Ep 2 | Throwing Money at This Problem Works!

In this episode, Priya Malani reveals the hidden dangers of debt, especially for high earners like you, and shows how lifestyle debt can trap you—even when you're making serious money. She breaks down the different types of debt you might be juggling and uncovers the strategies that can actually get you out of the hole faster—whether you’re tackling it with the avalanche or the snowball method. Plus, she shares how to use your income smartly, so you can pay down debt and start saving for your future at the same time. This episode is your roadmap to financial freedom—without the stress!

Tune into this episode to hear:

• How even high earners can fall into the trap of crushing debt—and how to avoid it.

• The hidden danger of lifestyle debt and why your high salary might not be enough.

• Effective strategies to pay off debt faster—both financially and mentally.

• A simple income allocation rule that can transform how you manage debt, save, and invest.

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Transcription

I know that if you're listening and you're in a similar situation, you can think of plenty of things you'd rather spend $40,000 on than simply give it away to a credit card company. It's painful, and unfortunately, it's a scenario we see all too often.

Today, we're getting real about debt. And guess what? High earners have it too. There's no sugarcoating it, so I'm just going to say it: it's time to stop thinking about what you wish was happening in your financial life and deal with what's actually happening. I'm going to provide you with everything you need to put a plan in place to become debt-free, including an income breakdown for both pre- and post-debt situations. From there, it's up to you to make it happen.

Let me tell you about a client I worked with a few years ago—a woman in her mid-30s working in finance in Manhattan. She was earning a six-figure salary, living in a beautiful apartment that was a little bit beyond her income level, and she looked like she had it all together. She had the big job, the fancy apartment, and her Instagram feed screamed success. Anyone who went to high school with her would probably think, "Yeah, she made it."

But here's the wild part: despite all appearances, she had over $86,000 in credit card debt. She hadn’t even fully processed the total until we dug into her numbers together. She was essentially in denial, not facing the reality of her situation. The thing is, her debt wasn’t due to a bad investment or an unfortunate event. It wasn’t from student loans, a mortgage, or even an essential purchase like fixing her microwave—because, let’s be real, she wasn’t cooking at home. What she had was what I call lifestyle debt, the kind of debt you rack up when you're trying to keep up with a certain standard of living. In Episode 1, we called this "your new normal."

Her debt came from constantly upgrading her life with things like $500 dinners, designer bags, and spontaneous trips to Europe—things I totally endorse if you can afford them. Now, let me tell you her salary: she was making $315,000 a year. At this point, you might be thinking, "Couldn’t she afford it? Isn’t that just what high earners do?" Yes, many high earners do exactly this. And she thought she could afford it too. She thought that because she made a lot of money, she could spend a lot of money. The problem is, without realizing it, she slipped into a cycle of debt that became crippling.

Credit card debt is usually the absolute worst. We have this narrative in America that debt is common—and statistically, it is. But it's important to note that not all debt is created equal. Some types of debt are bad, some are less bad, and some can even be good.

Let’s break it down. There are common types of debt: student loans for education, mortgages for housing, auto loans for cars, and credit card debt for day-to-day expenses. So, what does it mean to go into debt? It means borrowing money from a third party, typically for a predefined period. With credit cards, it’s not as clear-cut because you don’t have a set repayment period. When you pay the third party back, you have to pay more than you borrowed. This extra amount is called interest, and the third party decides the interest rate they’ll charge you. Sometimes the interest rate is manageable, like with student loans, and it makes sense to take on the debt. But sometimes the interest rate is outrageous, and that’s when you need to avoid it at all costs.

Credit card interest rates, for example, are terrible. Let’s return to our finance friend with $86,000 in debt. To her credit, she was making the minimum payments, which is good. But at that rate, it would take her eight or nine years to pay off her balance, and she'd end up giving the credit card company an extra $40,000 just in interest on top of the $86,000. I know that if you're in a similar situation, you can think of plenty of things you'd rather spend that $40,000 on than just hand it over to a credit card company. It’s painful, yet unfortunately, we see this all the time.

In Episode 1, we discussed lifestyle creep and the importance of living a lifestyle you can actually afford. The simplest way to think about it is that any charges you put on your credit card should only be made if you can pay off the full balance in your checking account when the bill comes. We recommend our clients put every charge on their credit cards, but only if they have the cash to pay it off in full.

Let’s do another quick example: Let’s say you book a last-minute week in Paris for $3,000. You put it all on your credit card and take about a year to pay it off, assuming the average 20% interest rate. The total cost of your Paris trip is now not $3,000, but $3,600. Maybe it’s worth the extra $600 for a last-minute trip to Paris, especially if you’re making six figures. But the problem happens when you apply this same "instant gratification" justification to all of your credit card purchases. In reality, you probably could have waited a little while and avoided paying the interest altogether.

Using a credit card to cover something you can’t afford to pay off in full is an example of bad debt. But there’s also good debt. Good debt generally helps you build wealth or increase your income over time. For example, student loans can be considered good debt if they lead to a higher-paying job. If your education allows you to earn more than you would have without it, the debt essentially pays for itself.

Now, I know none of us want to be in debt, but sometimes we can be too casual about it, especially since almost everyone has some form of debt. But lifestyle debt is no joke. It’s often the first thing you need to tackle before you can work toward other financial goals. And even if it’s not bothering you, it might be bothering someone you love.

I once gave a seminar, and an attendee told me she broke up with her longtime boyfriend because of his student debt. I'll admit, that seemed a little extreme. I tried explaining that it was good debt, but she was so emotional about it. As we know, money can be very emotional.

Another example: I met a guy who had about $20,000 in savings, which is great, but he also had a $12,000 balance on his credit card. I suggested he use most of his savings to pay off that credit card, but he thought the idea of wiping out his savings seemed crazy. He believed that keeping his savings was the responsible thing to do. But by leaving his credit card balance unpaid, he was actually losing about $2,000 a year in interest. So, while it might feel like a bad idea to use savings to pay off debt, mathematically, it makes more sense.

Let’s talk about how to actually pay off your debt. First things first: make at least the minimum payments on each loan. Then, you can consider two different repayment strategies: the avalanche method and the snowball method. Both methods work for any type of debt—credit card, student loan, personal loan, whatever.

The avalanche method is the more efficient, cheaper route. After making minimum payments on each loan, you put any extra money toward the loan with the highest interest rate. Why? Because that’s the most expensive debt. For example, if you have $3,000 on a credit card with a 24% interest rate and $35,000 in student loans at 5.5%, you’ll want to focus on paying off the credit card debt first. Even though your student loan balance is larger, the credit card debt is costing you more.

The snowball method is the opposite. After making your minimum payments, you focus on paying off the loan with the smallest balance first. The benefit of this approach is that you get to pay off a debt completely sooner and celebrate the accomplishment. If you need that feeling of success to stay motivated, the snowball method is a great choice. But if your goal is to minimize costs, the avalanche method is the more efficient path.

You might be wondering, "Where am I supposed to get this extra money?" To start, you need to make sure you're using your income efficiently. It may never feel like there’s enough, but if you don’t get used to managing your income now, it will never feel like enough.

Here’s a typical income breakdown you can follow, no matter how much you earn. 10% of your net income should go toward saving and investing for your future—retirement, short-term goals, or long-term goals. 70% should go toward your current life expenses, including fixed costs like rent or a mortgage, and flexible expenses like dining out, groceries, and entertainment. The remaining 20% should go toward paying off your debt.

You probably won’t hit these targets overnight, especially if you’re living paycheck to paycheck, but they’re good goals to work toward over time. A good time to reset how you allocate your paycheck is when you get a raise or a windfall (like a tax refund). Before you get used to that extra money, see if you can get closer to the ideal breakdown.

Once your debt is paid off, you can take that 20% you were putting toward debt and split it between your current lifestyle and future goals. If you're comfortable living on 70% of your income, great! You can put the rest toward your goals and accomplish them even faster.

I hope you found this helpful, and I hope you decide to use either the avalanche or snowball method to get your debt paid off so you can start working toward bigger goals.

Thanks for listening to The F Word with Priya Malani. If you liked what you heard, hit subscribe and leave a review—we love hearing from you. Don't forget to check out stashwealth.com for great resources, courses, and freebies.

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