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How to achieve financial freedom and pay off debt, according to a financial expert who paid off $87,000

CNBC Select spoke to Tiffany "The Budgetnista" Aliche about how she paid off $87,000 in debt and her advice on getting out of debt while building financial freedom.

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Debt can be overwhelming, especially if it’s in the double or triple-digits. Just ask Tiffany “The Budgetnista” Aliche who had around $300,000 in debt after the last recession.

“The first step really is forgiving yourself because almost everyone who has a lot of debt is already beating themselves up. We underestimate how important the emotional component of debt is. It weighs a heavy burden,” Aliche says.

After the last recession, Aliche accrued triple-digit debt from a $220,000 mortgage, $52,000 in student loans and $35,000 from credit cards. While she didn’t pay her mortgage and foreclosed on the home, she did pay off her student loans and credit card debt in full.

CNBC Select spoke with Aliche, financial educator and founder of The Budgetnista, who shares how she paid off roughly $87,000 in debt and gives her advice on getting out of debt.

How to approach paying off debt

While there isn’t a best way to tackle debt, there are some guidelines you can follow to make paying off debt less expensive.

Aliche considers the number-one mistake people make as obsessing over the wrong debt, such as student loans, since they typically have single-digit interest rates. In fact, federal student loan interest rates are 2.75% for undergraduates for the 2020-21 school year and unsubsidized graduate student loans are slightly more at 4.30%. Those rates are significantly less than the double-digit average 15.78% credit card APR.

“Focus on that credit card debt. That’s the one that’s costing you an arm, a leg, a toe and a foot,” Aliche says.

She recommends you get aggressive with your double-digit credit card debt since it’s so costly. Then once you pay off your card debt and get to single-digit debt, like student loans, divide your money up between savings, earning/investing and paying off debt.

While it may seem strange to not focus on debt repayment 100%, Aliche urges people to see the bigger picture: “Debt-free is a goal, not the goal,” she says. “The goal is financial freedom.”

Focus on that credit card debt. That’s the one that’s costing you an arm, a leg, a toe and a foot.
Tiffany "The Budgetnista" Aliche

For Aliche, financial freedom included leaning into her business, The Budgetnista, so she could grow her wealth while also making consistent payments toward her student loans. After all, Aliche says being debt-free doesn’t equal wealth.

“If you just focus on being debt-free, that's all you get. If you focus on learning to grow wealth, you get that freedom and the money,” Aliche says.

Debt payoff options

There are numerous ways to pay off debt, yet no one-size-fits-all answer. Here are a few options that may be right for you.

Use a balance transfer credit card

Completing a balance transfer can help you move debt from a high interest card to a card with an introductory 0% APR period up to 18 months. Balance transfer credit cards, like the U.S. Bank Visa® Platinum Card, allow you to save on interest payments and use what you would’ve paid on interest toward paying off your debt.

Be aware that good or excellent credit (a FICO score of 670 and greater) is often required for a balance transfer card, and lenders set limits on how much debt you can transfer. Plus many balance transfers are hard to get right now as lenders are trying to minimize the amount of debt and risk they take on.

Consolidate debt with a personal loan

Personal loans are a good alternative to balance transfers if you have a large amount of debt that won’t be transferable to a credit card. Through a personal loan, you receive a fixed amount of money that you can use to pay off your cards. 

You'll repay it over a term ranging from about 12 to 72 months, and at a fixed interest rate (currently the average for a 24-month loan is 9.50%). This can help you consolidate debt that’s spread out across several credit cards.

However, Aliche warns that studies have shown people who pay off their credit card debt with a personal loan often wind up overspending on their card again. She recommends you cut up your cards to avoid falling into that pitfall.

Borrow money from family 

If you have bad credit (scores below 580) or simply struggle to be approved for a new or affordable financial product, you may want to consider asking a family member or close friend for a loan. This option isn’t possible for everyone, but may be an alternative for you.

You can save money on interest by borrowing money from someone close to you. Before you accept any money, set up a repayment plan and stick to it so you don’t risk damaging your relationship.

Consider new ways to make money

Since balance transfer offers are currently hard to find and lenders are making it harder to qualify for low-interest financial products, you should consider alternative ways to increase your income.

“These days, I feel like people have to really be open to side-hustles,” Aliche says. “Everyone’s not going to start a business, but ask yourself ‘Are there ways to monetize some of my skill sets? Are there things that I can do to bring income?”

For instance, Aliche brought in roughly $5,000 to $6,000 extra a year by tutoring and babysitting when she was teaching preschool. She explains that a side-hustle can be a temporary way to make additional income that can help you pay down your debt faster.

Additionally, if your company is doing well you can consider asking for a raise or jumping back into the job market to negotiate a higher salary somewhere else. Try to use judgement before making either move so you don't put your current job at risk.

Remember you’re not alone

It’s easy to psych yourself out and get hung up on the amount of debt you have. But Aliche encourages you to remember that you’re not the only one in debt.

“There are people who make a ton of money who have a ton of debt. There are people who make a little bit of money who have a ton of debt,” she says. “What you're experiencing is something millions of people are experiencing. Focus on the solution, not what you did wrong.”

If you find yourself in debt, take a moment to reflect on what caused it, then start working toward paying it off.

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Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.
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