There’s no singular, universally effective way to tackle debt. Today, we’re diving into five distinct methods for paying off debt, but remember, this list isn’t exhaustive.
There’s no singular, universally effective way to tackle debt. Today, we’re diving into five distinct methods for paying off debt, but remember, this list isn’t exhaustive. Before we jump in, let’s set the stage by acknowledging that this discussion is tailored for clients committed to paying off their debts, not exploring other financial strategies like debt settlement, refinancing, or bankruptcy.
Early in my coaching career, I approached debt payoff with a one-size-fits-all mentality. I’d gather the client’s financial details, plug them into a debt snowball spreadsheet, and present it as the definitive plan. However, it became clear that while some clients thrived under this plan, others struggled, prompting a reevaluation and customization of the strategy to better suit their needs and preferences.
This realization led to a pivotal shift in my approach. Instead of prescribing a predetermined path, I began with curiosity and brainstorming, with the goal being to discover the best method for each individual client. This not only resulted in more clients successfully eliminating their debt but also made the process more engaging and empowering for them.
The Educational Foundation
Our journey begins with education, understanding the client’s perceptions and feelings about their debt, and what they consider most important in their quest for financial freedom. This phase is crucial for aligning our strategies with the client’s mindset and goals.
In episode 17, we talked about starting with education and building out a framework for coaching clients. Then in episode 18, we talked about creating your own coaching model for clients. If you haven’t already listened in to these episodes, I recommend going back and doing so. And, of course, in episode 22, I shared one of the most important lessons for clients (and their coaches) when it comes to debt.
Questions to Unearth Client Insights
To start, I like to ask some of these key questions to help me understand the client’s views and experiences with debt:
- What are your general thoughts on debt?
- What have you heard about the best practices for getting out of debt?
- How does your debt make you feel?
- How often do you think about your debt?
- What have you tried in the past to pay off your debt?
- What do you believe led to your current debt situation?
- Are you aware of your total debt? How does seeing this number make you feel?
- Is there a particular debt that frustrates or annoys you more than others?
These questions not only help in understanding the client’s perspective but also ensure that we’re working with the same factual foundation regarding their financial situation.
Five Methods to Pay Off Debt
The most important thing when putting together a debt payoff plan is creating buy-in from the client. You want them to think, “I’m going to do this!” and then feel excited, motivated and empowered to take action. This is where the magic is.
And since our clients are real human beings, what helps them to create that buy-in might be different. Here are some ways to pay off debt that I like to share:
- The Snowball Method: This strategy involves listing all debts from the smallest to largest balance, focusing extra payments on the smallest debt while making minimum payments on the rest. It’s ideal for those who thrive on quick wins and the motivational surge from clearing debts one by one.
- The Avalanche Method: Debts are ordered from highest to lowest interest rate, with extra payments directed at the debt with the highest rate. This method appeals to those motivated by saving money on interest and who don’t necessarily need immediate victories to stay motivated.
- The Kiyosaki Method: Here, debts are organized from the highest to the lowest payment amount, excluding real estate. It suits individuals with tighter budgets, offering significant relief and flexibility as each large payment debt is cleared.
- The Most Triggering Method: Also known as the Emotional Baggage or Debty Downer Method, this approach targets the debt that causes the most emotional distress. It’s perfect for those eager to rid themselves of a particular debt that brings negative feelings or memories.
- The Custom Method: A personalized strategy that might combine elements of the above methods based on the client’s unique situation, preferences, and goals. This flexible approach acknowledges that the best path to debt freedom is one that resonates personally with the client.
The Power of Client-Centered Choices
What all these methods share is the principle of prioritizing one debt at a time, differing only in the criteria for which debt to focus on first. The key to success isn’t based on the method chosen but rather in the client’s commitment and enthusiasm for their selected path.
Are you ready to explore these options with your clients? By engaging them in the Education, Application, and Commitment phases, you can empower them to choose the path that excites them most, setting the stage for a successful and fulfilling journey to debt freedom.
Remember, the beauty of financial coaching lies in its flexibility and the personalization it offers. Each client’s journey is unique, and as coaches, our role is to facilitate a process that aligns with their individual needs, goals, and circ*mstances, ensuring a more enjoyable and effective path to achieving financial independence.
