282 | Why You Should Focus on One Debt at a Time

Want to get out of debt faster?

Here’s the key: You need to focus.

One of my clients recently cited this as the top thing she took away from working with me, and attendees of one of my recent presentations were mind-blown about the concept.

In this episode, let’s talk about how focusing your efforts with your finances leads to faster progress.

• • the typical approach to debt that keeps lawyers stuck
  • the power of focus in your personal finances
  • learnings from the book Essentialism by Greg McKeown
  • a practical example of how focus leads to paying debt off faster
  • three reasons to focus on one debt at a time
  • how to apply focus to other financial goals

• Essentialism by Greg McKeown
• Need help with your finances? Schedule a consultation here

You’re listening to Personal Finance for Lawyers. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back.

Today we are talking about why it’s good to focus on one debt at a time.

This came up multiple times recently, first in a conversation with my client, Jeanne, which you will hear—should be two episodes before this one comes out. And then secondly, in a presentation that I did for law students on money management.

So, with Jeanne and my conversation, she was talking about how this concept of focus of paying off one thing at a time was the biggest thing that she took away from our coaching relationship.

And then with respect to the presentation for law students, they were like, oh wow, like it was a light bulb moment for them when I talked about paying off one thing at a time.

And so I thought I would double-click here and bring it to the podcast because I do think that this concept is a little bit counterintuitive to what most people do.

Like, typically, when people are thinking about paying off debt, if you get a bonus, you get some sort of tax refund, something like that, a lot of times people are putting a little bit extra on all of the different things that they’re trying to pay off versus putting it all on one.

And so I wanted to dig into this concept because it came up a couple of times, and I thought that it would be helpful for you.

I’m a big proponent of focus with respect to your personal finances, and it came from this book that I read called Essentialism by Greg McKeown. And in the book, the author was talking about how we spread ourselves too thin in life. So he was talking about being on all the different associations and the committees, and you’re doing all of these meetings and whatever else, and you’re spreading yourself so thin that you’re not able to give proper attention, proper energy, proper focus to any one activity.

And he advocated for focusing in on the one thing that’s most important to you, what’s essential in your life. And give your time, your energy, your focus to that, and you’re able to make so much more progress and be much more impactful with that thing.

And I adopted that same concept with respect to personal finance, because at the time that I read that book, I had 14 different student loans. We had some car loans. My husband had a consolidated loan. And so we had this laundry list of things that we were trying to pay off and by focusing in on one, it, one, felt a lot less overwhelming, and two, allowed us to make faster progress.

When you can focus in on one debt at a time, you can make much faster progress in paying it off.

So, for example, going back to my loans, I had 14 different student loans, but the smallest one was maybe $1,500. The biggest one was in the $30,000 range. And then my husband had a consolidated 300 something thousand dollar loan.

Thinking about all of those felt like a lot, but $1,500 felt doable. And so we focused in on that $1,500 one, and we were able to pay it off in that month, right? The extra money that we had, we were able to just knock that loan out. And in doing that, we also no longer owe the minimum payment on that loan.

That’s the other problem with spreading out the payments and paying a little bit extra on each thing. The minimum payment doesn’t change when you have those fixed kind of loans, where your car loan, your student loans, your mortgage, things like that, monthly payment stays the same. And regardless of if you pay a little bit extra on it or not, you’re still owing that same minimum payment.

With credit cards, it’s a little bit different because your minimum payment does fluctuate with the balance. But you also have to contend with interest. So if I pay a couple $100 extra on this credit card, but it doesn’t make a big dent in the balance, I’m going to now accrue interest on that remaining balance. And a lot of times, it almost cancels out the little bit extra that you did.

So if we put real numbers to it, let’s say that you’ve got four different things that you’re trying to pay off, and you’ve got $500 extra a month that you’re going to pay.

Let’s say that the first one is $1,000, the second one is $2,000, the third is $3,000, the 4th is $4,000.

Once you pay off that smallest loan, that $1,000 loan, whatever the minimum payment is on that, you no longer have to pay versus if I have $500 and I’m paying $100, $125 extra on each of the things, I’m not making a big dent.

$125 in $1,000 balance is not very much versus a $500 payment toward $1,000 balance. That’s going to pay that off in only two months. I hope this is making sense. I think it’s hard to articulate just in speaking.

But that $125 that you might pay extra, I’m looking at, you have a $500 extra payment. If I divide that evenly across the four debts, I’m making a $125 extra payment on #1, #2, #3, #4. $125 is a very small amount of $1,000 balance. It’s an even smaller amount of a $2,000, $3,000, $4,000 balance.

So if instead of breaking that $500 up, I put the entire amount on the $1,000, now I’m done with that $1,000 in only two months. Once I finish paying off that $1,000, whatever the minimum payment is on it, let’s say it was $200 a month, right?

So now I don’t have $200 that has to go out in minimum payments, but I can also add that $200 to the $500 extra that I had. And now I’ve got $700 that can go towards the $2,000 balance.

And now that $700 is going to pay off the $2,000 balance in only three months versus if I was trying to make $125 payments over the course of 20 months.

Hopefully, that explanation helps to explain why putting larger amounts, concentrating your effort on a single debt allows you to make the progress faster.

The other thing about it is the psychological benefit. If I make that $125 payment on my $1,000 balance. Okay, now I’ve still got $875 to pay versus if I made a $500 payment, it’s like, wow, that balance is half gone. I start to see how quickly this can go.

The $125 chipping away at the balances, it makes it feel like it’s going to take a lot longer. And I don’t know mathematically if it does, but I think because of compound interest and the way that especially high-interest debt like credit cards work, it probably is going to take a lot longer than if you make larger payments at a time.

So I like to focus in on one thing at a time because you’re able to make faster progress because you’re putting a lot more money towards that one thing. And so you pay it off faster.

Now you still are going to make the minimum payments on your other things, but being able to put the entire extra $500 in this case towards one at a time, you’re going to pay it off faster. You no longer have to pay out that minimum payment because once that $1,000 at first debt is gone, the minimum payment on it, you can roll that into the next one and the next one and so on.

So you get that faster progress because you’re making bigger payments. You get the psychological benefit of seeing these big chunks being taken out of your debt. You start to see how it can go faster and so then you’re motivated to stick with it. And you actually do see it through. You actually are able to pay everything off.

I think the benefit of, like the psychological benefit really can’t be understated because if you are chipping away at things and it feels like I’m doing this forever, it’s taking all this time, I’m not really seeing movement, that’s how a lot of people just give up on it. Because they feel like I’m making all this effort, I’m putting all this money toward it, but I’m not really seeing the return.

So being able to focus in, put all of that extra towards one thing at a time, take that big chunk out of it, you’re seeing more progress, and you are going to stick with it longer because you’re seeing the progress.

So hopefully I did not completely confuse you as I’m trying to articulate this, but I wanted to explain why I am such a big fan of focusing in on your payments, focusing in on one thing at a time. And I use the concept of debt here because that’s what had come up in these recent circumstances. But I think about it the same way with other things as well.

So focusing in on saving, right?

I’m going to focus and save up this emergency fund, and then I’m going to take all the extra and put it towards paying off this credit card.

The main thing is when you focus in, when you’re not trying to spread all of your effort so thin, spread your money so thin, you’re able to see faster progress. You’re able to make bigger strides with whatever the goal is that you’re trying to accomplish.

So that is it for this week’s episode.

If you would like help with this, if you need help with figuring out how to focus in on your goals so that you can make faster progress, head to rhothomas.com/call and schedule a consultation.

Alright, thank you for being here.

Please share this episode with a friend or two who you think could use the information. That’s how we get this information in the hands of more lawyers. As always, I appreciate your support.

As we close out, friend, I pray that you take the information you learn here, apply it in your life, and open up to the realization that wealth is available to you. As you do that consistently, week after week, you’ll continue to take steps to take back control of your time, build wealth, and live the life of freedom and choice you deserve.

Talk to you later.