How Much Progress Can You Make Next Year?

December 26, 2014

One of the joys of being in a role where I can see a person make progress over the course of time is that I can remember where they started and see where they are now. Since they are living in it day to day, they don’t have the perspective that I do as a casual observer. It’s a lot like when my kids were younger, there were cousins we would only see once every year or two. Every time we saw them, I was shocked by how much their kids had grown and they were shocked by how much my kids had grown, but neither of us was shocked by the growth of our own children.

We saw the incredibly small changes happening and because of the very marginal nature of the change, we don’t see it. Sometimes, it takes an impartial observer to point out that a lot of marginal changes can add up to a substantial change. That’s one part of human nature that always amuses me.

This phenomenon is something that I’ve been able to see with one of my favorite “frequent flyers” ever. She has been a regular participant in her company’s financial wellness program and over the last few years, I’ve watched her pay off credit card and student loan debt, get two promotions (one involving relocation), finish a degree, dump a long term boyfriend, find a long term boyfriend, get engaged and buy her first house. What brings a smile to my face is that she has no recollection of our first conversation when she was stressed out about her student loans and credit cards.

She was unsure which batch of loans made sense to pay off first. She had student loans (which had higher monthly payments) and credit cards (which had higher interest rates) and both stressed her out. She HATES owing money to anyone. Her monthly income allowed her to pay the minimums plus another $250-$500/month depending on how much she spent on her entertainment budget. We used the Debt Blaster strategy to look at the impact of paying additional principal monthly.

The results were astounding. Minimum payments only would have had her paying the loans off over 20 years. Using the Debt Blaster and $500/month (we modeled out the most aggressive scenario) in additional principal, she was going to be debt free in less than three years.

What was even more surprising is that she (a former college athlete) got incredibly competitive with this. She cut her dining out and entertainment budgets in order to pay off the debt more quickly. She used every dollar of bonus checks to pay off the debt and she had some free time so she got a part-time job and used that income to pay down the debt.

In about two years, she had a $0 debt level and our conversations changed to buying a house. She took her debt pay down practices and turned them into savings behaviors and within six months had saved enough to put down a small down payment on her first home. In the ensuing 6 months, she shopped for a house, found one, saved even more and took on some “good debt” in the form of a mortgage.

With a competitive spirit, a clear sense of purpose, goals that mattered and some slight changes to her financial behaviors, she was able to go from a place where she was stressed about the debt level in her life to a place where she now has only one debt, her mortgage, which is very manageable. Her level of happiness has never been higher and it’s all because of her ability to transform her debt situation. It’s been fun to watch and if you are looking at your debt situation as one that isn’t great right now, know that you can see the same type of results by making debt reduction your #1 financial goal for 2015.