Click Here to Get All Podcast Show Notes!
What do you do when bills keep coming, interest keeps adding up, and you feel like you’re barely making progress on your debt? The answer may not be to work harder or pay a little extra whenever you can. It may be to follow a strategy.
In this episode, Sharran breaks down three approaches to tackling consumer debt and explains how each strategy works and which one makes the most sense.
He challenges listeners to see debt as a problem they can take responsibility for, not a permanent setback. With a clear plan, consistent discipline, and the right habits, paying off debt can become the starting point for building financial momentum and long-term wealth.
“It is not your fault, but it is your problem. It is your responsibility to get out of it, so put a plan together.”
~Sharran Srivatsaa
Timestamps:
00:00 – Good debt vs. bad debt: know the difference
01:24 – The debt snowball: build momentum with small wins
02:35 – The debt avalanche: tackle high-interest balances first
04:02 – How AI can help organize a debt payoff plan
05:28 – Is there a better way to pay off debt?
06:08 – How debt consolidation can simplify repayment
07:16 – Three reasons to explore debt consolidation
08:50 – Read the fine print before consolidating debt
09:57 – Turning debt into an advantage
Resources:
– The Next Billion by Sharran Srivatsaa
– Board Member: ARC Multifamily Real Estate Investing
– Board Member: The Real Brokerage
Connect with Sharran:
– X
– YouTube
– Threads
Transcript:
[00:00:00] There are three proven ways to get out of debt, and that is more important now than ever before because over 77% of Americans are in some kind of debt. That means three out of four people that you see on the street are in some kind of debt. And the crazy part is no one knows how to get out of this because no one has ever been taught the mechanisms to get out of debt.
[00:00:19] And I believe that there are three proven ways to get out of debt. Number one is the debt snowball. Number two is the debt avalanche. And number three is my favorite, which actually gets the best of all worlds. But the big question here is: it’s not about all kinds of debt. There are actually good debt and bad debt.
[00:00:36] Well, good debt to me is when you use debt which is as leverage to make an investment into an asset because that allows you to get the leverage possible to invest in an asset that will pay you to own it, that will drive your net worth and give you cash flow. We are not talking about that kind of debt.
[00:00:51] We’re talking about the other debt, which is consumer debt. This is where you take on a loan, which is credit cards or a car payment or, uh, to buy a big screen TV [00:01:00] or a layaway or, uh, any kind of, you know, pay today but also pay more tomorrow type payments that drag you down and affect your credit score, and you have to make significant monthly payments just to get out of this debt.
[00:01:13] We’re talking about consumer debt, and there’s over $18 trillion of debt in US households right now. Let me give you the three ways to get out of debt. The first one is the debt snowball, and this is a proven way to get out of debt because it allows you to tackle the smallest debt balances first.
[00:01:33] What does that mean? Most people have different kinds of debt. It may be a car loan. It may be a credit card loan. It may be a loan on Best Buy for a, a big screen TV that you, that you bought. So you have multiple different pieces of debt, and when you have all of those, it creates a massive amount of anxiety.
[00:01:51] So the debt snowball strategy is about picking the smallest balance in one of those and finding a way to pay that off. That way, you get a sense of [00:02:00] psychic relief that you are actually making progress to paying down your debt. That’s important because if I had 10 different, uh, pieces of debt and I had made no progress on any of it, but I was able to get rid of one, I feel like now I’m down to nine and I’m making progress in some way.
[00:02:16] While this may not be the most mathematically or financially efficient strategy, it gives you the psychic capability to stay on task and the motivation to get out of debt overall. The s- debt snowball, especially for multiple debts in small balances, has been proved to be a really good thing. The second is the debt avalanche, and the debt avalanche is a more financially, um, smart way of approaching debt because it allows you to say, based on all the pieces of debt that you have, it allows you to figure out which one has the highest interest rate, and it allows you to tackle that one first.
[00:02:54] Now, there’s a really important strategy when it comes to understanding how debt works [00:03:00] because consumer debt works on, uh, both the principal and the interest overall. Let me explain what that means. Let’s say you went and bought, uh, $10,000 worth of new electronic equipment for your gaming and your TV set from Best Buy, and you put it on your American Express credit card.
[00:03:18] Well, now you owe $10,000 on your American Express credit card. Well, if you have not paid that for the first month, you get interest on that. Well, that interest for that $10,000- I’m making this up- say it’s at $2,000, it’s added to that. Now the base of that interest grows from 10,000 to 12,000. The next month, the interest is now charged on that $12,000.
[00:03:38] The compounding actually works in reverse in your favor because the base principle, the amount that you spend, plus the interest starts to accumulate faster and faster. So the big idea here is if you can, if you can have the highest interest loans and you start to pay them down, then your overall debt payments that you make is dramatically reduced.[00:04:00]
[00:04:01] And the way you actually figure that out in the modern world is you take all the final debt statements that you have, you feed it into AI, and you have it build out a debt avalanche schedule for you. It will figure out which is the highest possible debt payment, which is the lowest, and it’ll give you the debt avalanche method of attacking the highest debt payment first.
[00:04:21] This, in this strategy, uh, over time, if you can stick with it, it m- it makes sure that you mathematically pay the least amount of interest, and you get out of debt in the, in the fastest, financially most, uh, thoughtful way. But you don’t get the psychic benefit of getting the loans done. So you may have three to four small loans, and they may have small loan balances, but you don’t actually get the, uh, the motivation that those are still paid off.
[00:04:47] You may still have 10 pieces of debt, but you may still be, uh, paying off the, the overall interest on it, and you may be doing well financially, but you don’t get the psychic benefit. So for one [00:05:00] type of personality, paying off, you know, the debt makes sense. That’s when you use a snowball. For the other, you use the…
[00:05:05] For the analytical personality, if you’re like me, you want to pa- make it paid off financially. The reason I share both of these with you is that these are the proven methods that most people teach and have shown, and they are valuable. And the biggest reason why most people don’t know how to get out of this is because they just don’t have a plan out of this at all.
[00:05:28] And whenever I’m given two options, I always question if there is a better third option because can I not have my cake and eat it too? Um, I, I, I just refuse to, to, to be given, uh, only two options to choose from, especially when both options are not great options. And, um, so for the last, you know, 10-plus years, I have been thinking about, for several of my friends, what is a better option?
[00:05:54] Where can I find a way to actually have, uh… Where I could start to pay [00:06:00] off debt and get the motivation and the psychic relief from paying off debt, but also manage my actual balance in this process. And there is an entire industry built to help you with something like this. In fact, of all the predatory financial institutions that are out there that affect consumers, I actually believe this is a positive one, and they are called debt consolidators.
[00:06:24] What they do is they look at your entire portfolio of all the debt that you have, and they make a deal with you. They’re able to combine all of the debt. They pay off your debt completely, and they give you one new balance, and then your job is to take that balance and chip that balance down and pay that balance off.
[00:06:41] This way, you get both the benefits. You get to pay off all the debt, and you get the benefit and the relief from paying off all the debt, so you don’t have to manage, uh, you know, 10 different credit card statements. You don’t have to manage missing auto payments. You don’t have to go through your bank account and see that you’re making so many payments overall, and you don’t feel like you’re gonna make [00:07:00] any progress.
[00:07:00] But at the same time, uh, y- you also don’t have the ability to, like, go through and figure out which interest rate is the right one or how to actually financially engineer this. So I’m a big fan of, uh, at least even exploring the process of going to a debt consolidator, and there’s three big reasons why I believe that every single person that has more than one piece of debt should talk to a debt consolidator.
[00:07:23] Number one, it allows you to just gather all the materials that you have and present it to somebody else, who will then turn around and give you a report back, and they will give you a financial picture of your, of your debt without you having to do the work. Because when someone else analyzes your debt for you, you get to see all of it, number one.
[00:07:41] Number two, it allows you to understand, um, what the current market rate is so that, uh, y- you, you have someone else bid on paying off all your debt. Instantly, when someone takes on this debt, they pay off all the small debt for you, and as soon as that happens, it dramatically simplifies your life. [00:08:00] So the simplification of your life in a complex financial process is very good.
[00:08:04] And number three, you get a very clear plan on what exactly you need to do. If I have 10 pieces of debt and I have to manage 10 pieces of debt, compared to consolidating all of them into one balance and then paying that minimum balance every single month, this is significantly simpler, and I like that a lot more.
[00:08:21] And I think it’s every single person who has multiple pieces of debt should find a way to talk to a debt consolidator to at least go through the planning process to see if it’s the right fit for them. I actually believe that we’ve never been taught that this exists, and we’ve always thought that if there is a debt consolidator that’s approaching us that’s saying that they’re gonna pay off our de- our debt, we think that they’re predatory in some way.
[00:08:42] But if the math works in your favor and the math works in their favor, it is probably good because it was actually set up to help consumers. Now, uh, I will caution you that there is fine print everywhere, and it is important for you, once you get this plan, to run it by your advisor or run it by AI or [00:09:00] read the documents so that you know clearly what you’re getting into.
[00:09:03] But, um, I often think about how do you actually become financially free? Most people start at zero, and they struggle to build their way up. But we live in a situation where, for some reason, you’ve had to take on some debt. For some reason you’ve had to take on, um, some liability, some leverage, and you’ve gone below zero.
[00:09:25] And it’s tough, and my heart goes out to you for that. But we have to find a way for you to get back to zero and then have the momentum grow up. But this, this path, nobody, nobody wants to talk to you about the plan associated with this. And I truly believe that you are at an advantage, not a disadvantage, an advantage because you get to start to build the right habits and the discipline and the skills to get back up to zero.
[00:09:48] And while you’re doing this, you get this momentum that you can actually beat the people that are already here to actually grow, uh, your net worth overall. I want to offer this idea to you that you can [00:10:00] turn being in debt from a disadvantage to an advantage if two things are true. Number one, you have a plan.
[00:10:07] You realize that it is not your fault, but it is your problem. It is your responsibility to get out of it. So put a plan together, maybe the debt snowball, maybe the debt avalanche, or at least talking to a debt consolidator to figure out what the right path is going forward. And number two, commit to having that momentum because once you get the momentum, you will not just get back to, get back to even, but you will use that momentum on all the payments that you’re making to continue to use that to invest.
[00:10:31] Because while you get to baseline, you’re making debt payments and you’re getting back to zero. But after that, every dollar that you pa- that you invest, you’re actually investing in yourself. So you should not change anything, and that momentum is what’s gonna carry you because everyone else is right there, is stuck, and is not able to move.
[00:10:49] I truly believe that even though you’re in debt, even though you have maybe fallen on hard times, you have the opportunity to use a little bit of financial education in your favor to completely turn it around so that you can [00:11:00] create massive momentum for yourself and your family