Opening Credits

Charged Up! podcast: How to live debt-free


Learn how to get out of the cycle of debt and start living a debt-free life, while still enjoying what matters most

The content on this page is accurate as of the posting date; however, some of our partner offers may have expired. Please review our list of best credit cards, or use our CardMatch™ tool to find cards matched to your needs.

Charged Up! with Jenny Hoff




Lynnette Khalfani-Cox, also known as the Money Coach, knows a thing or two about debt from both her professional and personal life. Even though she was working as a financial journalist making great money, she found herself with more than $100,000 in credit card debt and realized she needed to take charge of her finances. She went on to write the best-selling book “Zero Debt” and appeared on “Oprah” as well as all the major networks to dispense her financial wisdom.

So, let’s get charged up about learning how to live debt-free!


Jenny Hoff: Lynette, thanks so much for joining us today.

Lynette Khalfani-Cox: My pleasure. This is a great topic and not only from a professional standpoint; I like to talk about credit and debt but I’ve been there, so I like to talk about it from a personal standpoint. I’m probably one of those people in minority in that I fessed up. I’ve admitted that I had $100,000 in credit card debt at one point. Thank God it was a long time ago. It was back in 2001 and I took three years, and I paid it off, and then I wrote this book about it, “Zero Debt” and it became a New York Times best-seller. So part of the stigma of being in debt is, people shame you and I don’t want to equate it to other things like when people do feel like, “Well, how could you have been so stupid? Why did you overspend? Why did you charge? Nobody put a gun to your head,” and it’s absolutely the case. That’s true and I’m one of those people who totally took responsibility. I said it flat-out, did banks extend large lines of credit to me and make me offers? Yes, they did. However, they didn’t put a gun to my head. Nobody made me go out there and spend. So I was one of those people who said, “I have to take responsibility and I got myself into this mess.” Now, I’ve got to get myself out and it worked, fortunately.

Hoff: That’s amazing $100,000 in debt.

Khalfani-Cox: I know, it’s crazy.

Hoff: In credit card debt?

Khalfani-Cox: Literally only credit card debt – we’re not talking about my student loans here, OK, when I got out of grad school at USC. I had $40,000 in student loans. Believe it or not, that took me even longer to pay off. That took me like 15 years paying minimum payments. I was totally foolish about that as well, but I share all that to say that I understand what it’s like and I also know though that not everybody got into debt because of the reason that I did. One of the things that I’ve learned over the years is that there’s really two groups of consumers who are deep in debt. First are the folks who are poor money managers and overspenders, and I was in that category, frankly. I had a very good job; I was a Wall Street Journal reporter for CNBC. I was making a six-figure salary but I was spending like I earned seven-figures, so the math never works that way. I teach people now, if you spend more than you earn, you’ll always be broken in debt. It doesn’t matter, even if you earn $250,000, $20 million a year or $25,000.

Hoff: We see that with celebrities. We see that with pro sports players. People who came into a lot of money but they don’t know how to manage it –

Khalfani-Cox: Tens and millions of dollars.

Hoff: And they lost it completely.

Khalfani-Cox: Yeah, even hundreds of millions of dollars. People go, “How could they possibly go bankrupt?” They spent more than they earn. I mean, it’s really that sort of basic but again, not everybody is an overspender or a poor money manager. Now, I understand, having researched this a lot, having coached clients for 15 years or so, many people are deep in debt because of circumstances in their lives, what I call the dreaded Ds: downsizing, a death in the family of the main breadwinner, divorce, disability or disease. There’s a whole bunch of other dreaded Ds too: disasters of all kind, whether natural or man-made. People go through business disruptions where something happens in the business fails, that kind of stuff. So I’m not giving everybody a pass and excusing them because again, I teach my coaching clients, what did you do or what did you fail to do that led to the problem or compounded the problem? Because sometimes people go, “Well, God, my husband cheated on me and it’s not my fault that he ruined my credit and ran up the credit card bills,” and I’m like, “Yeah, I’m not blaming you for that. However, what did you do to contribute? Did you have any separate accounts in your own name? Did you take a pass and a blind eye and not look at what was going on in terms of household spending?” Stuff like that.

Hoff: Right. So that’s a great point that you make, and I want to talk now about some kind of interesting – before we go into your debt advice, I want to go into some interesting information about, what does the spectrum of people in debt look like? Because you even mentioned in your book, it is not relegated to a certain group of society.

Khalfani-Cox: Yeah, and a lot of people think that. They think that people who are either just poor or poor money managers, people who are overspenders, sometimes people associate a certain socio-economic class of consumers or borrowers being in debt, but I can tell you unequivocally, it spans the spectrum: from lower class, economically speaking, lower-income, that is, to middle-class, to upper-middle-class, even and frankly, even some people who are what others might consider to be wealthy. Sometimes, people look at not a traditional measure – net worth which is what I use to determine wealth as opposed to income, so I might say, “This person makes a lot of money. Why could they possibly be in debt?” That doesn’t matter what your income is, right? So we know that 47 percent of Americans carry a balance on their credit cards every single month, and researchers from Pew tell us that 8 out of 10 Americans are in debt, in some form of debt; they owe a mortgage card bills, auto loans, student loans, medical bills, they owe somebody something but I do think that sometimes we just mistakenly think like if we’re in debt, the tendency is to think that debt m is kind of relative, like all my relatives have debt. So they kind of think that, well, everybody I know has debt, whatever, and no, it’s not the case. Actually, a little less than half of adults in this country do carry a balance so don’t be, don’t subscribe to this mistaken notion that, oh, well, we’re all in debt like everybody has. You have to have that in this life. No, actually, you don’t.

Hoff: No. More than half don’t carry a credit card debt.

Khalfani-Cox: Exactly, and they’re managing credit and debt wisely for the most part. They’re understanding that you can use credit cards and other tools strategically to your own benefit.

Hoff: I definitely want to now get into the topic of debt and I want to talk first about debt in general. There’s a lot of financial experts out there who say, “Just don’t do debt. Don’t get credit cards. Don’t get any kind of loans unless you’re 100 percent you can pay them off but avoid credit cards at all costs,” yet there’s another group of people who are masters of their credit cards and they are going on free trips, they’re getting great cashback rewards, they’re saving tons of money while shopping, so how do we balance that? Where do you stand, one, and two, how do we get from that “I am scared of my credit card. I’m going to cut them all up,” to “I’m the master of my credit card and I’m making those credit card companies pay me?”

Khalfani-Cox: Exactly. Well, I think a large part of it is that people have to kind of know themselves and understand really what we’re talking about here. The problem isn’t the credit cards; the problem is us, and when people say, “Oh, I’m scared of my credit cards,” that’s not really the underlying message that they’re sending or that’s not really what they’re telling us. They’re telling us, “I’m scared of myself. I don’t trust myself. I cannot practice delayed gratification. I don’t have the wherewithal to say no. I don’t have the stomach or the appetite to see something in the store and go, \u2018Oh my God, that is so cute. I want it now but you know what? I can afford it on a cash basis or I can use my credit card and then pay it off entirely in full.’” so they’re not really saying credit cards are evil or bad because they’re not. They’re not inherently evil. They’re just a tool, right? So I think that we have to learn, as individuals, first, which side of the equation do you want to be on when it comes to credit of any kind, not just credit cards; a mortgage, a student loan, an auto loan. Interest works both ways: you can be a consumer alone in which case you will pay interest for the rest of your life or you can be a saver and an investor, in which case, you will collect interest. I know which side of the equation I want to be on. So now there are some times when, in my opinion, it can be wise to borrow for strategic purposes but I’m also of the mindset that I understand that all debt can be “bad forms” of debt. Most people will tell you there are good forms of debt and bad forms of debt, and I understand what they’re saying, they’re essentially talking about debt that’s strategic and that lets you got ahead, like if you borrow and you get a home loan, for example, a house is an asset that potentially can appreciate in value. You get property tax write-offs, you can write off your mortgage interest, all of that. Credit card debts are typically seen as something that’s “bad debt,” in the sense that if you buy something, it’s unsecured, it’s going to depreciate in value whether it’s clothes or whatever – a meal you consume, it’s done and over with. Well, any form of debt can become bad debt, even a mortgage or even things like student loans if it’s excessive or if you don’t have a plan for how you’re going to pay it back. So the idea is to borrow within limits, within what’s wise and what’s smart and comfortable for you and which you can readily repay, like if you see yourself only paying minimum payments on anything, whether that’s student loans like I did – not a smart move – whether that’s barely getting by on a mortgage, say maybe an interest-only mortgage where you’re not making principal payments, or of course, on credit cards where you’re only financially able to pay minimum payments. That’s a red flag. That’s a warning sign that you’re in the danger zone and you’ve over borrowed, so not a smart move.

Hoff: OK, so we’re going to talk about how we can get over now to that good zone. There’s a lot of people who say their credit cards give them opportunities they would never would have had otherwise as far as free travel\u2026

Khalfani-Cox: Travel, perks, cashback.

Hoff: Getting cashbacks, lounge access, all of that. What are the habits those people have developed when it comes to smart credit card management?

Khalfani-Cox: OK, No. 1, they don’t rely on their credit cards for lifestyle purchases that they cannot afford. So many people who are in debt, frankly, they’re not just using it for airline or hotel, or restaurants.

Hoff: Perks.

Khalfani-Cox: Perks kind of thing, yeah. They’re using it for gas to fill up on their car or groceries, and really, they cannot even afford to spend normal monthly expenses. So that’s telling me they’re in a danger zone. Some people also get into trouble and to make that shift to be able to enjoy the perks and benefits, they need to address this issue, some people get into trouble because they’ve not set limits. So I tell people, “If you’re going to use credit cards,” and I do encourage people to use credit cards responsibly wisely and in a way that they can take advantage of the perks and benefits of them, “You have to know your limits.” For example, some people use their credit cards only for certain categories. Some people use their credit cards only for emergencies, like I have a daughter in college, she’s at University of Texas at Austin, and I added her as an authorized user on one of my longstanding credit card accounts. I did not even give her the card. Two years she’s been on this account. She has a credit score in the high 700s. We actually bought her a condo this year. She’s on the mortgage. Her credit score, they were like, “Oh, why is her credit score so high?” Part of it is we’ve done strategic steps to improve her credit rating. So went to dinner last night and she said, “Oh – .” We’re with her boyfriend, he was talking about having a credit card and I said, “She actually has a credit card.” She said, “No, mom. I have a debit card.” I said, “No, remember when I added you onto my account?” She was like, “Oh, yeah,” so now we’re talking about, I’m going to probably give her the card-

Hoff: OK.

Khalfani-Cox: To let her – yeah, but the idea is within limits, so for a college student, for example, you might say, “You are only allowed to charge and can charge what you can pay off in full at the end of the month,” and frankly, that’s good advice for everybody, what you can pay off in a given month, what you might need for an emergency, for example, for a young person, a millennial, or again, in a certain category. Some people really use their cards for a specific thing just for travel and again, if you kind of know the limits and the parameters in which you can work, which you can effectively pay your bills without having lingering debt, there’s nothing worse than seeing those bills from this year roll over into next year. That’s when it’s telling you, you have a problem.

Hoff: What about now, in your book, you have your 30-day approach where every day, you give a new little homework assignment to somebody for opting out of credit card offers, because you know you can’t control yourself if you see them, to checking your credit score in places you may not think about it. So you have a lot of steps that you say people need to go through. It makes them more aware but it also makes them sort of to confront the problem and get rid of the temptations around them. What would you say out of your 30-step program, or maybe the three to five most important steps people need to be paying attention to in doing?

Khalfani-Cox: Well, one is, when I suggest the people opt out of credit card offers, you have to understand the audience that I’m talking to are the folks who are already in debt and they know that they’re struggling with it, so that advice really is not something that I’m directing toward people who are managing credit cards quite well, who are probably like you and I are, taking advantage of the perks that their credit cards offer them. I’m talking about people, you’re already deep in debt, you just don’t need extra temptation. So that’s one thing, but for the most part, one big problem that I find among anybody who’s either not necessarily struggling with that but carrying a balance, they’re usually making minimum payments and that’s one big trap. So I tell people now that minimum payments in the short run where you think that, “I’m getting better cash flow. I have a little extra money to spend over a year,” whatever, “I don’t have to pay as much.” Well, that really produces maximum payments in the long run because you’re adding to your finance and interest charges, and you’re sapping your ability to have cash for other thing for an extended period of time. So one is, always exceed the minimum payments –

Hoff: As much as you can.

Khalfani-Cox: As much as you can. If you can double or triple –

Hoff: Or pay the whole thing.

Khalfani-Cox: Or pay the whole thing in full, even better. But again, I recognize that for the 47 percent of folks who are carrying a balance, there’s a reason that they haven’t had the capacity or the wherewithal to pay off those balances in full, OK? So one is, try your very best to exceed those minimum payments. If you can’t double it or triple it, pay something extra, $100 extra, $25 a month extra, whatever, just don’t make minimum payments. Additionally, stop digging. So one of the things, and this is the Warren Buffett Rule, if you find yourself in a hole, stop digging. If you’re already in debt and having problems, don’t keep compounding the problem by excessive spending or using the credit cards for lifestyle stuff. So people say, “Well, this is a necessity and this is a need,” really? OK, you need a new pair of shoes for your kids, but it does it have to be a $120 pair of shoes? No.

Hoff: Go to the thrift store, get a nice pair of Nativs.

Khalfani-Cox: Big box retailer, and I’m not even saying like, some people might be OK with going to a thrift store but it just might be like just go to a –

Hoff: Sale at Macy’s.

Khalfani-Cox: Big box retailer of your choice or whatever. Can you buy your kid like a 25 or $30 pair of shoes? My kids know, and I have three: my 19-year old, my 17-year old and my 11-year old, mommy’s smart about her money, and I tell them all the time, and this is one of the bits of advice as well that I would suggest the folks who are looking at how to use their credit cards wisely, you have to understand that you have choices with what you do with your money, and at the end of the day, it really only boils down to four things: save, spend, invest or donate. And so when you look at your finances holistically and you think about, what percentage of my income am I actually saving? For a lot of people, it’s like 2 percent, 1 percent, nothing. What percent am I spending? OK, fine. You can spend on X amount of things that you want. Am I giving to charity, donating my time, my talents, my treasure, or am I investing, am I trying to put away some money for the long-haul? If all of your money is literally going out the door to credit card payments, to student loans, mortgages, to just loan payments and servicing your borrowing, again, major red flag.

Hoff: Absolutely. I love that, so you can save, you can spend; you can donate, you can invest.

Khalfani-Cox: That’s right.

Hoff: And those are the four things you can do with your money. If you want to be able to do all four of them, you can’t be filling up on one category too much.

Khalfani-Cox: Exactly. And that’s what so many people do. They got the spending part down. I mean they’re spending like 70, 80 percent of their money, if not more.

Hoff: That’s very interesting, yeah, great advice. One of the things I want to talk about right now is credit invisible. So I was having an interesting conversation with somebody yesterday who was telling me that people who have been in debt and they’ve suffered through the trauma of debt, and they’ve worked to get out of it like you did. You were $100,000 in credit card debt, three years, you got out of it, yet then for years, they will not use credit cards, they will not take any kind of loan, they will not touch debt, so when they do want to go get a mortgage on a house or a car loan, eventually, 10 years down the road, it’s harder for them. They don’t have any credit and this is unfair to a lot of people. My mom even said this is unfair, is it’s totally unfair. They shouldn’t be able to run your life like this but credit does run your life. Well, that’s just the society we live in. So what about those kinds of people, how do you avoid going to the other extreme where then you absolutely, you’re so scared of debt that you’re like, “I’m not going to touch it because I know I can’t control myself?”

Khalfani-Cox: Well, one of the things that I often talk to people about who are in that situation, who are typically underbanked or unbanked, who are credit invisibles is, you have to decide the type of life that you want to live, and it really boils down to this: you can opt out of the system if you want, you really can; go live someplace remotely, never need a mortgage for your house loan, never get a car loan, never use a credit card to rent an automobile if you’re traveling or stuff like that. You can opt out, it’s just a lot harder, and for most people, that lifestyle is untenable after a given amount of time. So the idea that you would just say, “I’m not going to have any type of bank account, any credit accounts,” we have tens of millions of people in this country that actually do that but they pay a price for it, and the price is in things like high cost of payday loans, check cashing places, car title loans, when they need quick cash, stuff like that and it’s disheartening to see because we know that there are gaps and we know that there are millions of people whose problems really do need to be addressed from a standpoint of credible solutions. Some people have opted out of the system though not only because they feel like, “Oh, I got myself into trouble. I don’t want to touch that again,” they feel, at some level, they’ve been wronged. Like some people are like, “Oh my God, I got charged all these bank fees, these overdraft charges, I got hit with higher interest rates. I was a day late and then I had a jacked up interest rates,” in years past when we had things like Universal Default which has now been outlawed, of course, where if you were late-paying one credit card bill then other credit card issuers would raise your interest rates. Consumers felt, and I think rightfully so, wronged by those kinds of practices. So part of it is that an industry, the financial services industry not only has to come up with creative solutions, technology, products and services that can appeal to the real life needs of people but they also have to address the skepticism, the criticism, the negative sentiment, to a large extent, that exists among that population of unbanked and people who are underbanked or who are credit invisibles, and a lot of them feel like so much of this is unfair, like the fact that employers do credit-based employment screening, they just think that that’s wild and outrageous, and some people agree. Some states have outlawed and banned that practice. So it’s a big problem with, I think, a host of potential solutions but you as an individual, at the end of the day, who’s going to care more about your finances than you do? Nobody. And so you have to say to yourself, if you’re willing to opt out and to say, “Nope. I’m never going to have credit. I’m never going to use credit,” or whatever, you can take that approach but you have to be prepared for the consequences and the lifestyle, and what it means in a practical way to live like that. Frankly, I don’t want to live like that, but some people are like, “I’m good. I will do it.” They’ll be off the grid. They’ll have a tiny home. They’ll do all kind of steps to say they’ll pay cash for everything, and I think that’s some of the lifestyle choices that some people make when they’re in that mindset, some of it actually can be helpful to everybody, like being smart with your money and using cash more often.

Hoff: Use what you have. Don’t spend more than what you have.

Khalfani-Cox: Right. And especially when you’re trying to get a handle on things and not overspend. If you know, “I’ve had a problem with this in the past,” then that’s addressing in a real-life way your own behaviors. But again, in my head, it’s not that the cards themselves are inherently dangerous. It’s that if you don’t have a handle on yourself, if you don’t have the restraint and the discipline, and the mindset to understand, “If I overspend, that sweater that I paid 60 bucks for can wind up costing me 75 or $100,” then yeah, you’ll be in trouble with those products.

Hoff: Yeah, absolutely. I think a lot of people come from the mindset, if they are paying off what you said those minimum payments, they might be even paying a little bit more, they feel like, “OK, I’m doing my job. I’m not paying just the minimum,” but still you are paying interest. If you’re not paying the entire balance off every single month, you are paying interest. No matter how much above the minimum payment that you’re paying, of course, you’re paying less interest if you’re paying a lot more than the minimum but the goal to pay it all off at once.

I also want to talk about college loans. So now we’ve gone from the unbanked and now, let’s say you’ve been off the grid and you got a kid who wants to go to college, and maybe you don’t have $50,000 to send them to college. You wrote a book about avoiding college loans altogether; avoiding college debt. What would you say are two or three of your top tips when it comes to that? How do we get started?

Khalfani-Cox: Well, the book I wrote is actually a series, “College Secrets,” and the flagship book in the series, “College Secrets: How to Save Money, Cut College Costs and Graduate Debt-free,” and the companion book in the series is “College Secrets for Teens: Money Saving Ideas for the Pre-college Years.” I bring that up not as a plug but to really say that part of the reason that so many families go into college debt is that universities, schools across this country have sold us all a bill of goods. They’ve made us think that the main costs of college are the upfront costs: tuition fees, room and board, books and supplies. Nothing could be further from the truth. You have to understand that there are actually three sets of college costs. My “College Secrets for Teens” book addresses the pre-college expenses, everything from SAT and ACT fees, pre-college programs, admissions, testing, all of that stuff, the applications themselves, tutoring, OK? But then there are all this backend costs, what I call the hidden costs of college, so if your kid has a car on campus, some schools, it’s $1,000 a year to park on campus. The average nationwide is $635. If your kid wants to join a sorority or fraternity, on average, $1,000 to $4,000 per year. So there’s all this these hidden costs. So first of all, the No. 1 thing to avoid student loans is, have a realistic assessment of what college is going to cost. Don’t think it’s only tuition fees, room and board. Ditto for people who are getting a mortgage, like part of the reason people get into a problem, they think, as I say it’s a pity that it’s not just pity, like principal interest, taxes and insurance, there’s a whole host of other expenses: utilities, moving expenses, or furniture, everything that breaks, etc., so a house has a lot of ongoing costs, right? Ditto for college expenses. So recognize the true cost of college: pre-college costs, upfront expenses, and backend or hidden college costs. No. 2, almost everything is negotiable. In fact, I’d say everything is negotiable. Parents often see a bill in black and white and they treat it as gospel. No, actually, you can negotiate. There is a whole host of expenses and I outline in the book series all of the pre-college costs, the upfront costs and the backend hidden costs, and tell you strategies to either eliminate or reduce every single cost, and I go through dozens and dozens, and dozens of costs, some of which people have never even heard of, OK? So you can negotiate, and then the third and final tip that I would give is, the college selection process is itself the optimal time to control college costs. If you have a kid who is aiming for say, a merit-based scholarship, they need to be in the top 25 percent of a school’s applicant pool. That’s the best way for your kid to get a lot of institutional money directly from the college or university and then avoid student loans.

Hoff: OK, I love that because I think that is – oh, we have a question. Christie asks, “I just graduated from college. I want to get a credit card. What type of card do you recommend or should I not even get one?”

Khalfani-Cox: I would suggest that she get one now that she’s graduated from college, especially if she is getting into the workforce and she may need it to travel, she may just want to have it for monthly spending at a modest level, I would apply for a traditional unsecured credit card. As a student, obviously, there are student-based cards but she said she just graduated. Some people, when they have thin credit files or no credit files and are initially trying to establish a credit rating, will seek out a secured credit card where you put up a deposit, say $500 that in effect becomes your limit. The thing about those secured credit cards, and actually, I do like them for rebuilding credit more than I like them for establishing credit, because they typically have a low credit limit, it’s easy to have that affect your credit score, because remember, 30 percent of your credit score is based on your credit utilization. Fancy little way of saying how much debt have you charged versus how much you have available, so if you have a credit card with a limit of, say $500 and you charge $250 in a month, you have a 50 percent credit utilization rate already and that tends to lower your credit score. So I would seek a traditional unsecured card. Hopefully you get $1,000, $2,500 limit or so and then use it responsibly; use it just for routine, modest purchases and then pay it off in full every single month. It’ll definitely help you to get accustomed to using credit wisely and managing credit cards, and it will also help you to establish and strengthen your credit score.

Hoff: Yeah, fantastic advice, great question, actually. A conversation I was having with somebody yesterday is, a lot of people who find themselves in deep debt in their thirties is because they racked up insane amounts of credit in college, right after college before they really knew how it would affect them because they haven’t gone for –

Khalfani-Cox: Been there done that. Yeah, that’s me.

Hoff: Really?

Khalfani-Cox: Totally, I mean, I was a total – I was a hot mess financially from college. That was the first time that I got a credit card. This was eons ago, I don’t want to take myself there, but long story short, Marketing Credit Card Reform has been implemented, and banks and financial services, institutions can’t market as aggressively, let’s say to college students. But I did that same thing: I had charge offs, late payments, collection accounts, I even had my car repossessed. I was a total mess. Now, thankfully, I have excellent credit. I have zero credit card debt. I have a credit score in the 800s, but it took a while for me to get there, and debt drags down your credit score. So watch those credit card balances.

Hoff: And it becomes a vicious cycle. We have another question. Eric asked, “I see banks around campus offering credit cards to incoming freshmen. Are these good cards to have?”

Khalfani-Cox: It depends. I think it’s incumbent upon anybody who’s going to get a credit card to do some comparison shopping, to evaluate your offers; are they offering you something that’s a subprime type of deal?

Hoff: With a very high interest rate?

Khalfani-Cox: A high interest rate, that’s right. And typically, college students, if they don’t have a job, if you can’t show income now, the rules are such that you have to have a co-signer, typically a parent as a co-borrower on the account, so it depends on the offer is the short answer. And that’s why you have to kind of look at the fine print and see, is their annual fee or not? What is the interest rate that’s being offered? What is the credit limit that’s being offered? And there’s obviously a multitude of sites out there that help you to do comparison shopping. But I think it really boils down to, what’s the fine print? What’s the offer itself?

Hoff: So don’t just walk into an offer. Because somebody offering you a credit card, doesn’t mean, “Oh, yeah, I got to jump on it.”

Khalfani-Cox: Don’t do like I did. When I was 18, I was a freshman of the University of California, Irvine – I went to USC for graduate school – I literally walked into my apartment on campus and there was nothing on the bed: no sheets but there were credit card offers, a whole bunch of them and I started applying, and I was like, “I, I must be grown. I’m 18. I can get a credit card.”

Hoff: “They want to give me money.”

Khalfani-Cox: They gave those credit cards like that: no job but obviously, now again, things have changed and obviously, I think that’s for the better, I think that you should show that you have the capacity to repay. A job, yeah, that helps, especially if you’re going to charge up $1,000 or something.

Hoff: Because – oh, we have another question. OK, Arlene asks, “What is the best way to tackle debt: high balances first or low balances?” This is interesting because I’ve heard a lot of different advice on them.

Khalfani-Cox: Yeah, OK, so how much time we have here? No, actually, there are three methods that a lot of people use: high interest rates, high balances or low-dollar balances. 90 percent of personal finance experts out there actually say the third option that I mentioned or the initial one about high interest rates first, and actually I don’t subscribe to that. Now without getting into too much of a discussion about it, the reason is, I tell people to attack their own area of pain, so whatever is most bothering you, that is the approach that you should take. So if you are dealing with, say default interest rates. If you have 20-something percent interest rates and the interest is just killing you, then yes, by all means, attack those credit cards with the highest interest rates first. If, however, you have way too many credit cards, like if you have 25 credit cards or something, kind of crazy, and you can’t even keep up with all the payments, you missed because you just didn’t have it on automatic payments or whatever, for those people who find their credit card situation is unwieldy, often for them, the lowest dollar balance cards are the best ones to tackle first because then you start eliminating –

Hoff: Get them out of the way.

Khalfani-Cox: Yup, like that but for people who have high levels of debt and who are like, “Oh my gosh, I looked at it, I added it all up and I see that I have $37,000 in debt, $18,000, $100,000,” something crazy, attacking the high dollar balance cards is often the most effective strategy. At the end of the day, whichever of the three strategies you choose. The reason I say you should attack your area of pain is simply that it’s human nature. It’s not about the math and about economically, what would be the most advantageous, people who say, “Oh, high interest rates,” they’re going to tell you that on paper, it makes sense. You’ll pay the least in finance charges, I agree. However, doing something on paper and doing it in real life is just the difference between academic Ivory Tower wisdom and real life: knowing what actually works. If you are motivated to stick with a payment plan, if you see, for example, you’re attacking high-dollar balances and you go, “Oh, yes, my balances are dropping!” That’s incentivizing for a lot of people. Paying off high interest rates, you’re like, “Oh my God, I’m paying this money and my money, all of it is going to pay –

Hoff: The principal doesn’t go down.

Khalfani-Cox: Right. And that’s very discouraging for people. They opt out of those kind of payment plans and they just kind of say to heck with it, and then they just keep charging and they never get out of debt.

Hoff: OK, so you can either pay off your high interest first, you can pay off your high balance or your low balance. It depends on your personality, what’s bothering you the most. Target your pain point. If you need those little wins, target those balances, go ahead and do that. Start cleaning the plate. If you have high balances and you’re OK seeing that balance go down, it makes you feel good, do the big balances, especially if you owe tons of money in debt. High interest, if you are able to be settled with the fact that you’re paying a lot of interest and you may not see that card go down very quickly but you are tackling something that is overall going to charge a lot of money. So those are some fantastic tips. All right, so I know we are running out of time. I want to ask you, finally, I always ask my guests what gets you charged up? So what gets you charged up about living debt-free?

Khalfani-Cox: The choices that I have now and the freedom, frankly that I actually can, as an entrepreneur, say no to certain clients if I don’t want to do the business or for something, work that I don’t want to do, and it’s not like I feel like I’m scrapping by, like I have to take anything that I didn’t get because I need the money kind of thing. So I feel like, regardless of whether you’re an entrepreneur, an employee, work for somebody else, that Monday morning feeling that a lot of people get, when they get that little negative feeling in the pit of their stomach and they’re like, “Ugh, I owe, I owe, so off to work I go,” I work because I do still need an income and I love the income that I earn but I work because I choose to, and I love the work that I do, so it’s kind of like the freedom of not being in bondage with excessive amounts of debt, and obviously, what I had before was an excessive amount of debt. I don’t want to give the impression that I was just like a total basket case when I was in debt. I was making the money and I had a six-figure 401(k). I had a lot of things that I did right: life insurance, a will, disability protection, so I did a lot of things right. So in my head, I kind of rationalized and justified like, “Oh, what’s the problem? They’re all getting paid. I’m making minimum payments but they’re getting paid.” So yeah, in my head, that “I deserve it” mentality but just overall, it’s just like a weight off your shoulders. Fewer arguments with your spouse about money, ability to do other things and pursue your passions, those choices that I mentioned before: to be able to donate, to be able to donate, even just time, like forget about donating money, like some people would like to give their talents and their energy to something but they’re like, “I can’t. I got to be at work. I need to use this time earning money.”

Hoff: Absolutely. I love that, the freedom that comes, you got choices that you can make when you’re not owing anybody anything. Lynette, thank you so much for joining us.

Khalfani-Cox: My pleasure. It’s been a great conversation.

See related: Charged Up! podcast: Becoming financially literate


Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

What’s up next?

In Opening Credits

Can I transfer loan balance to a credit card?

Yes, and you can even save on interest, if you play your cards right.

See more stories
Credit Card Rate Report
Cash Back

Questions or comments?

Contact us

Editorial corrections policies

Learn more