$185k in Debt. How Will I Get Out? | Money Makeovers | MONEY
Hi I’m Ramit Sethi, the author of ‘I Will Teach You To Be Rich.’ I’m here at Sasha’s apartment. I’m excited to talk to her about money. Here are some of the numbers being thrown around. She is $185,000 in student loan debt, $5,000 in credit card debt. She makes about $70,000 a year, and she’s hinted that she might be spending a little too much. So we’re going to find out. Let’s go do it. I’m Sasha Manford. I’m 28 years old. So what I do now I am Salesforce admin at a financial service firm. And I make between $65,000-$70,000 a year. I attended Pace University and I am in around one $185,000 worth the debt. Financial literacy is definitely not taught in the minority community. I could speak for myself, but a lot of my other friends of color, you know, they weren’t taught —I didn’t know what an IRA is or Roth account. And you know something must be done, so if I have to be the chosen one to expose all my financial information out there that’s fine, as long as it can impact the minority community in a positive way. I just want to have a better relationship with money, and I want to know ways around paying off my debt. And I want to know, you know, get expert advice from Ramit and Doug. So once all that gets paid off I feel like my life can start. Hey Sasha how you doing. Good, how are you? I’m great. Thank you for having me over. Thank you for coming. Appreciate it. All right. So we are going to talk about your finances. OK. Give me the high level. Tell me a little bit about yourself and about your financial situation. So currently I work at a financial service firm and I manage their entire salesforce platform. How do you feel about your money? I don’t feel good. I don’t have a good relationship with my money. I tend to just swipe and not think about it. And then when the end of the month comes, I’m like, ‘Oh, my God. Where did all my money go?’ OK. So what I want to do today — first of all thank you for being so candid about how much you make. Sounds like a really good salary. It is. And how much debt you have. That can be a little overwhelming to say out loud, but I think the first part of moving forward with your money is being honest about where you are. Yeah. Thank you for that. What I want to do is understand your relationship with money a little bit. I want to talk to you about where your money’s going. It’s okay if you don’t know where all of it’s going. Most people don’t. But we’re going to get the basics and then I want to talk about a plan going forward. OK. All right. So let’s start with your relationship with money. You mentioned swipe. You swipe on things. Yeah. What do you swipe on? What do you like to buy? I love to buy coffee, like I’m kind of a coffee snob. So it’s essential, especially when I’m working Monday through Friday, that I get my coffee. I’m not going to tell you to stop buying coffee. Yeah. I think you should buy all the coffee you want. That’s not really going to change your financial situation. OK. $3-$4 bucks a day, it’s not really going to make a dent in anything here. One thing that doesn’t really work is to tell people all the bad things that are going to happen 20 years from now. So what? This is the way most people respond, like so what? And so I have a different approach you make about $70,000 in your job. You’ve got student loan debt of roughly $180,000. OK. What are you doing with the student loans right now. I’ve deferred them. Tell me more. I have deferred them because the minimum payment is like $1,500, which is a mortgage payment. So I keep deferring. I can’t afford it. There’s a technique I talk about in my book called the ‘think, what, do’ technique. And after I leave, I’d like you to do this. Think is you just take a piece of paper and draw a pie chart, just a circle. Where do you think your money is going every month? And most people are generally they have a sense, 40% goes towards rent, et cetera. Then I would like you to take another piece of paper. Where do you want your money to go? Maybe you want some of it to go towards coffee? Definitely put that in there. Great. Maybe you want some of it to go towards your debt. I would like to see a little bit more going toward there, and then I would like you to actually look at your expenses for the last 4 weeks. That’s it just 4 weeks. Where does it actually go? OK. And you look at those three pieces of paper, you are going to be so surprised. What do you think you’re going to find? That I’m spending money frivolously. Yeah yeah. And then maybe you could actually afford to take some of that stuff that you don’t even remember spending on, and actually redirected to the areas you do. You mentioned debt-free to me four or five times, but not much money is going towards. Yeah. You know, I ran a little calculation before I came over. And if you were to pay even $100 more per month towards your debt, you’d be saving over $10,000 in total payments. Wow. Just $100 a month. Yeah. There are so many different ways where you can make massive, massive dents in this debt even though it seems like a huge problem. Yeah. But a little bit goes a long way, especially with the way compounding interest works. The best role model that you can play is to take control of your money. When people see you confident, successful at your job. Buying the things you love and being unapologetic about it, but also when somebody invites you, ‘Hey want to go out to lunch today?’ and you say, ‘No I’m good. I cook from home.’ That is the best role model for any future children or any community that you want to inspire. That is a rich life to me. And so I think you can inspire people. But the best way you can do it is to take control of your own money. OK. Two things left that I want you to do. First we’re gonna talk to Doug. He’s a certified financial planner. He’s going to help you go through these numbers in more specifics. Second, I want to give you something that I brought for you. This is a copy of my book, ‘I Will Teach You to be Rich.’ This is a second edition. And this is going to help you go step by step with your credit cards. It’s going to help you give you the words to use to call and negotiate, get those fees lower. It’s going to help you build a plan to move forward and even start automatically investing. Thank you so much. Appreciate it. All right. It’s my pleasure. Nice meeting you too. Sasha how are you? Good how are you Doug? Thanks for coming by to talk to me a little bit about your situation. Thanks for having me. So tell me about the conversation you had with Ramit. The conversation with Ramit was very wide opening. He really broke it down how I should be the CEO of my life, and there are different ways I should be spending my money and ways I could be saving my money. So let’s talk a little bit about the student loan debt that you have. There’s $100,000 in Parent PLUS loans, and another $80,000 in undergraduate federal loans from your time at university. And we can’t do an income-driven plan right now so we can’t get that payment lower each month. What would it be like for you to take a step back and look at your expenses over 12 months to see if there are any areas that you would cut back on? Would you allocate that towards the $1,500 a month even if it didn’t cover the entire payment? Most definitely because you know, there’s things that I don’t need but I tend to buy things because they’re on sale. I’m like, ‘Oh my god
it’s on sale I have to get it.’ So definitely. So these are definitely habits and behaviors that we can work on. But I think it touches on just the greater point of having control over your financial life. I think you do a great job on the working hard and making money side. What I don’t want to see is you gamble the likelihood that you will do better professionally and make more money when today you’re moving backwards financially. So what we want to try and do is find the balance between the lifestyle that you’re living and being able to get into good behaviors and habits of paying down that debt. I know we can’t do it all today, but if we can get in the habit of paying it back, it will be that much easier when you are able to make that full payment amount. Also if the opportunity presents itself and that might not be right now, but you may be able to refinance your debt into a payment structure that is equal to or less than what it would be if you were paying it back through the federal government, but also reduce that term. Now that would require having great credit, being able to go to the financial institution that can make that loan, proving income and things like that. But those are out there and something that you can work your way up to. It’s easier to see the light at the end of the tunnel with a 15-year repayment than let’s say, 30 years. Right? So one of the greatest challenges that I find young professionals have, especially here in New York City, is getting uncomfortable with their lifestyle expense, whether it was through school, or what we have going on around us. And the reality is, it sometimes does a disservice to ourselves and what we really need to be doing is getting uncomfortable with the things that ultimately make us more comfortable. I know that sounds counterintuitive but it’s how it works. Okay, so perhaps take a look again at what you’re spending your money on and see where you’re willing to get uncomfortable. One of the other things that I really like about your situation is that you’re young, you have a great career ahead of you. I really think you’re gonna be able to turn this around in short order. You keep focusing on the things that you have going right in your world, right, a great job, the ability to make money, a supportive family, you have everything ahead of you. You are not behind the eight ball at all. That’s what you paid for education. I get it. This is a challenge that a lot of young Americans face. And you’re going to be able to get through it and I can tell you that from personal experience. So I think you’re in an interesting spot. The spot is you’re doing a great job working hard to generate income with a lot of upside potential, but when it comes to the bottom line in your expenses, we’re not as organized as we need to be. So what we can do is get organized, and at least understand where money is going. It is okay that you can’t get positive right now because you’re making the investment in yourself to get there as soon as you possibly can. But where we have to go the extra mile is getting that organization around your expenses. Again finding the balance between your lifestyle and being able to slowly chip away at your student loan debt. It’s not easy. It’s hard. If it was easy, everyone would just be crushing their student loan debt, including myself. You’re doing all the good stuff right now to get yourself there. I can’t knock that. And I wish you the absolute best in crushing that student loan debt. Thank you. Yes sure. I’ve learned a lot. Especially when Doug was talking about mastering your cash flow. And also he mentioned how, you know, even though financially I’m doing well, I am going backwards. So that’s kind of like an eye opener for me and I, you know, as I’m making more money, I don’t want to continue to go backwards at all. My financial life looks a little bleak right now. But, you know, talking to Ramit, talking to Doug, I mean, the two most powerful financial players I’ve ever met, there’s hope. I have hope that I can do this and I see the light at the end of the tunnel. It’s just a matter of me doing it and getting my mindset there, and making things happen, and making a change. I don’t think it’s ever too late to change your financial mindset. You have to want to do it. And the mind is very powerful, and whatever you think, it comes it comes to life. So if you want to change your life you can change it. You just gotta believe in yourself and just do it.