Transcript: How to Tackle Debt as a Self-Employed Creative, with Eowyn Levene

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Eowyn Levene  0:00  

Welcome to Creative Do Money. Each week we explore the topics of everyday money management, solo business ownership, and how we’re fueling our creative futures. I’m your host Eowyn Levene, money coach, longtime self employed massage therapist and watermelon enthusiast, and I’m on a mission to help you build the lasting financial stability that frees you up to do your creative work without hustling anxiously for the next dollar. This episode is sponsored by my Plumtree community, the online home and membership for creatives who are seeking financial stability for themselves, to build savings to get out of debt and to build wealth. In the community, you’ll find weekly live money, co working sessions, video classes, articles, challenges, accountability, and more. Oh, and it’s free right now, to join us head to www.plumtreemoney.com, and click community in the header menu.

Eowyn Levene  1:01  

In July 2009, I was facing $16,000 in credit card debt, and had recently been told my job was coming to an end thanks to the Great Recession, the credit card debt had been built up due to loneliness and isolation and just a lack of knowledge with how to manage my money and my spending. And I was feeling pretty desperate. And over the course of the next 11 years, I got out of that debt. And then I got in some other debt thanks to medical crises and other poor decisions and some more lack of planning and understanding how to handle my money. But eventually, I learned as I went along to live without debt as a creative on variable income. 

Eowyn Levene  1:44  

Today, I want to share with you the things that I wish I could go back and tell myself in 2009. These are the things that would have prevented that repeat debt happening over and over again, and really accelerate my ability to handle the money that comes to me. If you’re listening to this episode, I’m pretty sure I don’t need to underline how difficult it is to live with debt and try and get out of debt. But I want to tell you that it is possible to get out of debt and live without debt. And it’s not just about like the avalanche method versus the snowball method or having the right spreadsheet. So we’ll touch on some of those things. It’s really about fundamentally changing how you do things and how you approach handling your money. 

Eowyn Levene  2:34  

You also need a saving system that serves you if you want to stay out of debt long term. So if you haven’t already listened to Episode 10, about implementing a strong saving system for yourself, I actually recommend that you go back and listen to that before coming back here and listening to this episode. Or just add it to your next up on your lesson list. 

Eowyn Levene  2:54  

The thing I find exciting is not only is it possible to get out of debt and stay free of debt, but it’s an act of resistance and revolution to choose to do things differently with your money and to live without debt. It’s exciting to free yourself up from that future obligation, you get to step away from making those big money companies rich off of interest from your heart and barks. And you no longer enmesh your future self, you leave yourself more free. And you offer yourself more choice, and more rest, who doesn’t want more of those things. So that was a big spaghetti mix of different exciting things about getting out of debt. I’ll leave it there and just say that is possible. And let’s talk about how you get started. 

Eowyn Levene  3:42  

First things first, you know, I’m going to talk about mindset. So it’s so important to just identify any feelings and thoughts that are shameful and judgy. And really down on yourself for where you are with debt and maybe failed attempts in the past. Just let that stuff go. being in debt has no impact on your worth, or your value as a human being. It just is what it is. And even more than that it might be an opportunity to expand and grow in ways that you didn’t know you needed. Even more. So letting go of shame and judgment is also about just acknowledging that modern life is designed especially in the USA, to hook us into debt. Our dollars don’t stretch nearly as far as they did. 30 years ago, things are getting more expensive without wages and rates going up at the same rate. It’s normal to go thousands and thousands into debt in order to get an education and it’s hard to get a good education without going into debt. There’s a whole credit card and advertising industry highly targeted to entice us to give up our hard earned dollars. And then lastly, life happens if you have a medical crisis or an ongoing chronic health condition. The fact that it can be a challenge to manage your money and borrowing money from friends or family. or using credit cards or taking out loans can be just the way that you deal with it if your income has been really low or inconsistent, or if you haven’t built up a savings system for yourself. So let go of that shame and judgment. It might take some time. But know that that is something that will free you up from some of the fuzziness, and indecision and avoidance that might have been coming up around debt. 

Eowyn Levene  5:26  

Next, you want to get really clear on why you want to do this work. Why do you want to get out of debt, it’s not easy. And it, it could take years. That doesn’t sound fun. And that’s not very internet friendly, where everyone wants like a quick fix and everything to be better. But it can take some time. You want to be really clear about why you want to get out of debt. What are the things that you no longer want to face? or deal with? What do you want to be rid of? Is it that freedom I was talking about? Is it something else, just get really clear, write it down for yourself, put it on a post it somewhere you can see it.

Eowyn Levene  6:00  

And along with getting clear on why you want to do this, you really need to set a commitment and an intention that you are going to do it and then reset that regularly. And build a vision for yourself. What would it look like if you weren’t sending hundreds or thousands of dollars to debt every month. And lastly, remind yourself that you can do it. If you haven’t proven it in your own life yet. Take my word for it. Look around for people who’ve had success paying off debt in their own lives. And trust that you can learn the skills that you need also to get and stay out of debt. 

Eowyn Levene  6:37  

So what now?  This is why the unsexy part comes in. The place to start is with your numbers. You want to know what your average minimum monthly expenses are both your business and your personal life. And you want to list them all out. And you want to ask yourself that if you really needed to other areas that you could reduce, not to the level of deprivation, but a workable amount. Look at what those minimum expenses are. Look at your average income. And then compare those two, ask yourself is there some wiggle room if you cut your expenses a bit more? Is there more wiggle room, if you took on a bit of extra work? Can you find other wiggle room, it’s all about the wiggle. If you find yourself with some decent wiggle room, you can be sure that you are able to get out of debt and stay after. You just need the right support and information and structure for yourself. 

Eowyn Levene  7:31  

What follows listing your expenses and your income is taking a close look at your debt itself. When you’re listing your monthly expenses, you’re just looking at those minimum debt payments you need to make on your different debts. When you’re looking at your debt numbers. Specifically, this is a new list of numbers. Also side note, you might find you need to reset some passwords, hunt down some websites, there might be a bit of financial sleuthing involved in order to do this debt list. So put aside the time write down all of your debts, the institution that you owe, the total amount of the debt at the moment, the due date, and the interest rate. And any other notes about the debt that come up thoughts that you have about the debt, or details about the debt that might not be obvious from the name of the company like the student loan company or the credit card company. And this includes debt to friend and family as well includes medical debt, car loans, furniture, loans, whatever all the different kinds of debt are that you have. And when you’re preparing to make this list, tell yourself that the job is simply to make the list you don’t have to do anything. Once you’ve made the list immediately. All you have to do is just write it all out and let it be what it is. If it’s helpful to leave a friend and do that. If you’d like you could come and join one of the new money co working sessions I’m doing inside the Plum Tree Community where for free, you can just show up and sit down in company with others and do the money work. So if it feels supportive to have other people around as you track down those account passwords and write down those balances and get real with where you’re at, then come and join us and do that. So put in place what you need to make this a doable exercise. Because it’s an essential step in the process. You have to know where you’re at. 

Eowyn Levene  9:32  

Next up, you’re going to make a plan for yourself. This might not be a plan that you follow exactly. But it’ll be your starting point. What steps you’re going to take over the next month or year. There are a few different questions to touch on. 

Eowyn Levene  9:48  

One is which debts are you going to focus on beyond making minimum monthly payments. We’re going to assume you’re making minimum monthly payments on all your debts. And the question is if you free up extra money, where are you going to put that extra money to start getting ahead with one debt at a time, so you got to chip away at it over time. This is where we do touch on avalanche and snowball. And if those sound ridiculous to you, and you’ve no idea what I’m talking about, bear with me. 

Eowyn Levene  10:18  

But one note before that if you have personal debts to friends or family members, it could be that the emotional burden and the personal challenge that comes with those debts take precedence over other debts in your life that might be charging interest. So if an uncle has loaned you money, and he’s not charging any interest, you might still want to focus on that before anything else just to free yourself up from that complicated personal situation.

Eowyn Levene  10:46  

But once you’re looking at that debt list, aside from the emotional implications of personal debts, there are two basic methods. And they’re divided between the focus that you choose.  One focus is on the interest rate. And the logic is mathematical. In that you’d start with the debt that has the highest interest rate regardless of the total amount you owe. So if you have a $9,000 debt at 19% interest, you would focus on that before the $600 debt at 12% interest. And you do that because over the complete course of your debt payoff journey, you will save yourself a lot of money by doing this. However, it assumes that you will complete the debt payoff journey, which if you’re anything like me, might not be the case, I failed in my debt payoff journey multiple times and got back into debt. And he paused and struggled and took diversions. The Debt Avalanche method is great if you already feel pretty solid in your ability to plan your spending and follow through with your plan, ie if you’re using a budget, and you’re good at it. 

Eowyn Levene  12:03  

If that’s not the case, you might consider the snowball method, which is to focus on your debts and prioritize them according to the dollar amount that you owe. So you would start with that $600 debt instead of a $9,000 debt. Because paying off that smaller debt will give you the experience of a win of crossing that debt off your list of completing a debt pay off the monitor visual tracker. And it will give you some added confidence to know that you can do this to know that you can free up the money and make the decision to put it towards debt rather than spending the money on something else. And you might need that confidence you might need that when to keep going especially if you have a lot of debts or a large amount of money to work on. So you know yourself best and your circumstances best. So you can look at which feels right to you and go from there. I know for me that using the snowball method, the last time I paid off credit card debt was one of the reasons that I gained the momentum that I did and had the success that I did. But I’m also aware that I spent more money as a result of making that choice. 

Eowyn Levene  13:13  

So in addition to choosing your overall method for paying off your debts, you’re likely to ask yourself also, within the context of your money planning. What do you put towards debt payoff versus savings versus retirement? And again, this is a nuanced question, and ultimately has to do with your life circumstances. And I’m actually going to talk a bit more about it in Episode 14, when I talk about getting started with retirement and investing when you’re self employed. I just wanted to let you know that it’s normal for this question to come up and to give it thought. 

Eowyn Levene  13:49  

Lastly, the question you want to ask yourself is Do you need help, really creating and implementing your debt payoff plan. It’s completely legit, to need help with it and to want help with it to not feel like you’re doing it on your own. So yes, it could be joining community like mine, it could be working with a coach of some kind or finding a buddy who is also getting out of debt and just creating a supportive environment for each other. It could also be about getting help selling a car that you really can’t afford the payments on. It could even be working with a nonprofit organization that will negotiate with credit card companies on your behalf. So there’s a lot of different options when it comes to getting help. And I just want you to not feel like you need to do it on your own. Again, this is where getting clear on any shame and judgment that’s come up for you around having debt plays in so if we’re really judging ourselves and feeling a lot of shame around our debt, we’re much less likely to seek help. So please do that and know that so many of us have experienced or are experiencing debt and are working to get rid of it. And seeking help could really be the difference in your success. 

Eowyn Levene  15:00  

Okay,so now you have some ideas what to look at when creating a debt payoff plan for yourself. That was choosing your method, avalanche or snowball, figuring out how much to focus on debt versus savings and retirement, and then possibly getting help with it. 

Eowyn Levene  15:18  

Next comes to executing the plan. This is where I’m going to talk about the B word. Consider yourself forewarned. The most crucial part in getting out of debt is learning to plan your spending, and planning your spending in the right way, the way that works for your numbers and your life as a self employed creative and business owner. And if you’ve already tried planning your spending, aka budgeting, that’s the B word and it hasn’t worked. It’s really because you weren’t using the right method of planning your money. You want a budgeting method that’s tailored to variable income, and to variable income that can change by the thousands from month to month. 

Eowyn Levene  16:01  

Some of the crucial elements and a budget that works for the self employed life, you want to use a zero based budget where you really plan every dollar coming your way, you want to have a rollercoaster fund. This is a fund that you increase when you have extra income, and you pull from when you don’t have adequate income in a given period to cover your normal expenses. You also want to include that solid savings plan in your budget, and really be planning from three months to five years in advance in your life. You also want to keep your budgeting cycle your money planning cycle super short, I recommend once a week or every other week at the most shortening that planning cycle makes it so much more doable. The short cycle gives you far more opportunities to improve your planning process to improve your budgeting process. And then the last thing I just want to say about making sure your budget really works for you and being self employed Is that a good budget and a workable budget is about structure, not restriction. And I say that because so many people avoid money planning for themselves, largely because they fear restriction, and they feel they can’t do it. So I’m here to tell you that if you follow these aspects, when you budget, keeping the cycle short, making sure you have a rollercoaster fund, planning in advance, having a good saving structure in place for yourself, you’re going to be really successful when it comes to planning and spending your money. 

Eowyn Levene  17:33  

All right, that’s the basics of preparing for your plan, creating your plan and implementing your plan for paying off your debt. But let’s drop for a minute into the nitty gritty, which is the fact that so much resistance and avoidance is likely to come up as you work on paying off your debt. And it’s going to take some time. And it’s gonna be really tempting to put things on credit cards again. So I want to give you a few approaches that really help you as you move from month to month reducing your debt over time. I already touched on the need to really commit to what you’re doing. And you want to keep recommitting to that so you’ll have your own personal practice that helps you implement changes in the day to day, treat your debt payoff process as something super important, necessary, needed and loved in your life. 

Eowyn Levene  18:28  

You also want to make sure that you’re working on your savings alongside and you’re actually prioritizing your savings over your debt pay off until you’ve reached a certain baseline of savings that’s going to help you navigate that variable income, which can push you towards debt again. Also all of the suggestions that I had in Episode 10, for sticking with it when you’re building up your savings, all of those things apply here as well. And that’s things like visual tracking and celebrating your wins, building community for yourself and more. 

Eowyn Levene  19:03  

You’re also going to want to know what are your spending triggers? What are the things that cause you to turn to buying items or experiences that really aren’t necessary as you work to reduce your debt. And closely related to that is impulse control. So one of the tips that I had in the savings Episode 10 is creating a 24 hour rule for yourself. So this plays in here as well. There are two sides of a coin right. So using the 24 hour rule to not charge something to a credit card frees up that money that then can go towards savings, or in the case of today’s episode can go towards paying off a debt that you’re focusing on. 

Eowyn Levene  19:48  

Another crucial element to really giving you that stamina over the long haul is what I call deprivation defense. So when we feel deprived and when we feel a sense of scarcity our long term thinking goes out the window. And we really are just focused on ease inherent discomfort, or gathering small, immediate pleasures for ourself. So you want to defend yourself against the experience of deprivation. And you can do this in a couple of ways. One is by really knowing what are the things that really light you up, and that give you a feeling of abundance and well being and make you happy. So for someone that might be getting coffee, that oh-so-famous latte that you’re supposed to cut out of your life. But if going and getting a coffee for yourself, gives you a feeling of relaxation, and fun and enjoying life, do that for yourself once a week and just commit that four or $5 to something that’s going to help prevent you from purchasing other things in a state of deprivation that don’t let you up in the same way as going and getting that coffee with a friend. You also want to make sure in your spending plan that you have even small amounts of money as fun money. So you always want to put you know, $5, $10, $20 aside, every time you budget that you can spend on anything you want, and there’s no judging it, there’s no consequences to what you spend that money on, you can save it up over the course of multiple budgeting periods, and spending it on whatever the heck you want. And those two things of making sure you know what you want to spend your money on, and actually doing it and planning to spend that money on things that light you up and make you feel like life is fun. That’s super important to defending against the experience of deprivation and scarcity, which is really going to help you put all the money that you can towards reducing and getting rid of your debt. 

Eowyn Levene  21:44  

We’re going to leave it there for today. If you are still with me right now, I’m impressed at your commitment, and I’m excited for the debt free future that stands ahead of you. I’ve created a seven point checklist to guide you through preparing and planning and executing your debt free journey. If that’s something that sounds helpful, you’ll find it at the show notes in the usual place you head to www.plumtreemoney.com/podcast and look for Episode 12. 

Eowyn Levene  22:20  

Special thanks to Michael P. Atkinson for help with producing this episode and for composing it’s beautiful music. If you enjoyed listening today, I hope you’ll return and tell your creative friends and colleagues about it. And also to take a moment to leave a review wherever it is that you listen. positive reviews make a huge difference in getting the word out about creatives do money. And in the meantime, wishing you all money, business and life success, whatever that means to you.