeck.

Tom: Perfect, thanks.

Jackie: Thank you.

Thanks to Jackie for her thoughts on becoming debt-free. You can find the show notes for this episode at maplemoney.com/jackiebeck. Are you listening on iTunes? You can really help me out by leaving a rating and review in your app. I love the feedback and the ratings help others decide if the show is worth their time. Thanks for listening and we’ll see you next week.