Own Your Debt BELIEFS, METHODS, AND TOOLS For Owning Your Debt Once And For All

Written by the MasonPay Team

Your Debt-Free Starter Guide 1 MasonPay Debt-Free Starter Guide

1 Beliefs

Your Debt-Free Starter Guide 2 Introduction

When we set out to make this guide, we knew that we had to take a different angle than most people do. If you look at any resources for people in debt, most are surface-level tips or “hacks” that you already knew before reading it. You skim through, nod your head, and move on.

But getting out of debt is hard. If debt was as simple as a few easy hacks, then we’d all be out of debt, right? Just save a little more here, pay a little more there, and you’re debt-free forever!

It’s just not that simple. The reason getting out of debt can be so hard is because it’s about more than money. It’s more than a dollar amount or a bunch of interest rates and due dates. If it was just a money issue, debt would only be a problem for those with less money (it’s not!).

This guide was intended to challenge and inspire you to look at your debt differently. We want you to walk away from this with something you didn’t have before, whether it’s reflecting on your beliefs about debt or new tools to help you on your journey.

We talk about beliefs because they’re the backdrop for the decisions we make. Even with more money and more knowledge, we can still end up in debt because of how we think about money. For most of us, it’s not a conscious decision—it’s the way we were raised or the people we surround ourselves with. So, if it plays a huge role in why people are in debt, why not talk about it? Even if its a little uncomfortable to think about our beliefs, it’s the elephant in the room.

Yes, MasonPay is an app. But we started it because we wanted to help people in debt—that is our end game. So, if you take something away from this and never use the app, that’s fine by us. Our job is done.

Your Debt-Free Starter Guide 3 Beliefs

To make lasting change with your finances, it can take a fundamental shift in our beliefs. Questioning and confronting our beliefs that debt is a normal part of life, or that we are supposed to be in debt—has to happen for any long-term strategy to work. Even if you do get out of debt temporarily, who’s to say you’ll stay debt-free if the way you think about money hasn’t changed?

We spend our lifetimes shaping our worldview about debt and finances. It can come from all kinds of places—friends, family, advertising, media outlets. Debt is portrayed as an inevitability, something that everyone is expected to live with. It’s just a byproduct of being a consumer in America, and can even be positioned as a “tool” that can help you get a jumpstart on life. We are expected to keep up with our peers—drive the right car, wear the right clothes, buy the right house. If you can’t afford it, just put it on the card!

So what beliefs are we talking about? Here’s some examples that you see all the time—ideas so common that they can be hard to even notice.

“Debt is normal.” Debt is an inevitable part of life and everyone has debt. Kind of like eating fast food—you know it’s not good for you, but c’mon!

We say: Debt is common, not normal. This isn’t how we were meant to live. Lenders (people that lend us money) want us to think its normal because it benefits them. Every interest payment, late charge, or membership fee you pay is making them richer. If everyone was out of debt and in good financial health, they would have to close up shop.

What’s best for them isn’t best for you. Sometimes doing what’s best for you means going against the grain. To quote Dave Ramsey: “Debt is normal. Be weird.”

Your Debt-Free Starter Guide 4 “Debt can be used as a tool to get ahead” I just need a little boost now to get some momentum, but will pay it back when I have some more money. Lots of successful business people use debt as a tool.

We say: There is no such thing as good debt. Yes, sometimes debt can be a necessary evil. With tuition for private and public colleges rising astronomically year after year, it can be hard to avoid. But willfully accepting large sums of debt without fully understanding your options isn’t always the best decision for you...unless you’re the lender.

Using credit cards in place of cash savings is another trap that’s easy to fall into. But it’s hard to really get ahead if you have a tab on the past, especially if it follows you for years to come.

Cash is a tool, not debt. Don’t let lenders convince you otherwise.

“What difference does it make? I’m not getting out anytime soon” What’s another $100 on my credit card if I’m already in debt for the next 10 years?

We say: This is where belief really becomes important. Just search “#debtfreecommunity” on instagram—you’ll see thousands of people committed to paying off their debt, whether it’s $10,000 or over $100,000. The truth is that it doesn’t matter how much you have—it’s where you are on your journey. Someone in $10,000 of debt can feel completely hopeless, while someone with six figures of debt can be on a path, excited about their progress, and inspiring others along the way. It starts with a conscious decision to take control of your debt – understanding where you are now and what it will take to get out.

“I just use my cards for the points” I just put my expenses on my cards for the points. It’s actually saving me money.

Your Debt-Free Starter Guide 5 We say: Unless you are paying off your balance in full every single month and budgeting for every dollar you’re spending on the card, this probably isn’t true. This is one of the most common justifications for taking out credit cards; there are entire online communities dedicated to getting the most out of their points. A 2015 study conducted by the Boston Fed showed that 35% of American credit card holders pay off their balances in full every month, while the rest carry a revolving balance that’s collecting interest.

Yes, it feels good to buy a flight with credit card points. But be honest with yourself: Did you actually save money, or did you spend money that you wouldn’t have otherwise? If you’re enjoying a free flight but carrying monthly balances, then the chances are that the rewards are happening at your expense, not the other way around.

“I need to keep up with the Jones’”

I want people to know I’m doing well. Life is tough and I have a lot of expenses, but I don’t want live like a bum. I know I’ll be able to pay it back soon.

This may be the most common and persistent belief that lands people in credit card debt. It can also be one of the hardest beliefs to undo because it can have very deep roots—the way you were raised, the people you hangout with, the media you consume. It may be hard to confront the reality of your financial situation and what you can actually afford.

Embracing your own personal goals (not someone else’s) and seeing money as a tool to help you achieve them re-focuses the conversation. Instead of spending to keep up, you’re spending (or not spending) to move closer to where you want to be.

Your Debt-Free Starter Guide 6 So, who do your beliefs serve?

Do your beliefs about debt serve you, or serve your lender? As long as you don’t mind being in debt, your bank or lender won’t stop you—you’re paying their bills. You’re keeping them in business. But just imagine all of those payments going towards something that really matters to you, whether that be in your own life, family, friends, or community.

Your Debt-Free Starter Guide 7 MasonPay Debt-Free Starter Guide

2 Methods

Your Debt-Free Starter Guide 8

Methods

When it comes to how you’re paying off debt, it’s important that you understand your options before you commit to a strategy. Depending on the size of your debt, the difference between methods can really add up—years of time, and hundreds if not thousands of dollars in interest.

There’s not a lot of resources out there for those in debt. Financial advisors have no incentive to help, blogs can be hit or miss, and most products for people in debt are downright predatory. Financial technology doesn’t make it any easier—just look at what’s out there. Investing apps, savings apps, loan apps, and more investing apps.

There’s a reason why such tight knit debt-free communities exist in places like Instagram; people band together to help each other make it through. It’s like being dropped into a jungle with no map and dangerous predators at every corner; it helps to have people with you to help navigate your way out and stay out of danger.

Debt Snowball vs. Avalanche

Ah yes, the classic debate. If these terms are new to you, we’re excited to be the ones to introduce them. These two methods are the most common when it comes to debt-payoff strategies.

Snowball Debt Snowball means paying off debts in order of smallest to largest. Minimum payments are made on all debts except the smallest, where you pay as much as possible.

At the core of the Snowball approach is the sense of momentum it creates. It is openly not based on math but on creating lasting change in behavior. Dave Ramsey is famous for recommending this approach exclusively.

Your Debt-Free Starter Guide 9 Avalanche A Debt Avalanche means paying off debts in order of highest interest to lowest interest. Minimum payments are made on all debts except the one with highest interest, where you pay as much as possible.

This approach pays down debt quicker and saves you more on interest. Based on math alone, this is generally the most efficient way to get out of debt.

So, which one is right right for you?

Now, for some controversial opinions. We don’t believe that one method is right for everyone. That’s right Dave Ramsey, we will have to part ways on that one. The truth is that you can’t just make a blanket recommendation for millions of people and have it work for every single person. There are some important distinctions to be made about your individual situation before choosing a method and sticking to it.

Before going on, it’s worth noting that sticking to either one of these methods will be better than no method. Depending on the type of debt you have, this can have a huge impact on how long you’re in debt and how much interest you pay over the long term. Going back to the jungle analogy, it’s the equivalent of wandering around the jungle aimlessly, hoping you will stumble upon civilization.

Where the Snowball Wins You don’t have to look hard to see that the Snowball method works. Just listen to the Dave Ramsey podcast; it’s helped thousands of people get out of debt. You can’t ignore success like that.

The Snowball method wins for people that thrive on the emotional benefits of building a quick sense of momentum. It’s an easy concept to wrap your head around when you’re first getting started: small rocks to big rocks. It can also win for people that don’t have a lot of high-interest debt (i.e. Credit Cards). For people juggling a few bills, an auto loan, and student loans, the

Your Debt-Free Starter Guide 10 difference you pay in interest may not be huge.

Where the Avalanche Wins On paper, the Avalanche approach wins by a landslide. The time and money you save by paying down your highest-interest debts first can be massive. This becomes important for people carrying credit card debt on one card or more; because the average interest rate on credit cards is a painful 16.15%, ignoring balances on these cards while you focus on smaller debts can have big consequences.

Doing What’s Right For You (Not Your Lender)

A 2016 survey by Nerdwallet showed that American households with credit card debt paid an average of $1,292 of credit card interest per year. That’s just the cost of being in debt, never mind the payments to the debt itself.

If you haven’t picked up on it already, we believe in doing what’s right for you—not your bank or credit card company. It hurts to watch someone flush their hard-earned money down the drain because they don’t know any better.

We want you to spend as little time and money as possible on debt. That’s why we recommend following the most efficient path possible, especially for those with high-interest credit card debt. That means starting with your highest-interest debts first, attacking them with all your might, then moving on to the next highest interest debt. It sounds simple but can mean the difference of thousands of dollars and years of time. When we launched our private beta earlier this year, we were amazed at the amount of money we were able to save people by simply recommending a better method for allocating their payments.

Beware of Balance-Matching

A recent study out of England analyzed the behavior of 1.4 million individual credit card holders to see how they allocated their payments. It turned out that only 10% were paying down their highest interest card first, with some wasting over $1,000 a year

Your Debt-Free Starter Guide 11 in interest payments simply by not allocating their payments properly. So what were the other 90% doing?

Balance-matching. The balance-matching pattern means making payments to match the size of the debt. For example, let’s say you had one balance of $1,000 and another of $500, with $150 to put towards both. You would put $100 towards the first balance and $50 towards the second balance. While paying anything towards your debt is better than nothing, this method will only prolong your debt and won’t be very exciting either.

Giving Yourself a Raise

There’s no point in talking about which method is better if there’s not enough money to put towards your debts. For any method to work, you have to pay all of your minimum payments and then some to focus towards a single debt. Making enough (or spending little enough) money is an essential ingredient in aggressively attacking your debts.

Making more money is obvious. That could mean selling things on Craig’s List, taking on a second job, thinking of a side hustle— anything to help get more money in the door to put towards your debt. The #debtfreecommunity on instagram is a great place to look for inspiration.

Spending less money doesn’t sound as exciting. Maybe you have already combed through your expenses carefully and have determined there’s no more room to budge. But freeing up some expenses can really add up, especially over the course of a year. Just some simple changes like getting a different phone plan, cancelling your Hulu subscription, shopping at a different grocery store, bringing lunch to work—could potentially save you hundreds of dollars a month. Think of it like giving yourself a raise. It’s much easier than taking on a side hustle and it’s something you can start today.

Spending less money doesn’t mean living like a monk. It means being intentional about your spending and making sure that everything you choose to spend money on is pulling its weight.

Your Debt-Free Starter Guide 12 Without Budgeting, It’s Just a Guessing Game

It would be crazy to do all this talking about spending less money and not mention the importance of budgeting. Budgeting can truly pull back the curtain on where your money is going. Without budgeting, it’s just a guessing game. Being able to plan out exactly where every dollar in your account needs to go is one of the first steps in taking control of your money.

When we say budgeting, we don’t mean forecasting. Budgeting isn’t just jotting down “Groceries: $500/mo”, it’s knowing exactly how much in your bank account right now can go towards groceries before you get paid again.

For those in debt, this is important for two reasons. First, it ensures that you always have money earmarked for your debt payments. Second, it prevents you from overspending and having to use your credit cards to cover the difference.

Your Debt-Free Starter Guide 13 MasonPay Debt-Free Starter Guide

3 Tools

Your Debt-Free Starter Guide 14 Tools

For those in debt, finding the resources and support you need can be tough. Like we said earlier, banks and credit card companies have no incentive to help you get out of debt (there’s a reason why your credit score usually goes up when you are in debt). Financial advisors generally don’t take on clients in debt and most financial products for people in debt aren’t doing any favors. So, where do you turn?

Here’s a few resources that have worked for us or that we’ve seen work for communities of people on their debt-free journey.

Changing Beliefs: Books, Documentaries, Podcasts

You Need A Budget Jesse Mecham is the founder of the app You Need A Budget (YNAB) and author of the book. He is a voice of reason when it comes to budgeting and debt. This book will change how you think about budgeting.

The Simple Path to Wealth Even though this book is focused more around saving and investing, it’s still a great read for those in debt. His outlook on debt and saving is refreshing, and will get you fired up to dump your debt asap.

Total Money Makeover This is Dave Ramsey’s most well-known book, and serves as a great introduction to his outlook and methodologies.

The Dave Ramsey Show Dave Ramsey’s podcast is a classic in the debt-free space. He’s made a career out of getting people out of debt. You may not agree with everything he says, but still worth a listen for anyone in debt.

Your Debt-Free Starter Guide 15 Minimalism Similarly, The Minimalism documentary is a great starting point for those looking to reevaluate their lifestyle and where they can scale back.

Finding a Community: Instagram + Blogs

Mr. Money Mustache The Mr. Money Mustache blog is a cult classic for those looking to save more and spend less. For anyone looking for inspiration in how to live with less, this is a great place to start.

Instagram: #debtfreecommunity #debtfreejourney You are not alone on your debt-free journey. Both of these hashtags on instagram unite a community of thousands, with mostly anonymous instagrams solely dedicated towards paying debt. We highly recommend this if you’re looking for some added support. They welcome newcomers and are an amazing support system.

Technology: Debt + Budgeting

MasonPay Yep, that’s us. We’ve spent a lot of time looking at other apps that handle debt and most are either bad or try to sell you stuff. So we will recommend ourselves: We sync up all of your credit card accounts, give you a monthly plan to get you out of debt as quickly as possible, and show you a bunch of stuff you probably didn’t know about your credit cards (interest rates, due dates, utilization rates, that sort of thing). We’ll remind you when you have payments coming up and when you’re late. We’re working on some exciting new features like including more loan types (student loans, auto loans, etc.) as well as the ability to pay them directly through the app.

You Need A Budget If you’re ready to get serious about budgeting, YNAB should be a staple. Unlike services like Mint, you actually have to use it regularly—it’s not just a way to monitor or forecast. It’s meant for actively engaging with your budget on a regular basis.

Your Debt-Free Starter Guide 16 Well, that’s it...for now. It’s worth mentioning that we want this guide to be as good as possible, and will be updating it over time. So, if you have any ideas, comments, or suggestions, get in touch with us on Instagram (@masonpay) or email [email protected].

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