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Paying off your debts as a traveler

  • Writer: Travel Procedures
    Travel Procedures
  • May 16, 2022
  • 4 min read

The amount of money travelers make can be a powerful force behind straightening out your financial life. The first order of business before you start traveling is saving up an emergency fund. After you have a safety net in your account, you can start to eradicate your debts quickly. Aggressively paying off debt requires a budget and committing to a plan. Getting all of your debts paid off and your net-worth back to zero is invigorating and easily attainable by following a few simple steps.


Maintain similar cost of living

When you first start traveling, it can be tempting to go on a shopping spree with your hard-earned cash. Of course, It's fine to treat yourself every now and then. However, it is important to avoid long-term lifestyle inflation. If you can maintain a simple lifestyle and keep your cost of living low while doubling your income, paying off debt is a breeze.


Debt Snowball

Paying off debts can be overwhelming if you have multiple accounts with varying interest rates and large balances. There isn't exactly a "one size fits all" approach to this task. However, a common way to tackle this, is with the "debt snowball". This method suggests that you pay off the debt with the lowest balance first (while still maintaining minimum payments on all your other debts). Once the smallest debt is paid off, you roll the cash you were paying on it over to the loan with the next lowest balance. This strategy is effective because it gives you a sense of accomplishment when you pay off each account.

This "snowball" effect allows you to chip away at smaller debts one at a time until all of the lowest balances are paid in full. These small payments are then eventually rolled together into bigger payments that you can throw towards your larger debts. This approach may be considered the best option for those who enjoy instant gratification. The positive feeling of paying off a nagging bill can encourage you to become more fervent in paying off the next one... and the next one.

Although this method may be the most psychologically effective, it isn't the most mathematically efficient way to get debt-free, which leads us to the next debt-paying strategy.


Debt Avalanche

If you can put all emotion aside and become a debt paying-off machine, the "debt avalanche" method may be the best strategy for you. This system prioritizes paying off loans with the highest interest rates first (while still maintaining minimum payments on all your other debts). Regardless of the size of the loan, you should pay off the highest interest rates first. Over the extended life of your loans, this method will result in the least amount of money you pay in total (and the least amount of profit the bank makes of off you).

If you have any loans with an interest rate above 10%, and are serious about becoming debt-free, this method may be your best option. Any credit card balances, payday loans or high-interest car payments fall into this category. By allocating all of your extra funds to these loans first you can reduce your monthly interest and concentrate on paying off your principle. Once that loan is paid-in-full, you can roll that money over to the next highest interest loan until you are out of debt.


Hybrid method

For those of us that aren't dopamine seekers or mathematical robots, a hybrid method of the "debt snowball" and "debt avalanche" may be a great option. This approach recommends that you pay off any debts with small balances first, then start to focus on those with higher interest rates. This blends the "feel-good" of paying something off, with the rationality of tackling high interest early on.

You can categorize these small, initial pay offs in any way that makes sense to you. Maybe you want to eliminate any loans below $2,000 or $5,000 first. Or you may want to use a time classification. For example, prioritize any debt that you can pay off in a single 13-week assignment (take the total debt amount and divide it by 13. That is your weekly payment). However you choose to payoff debt, find a method that works best for you and stick with it.


Extreme debt pay off

If you're in a major debt crisis with multiple high interest (20%+) loans carrying a large balance (five figures or more), you may want to revert to an extreme debt pay off program. This implies cutting out all superfluous spending beyond your basic needs and living in extreme frugality for a 13-week contract or until they're paid off (think 'college living, ramen noodles, couch-surfing' type of living). In doing so, you can focus the great majority (80% to 90%) of your paycheck towards these rapacious loans.

It's important to note that large amounts of high-interest debt should be considered a "hair on fire" situation as Mr. Money Mustache , a well-known advocate for financial independence, might describe. This is not something you should maintain for a long period of time. If you're only able to pay minimum balances on all of your debts or your entire payment is going to interest, you may be on the verge of a financial meltdown.

Once the payday loans and credit card balances are decimated, then you can shift your payoff method to one of the previously mentioned strategies. Make sure to tackle your debts in a manner that is suitable for you and the amount you owe.


Establish good financial habits

Once you are back to zero and have begun your debt-free life, take precaution not to accidentally fall back into old habits. If you struggle with paying off your credit card every month, get rid of it. Try to eliminate any triggers that may drive you back into debt. Finding healthy financial habits is an important step to reaching financial independence.

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2 Comments


Dylan Brockman
Dylan Brockman
May 16, 2022

This is HUGE! Dave Ramsey is a good resource for people who want to dive deeper on the snowball method

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Travel Procedures
Travel Procedures
May 16, 2022
Replying to

Definitely! Also the ChooseFI podcast has a lot of valuable information regarding paying off debt quickly.

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