‘Happy Money’ Episode 6: Jade Warshaw Shares the 7-Step Plan on How to Pay Off Debt for Good
From saving $1,000 to tackling mortgages—here's your complete roadmap to financial freedom
If you’re living paycheck to paycheck and drowning in debt, you may worry there’s no way out. The good news: That’s not the case! With just simple steps, you can break free from the burden of loans and credit cards and finally feel the relief you deserve. And the best part? You don’t need to be a financial wizard to make it happen.
In Episode 6 of Woman’s World’s new Happy Money video series, all about finances in midlife, host Digital Director Julia Dennison speaks with Jade Warshaw, co-host of The Ramsey Show and author of What No One Tells You About Money: The Real Key to Getting Unstuck from Someone Who’s Been There, about proven financial strategies that can change your life. Find out more below about Warshaw’s must-know tips on how to pay off debt and build the financial security you’ve always wanted.
Watch Happy Money Episode 6 here or listen on Spotify, Amazon Music and Apple Podcasts.
Tune into Episode 6 right here! ‘What No One Tells You About Money…But Should!’ with Jade Warshaw
Why paying off debt is so important
Financial experts have long emphasized the importance of having an emergency fund, but there’s one thing that often gets overlooked: existing debt. Even if you have a comfortable amount of money saved, that financial cushion can quickly diminish if you lose your job—and have debt you owe.
“Now the amount that you’re pulling from that every month is far more, because you have to not only pull money to keep the lights on and food on the table, but now you have to keep this car payment going,” says Warshaw.
That’s why paying off debt as soon as you can is so crucial; it could ease the financial burden later on.
“If you pay off the debt now, suddenly it takes far less to run your household, maybe just your rent or your mortgage and those other incidental things, cell phones, utilities,” she adds. “And if you lose your job, it’s a lot easier to say, ‘Well, I can cover $3,000 a month.’”
Translation? You’ll sleep better at night knowing you’re protected—and that peace of mind is priceless.
7 steps to financial freedom
If you’re looking to reduce and eliminate debt, you may wonder where you should even begin. The process can seem overwhelming, but it doesn’t have to be! Warshaw assures that you can get financial relief sooner than you realize just by following some small steps—one at a time.
Step one: Hit this savings goal
“The first step is to get $1,000 saved,” says Warshaw. “You’re not doing anything else, because a mistake that many of us make is we try to do too many things at once.”
For most people, this takes 30 days, but don’t get discouraged if you need more time. The key is just crossing off this to-do that can provide you with a little financial security in the event of an emergency.
Step two: Pay off small debts
Once your $1,000 is safely tucked away in your savings account, you’re going to pay off your consumer debt. That’s everything except your mortgage—think credit cards, car loans, medical bills, and student loans. You’ll use any leftover money from your budget, extra income, or a combination of both to knock these debts out one by one.
The key: Following what’s called the Debt Snowball Method.
“You’re going to list out your debts from smallest to largest by balance, not by payment, not by interest rate, but by balance,” she explains. “So it could be an $800 medical bill at the bottom, all the way up to your $45,000 student loan at the top.”
After you make the required minimum payments, the suggestion is then to put any extra money towards the smallest debt.
“The idea is that if I can knock some of these out quickly, I get the dopamine hit, I feel the adrenaline and I want to keep going,” shares Warshaw. “And I’ve now lessened the list, and that’s a really great feeling.”
Step three: Create an emergency fund
Once you’ve tackled the first two steps, you’ll want to go back to focusing on saving more of your money. The good news? Since you’ve paid off those consumer debts, this becomes a lot more attainable!
“We want that feeling of security,” says Warshaw. “So now we’re saving three to six months of expenses, and this is a fully funded emergency fund.”
Step four: Invest towards retirement
The emergency fund is just one way to start planning for the future, however. You’ll also want to start investing, and there are several different ways to do so.
“This is you putting aside 15 percent of your gross income,” she explains. “That’s the amount before the taxes come out. You do that every single month.”
This money can be put into a 401(k), Roth or IRA account—anything that will support you in retirement. If you’re looking to save up for a down payment for a house, this should also be factored into this step.
Step five: Start saving for your childrens’ education
For anyone with kids, this is the time to start focusing on their future. Warshaw suggests setting money aside in an Education Savings Account (ESA) or a 529 plan, which is a state-sponsored investment account meant to fund future education expenses.
“You get to decide the amount,” she adds. “It could be $10 a year, or it could be $10,000 a year. It depends on your budget.”
Step six: Pay down your mortgage
If you are currently paying off a mortgage after completing the first five steps, now is when you’ll want to prioritize reducing that debt. Like step five, this one is flexible! You will be able to work within your budget while still making a dent in what’s left of your mortgage.
“Again, this is an amount that’s totally up to you,” assures Warshaw. “You could choose to double your mortgage every month. You could choose to put 100 extra dollars on your mortgage every six months. The point is to be intentional about the idea that we want to start to chop away at this thing.”
Step seven: Live generously
Congratulations, you’ve made it to the final step! Once you’ve worked through the others, you can take comfort in knowing you’ve reached financial freedom.
“Now I’m just free to just live and give like no one else,” says Warshaw. “I can be generous. I can enjoy my life to the fullest extent without worrying about debt or stress or payments.”
How not to pay off debt
When times are tough, it can be tempting to look for quick solutions to ease your financial burden. But there are two things you’ll want to avoid when you’re in a crunch: using a credit card to make ends meet and pulling from retirement accounts.
“Investments are there for a purpose—they are there for your future,” says Warshaw. And in order to invest properly, you have to keep the money locked in for an extended period of time, right? You don’t want to unplug the investment.”
Not only could you be hit with an early withdrawal penalty fee, but there are long-term consequences, as well. It may be quite tough to recoup that investment again by the time you hit retirement!
That’s why Warshaw emphasizes building that emergency fund in steps one and three—so you have a financial cushion to catch you when life throws curveballs, without derailing your long-term plans.
Remember, you have the power to transform your financial life. Every small step forward is progress and every debt you pay off is a victory.
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