What CrossFit Can Teach us About Debt Management
Created by Greg Glassman, CrossFit is an insanely popular fitness regimen. And like other workout programs, it takes planning, discipline, and commitment to reap the benefits of your hard work. The same is true, psychologically speaking, with managing your debt, as it also takes a similar sense of commitment and disciplined approach.
In both types of goals—fitness and financial—it’s great to first dream big. That’s what brings the excitement to the process, fueling your motivation to succeed. All big successes start with that big dream.
Next come the concrete, practical steps needed to achieve those dreams, making them your reality. In this post, we’ll discuss four things we know about CrossFit lessons that can also help with debt management. We’ll also look at how to manage a specific type of debt—student loans—sharing a smart way to potentially lower your interest rate, as well as describing how you might be able to pay less interest over the life of your student loan.
Setting Goals is a Crucial Step
Whether we’re discussing CrossFit lessons (or any other form of exercise) or debt management, it’s all about investing in yourself. In each scenario, success starts with setting goals, and these goals will vary from person to person. Fitness goals can include weight loss amounts, how much weight you want to lift, how long you can run and not feel winded, and so forth.
Debt management goals, at least at the beginning, often focus on the amount of money that you need to pay off and how quickly you’d like to pay it off. As part of your goal setting, it can help to think about why you want to manage your debt more effectively. Reasons can include:
• You don’t want so much of your money going to interest anymore.
• You find being in debt stressful.
• You want to become more financially stable to achieve certain dreams, perhaps to get married, to buy a house, or to start a family.
It all starts with a target goal. (This is also a good time to think about goals for building up an emergency savings plan, if you haven’t already.)
Also, write down these goals. This helps to clarify and establish your commitment to your goals. Plus, you’ll likely want to review them during the process.
Creating a Solid Plan Gives You Direction
Once you know what you want to accomplish, the next step is to determine how you’ll reach those goals. With your fitness plan, you may decide to exercise four times a week for 45 minutes each time, increasing the intensity of your workouts at a steady pace.
With a debt reduction plan, you’ll focus on creating a plan that allows you to repay debt while meeting current financial obligations. There are different debt repayment strategies to consider, including:
• Debt snowball method: Pay off your smallest debt first, because the sense of accomplishment you’ll feel can provide motivation for paying off your remaining debts.
• Debt avalanche method: This is also known as the debt-stacking or ladder method. To use this strategy, create a list of your debts by the interest rate charged, and pay as much as you can on the debt with the highest interest rate.
• Debt snowflake method: This involves looking for any extra cash to put on your debt on a daily basis. This can include collecting change, using credit card rewards cash, working a side job, and so forth. Whatever extra funds you gather go to reduce your debt.
• Debt consolidation method: Here, you might find a low interest personal loan and use it to pay off high-interest credit card debt. This streamlines the number of payments you need to make and can reduce interest charges you’ll need to pay. (More about consolidating and refinancing student loans later in this post!)
No matter which method you choose, you’ll need to also manage your finances so that you don’t take on any new debt in the meantime. This is comparable to not adding a hot fudge sundae to your bedtime routine if you’re doing CrossFit lessons in the mornings to lose weight.
Remember to also incrementally build up an emergency fund, because these are the funds that can help keep you from getting into credit card debt again when you’re faced with an unexpected expense.
Depending on your personality, it may help to build in benchmarks that, once achieved, are specifically celebrated. For example, treating yourself to a new pair of shoes once you have your first debt paid off.
You’ll Likely Need to Manage Your Own Expectations
If you’ve put on 25 pounds over the years, you aren’t going to be able to take them off next week, no matter how devoted you are to your exercise program. The same is true with debt reduction strategies. If you’ve built up, say, credit card debt over the last few years, unless you receive a lump sum of cash or a significant raise in income, paying down the debt will take time.
It’s only natural to sometimes feel impatient about achieving goals, but don’t let any frustration you feel take you off your charted path. Steady, strategic behavior wins the prize.
If you find that your plan (exercise or debt repayment) is so restrictive that it feels impossible to maintain, there is nothing wrong with adding a little more breathing room to the plan if it keeps you moving steadily forward.
It’s Important to Revisit Your Goals and Celebrate Successes
Maybe you’ve reached a plateau in how much weight you can lift and it’s discouraging. This is the time to review your baseline figures and note how much progress you’ve made since you started your exercise program.
The same is true with a debt reduction plan. There may be days when you get frustrated at your progress. There may be days when unexpected expenses crop up (your furnace stopped working and needs to be replaced, for example) and you can’t cover the entire cost without borrowing money). And there may be days when you just plain don’t follow your plan 100%.
That’s life. What’s important is that you stick with the overall plan and keep moving forward. It can really help to take a look at where you started and how much debt you’ve reduced, how much cash flow you’ve freed up, and/or how much money you’ve put in your emergency savings fund. This helps you remember why you started this debt reduction plan in the first place, and how it’s already benefiting you financially.
Earlier in this post, we talked about possibly building in benchmarks where you’ll celebrate success. What would a celebration look like for you? Perhaps it’s splurging on a meal at that new restaurant in town that everybody seems to be talking about, or a day at the spa. Or it could be spending your day off hiking through the woods or taking an entire day to read, watch a movie marathon, or do whatever else motivates you.
And when it comes to celebrating financial successes, if you’ve built the cost of the reward into your plan, that’s true guilt-free enjoyment!
Student Loan Refinancing
If you have student loan debt (the average college student takes out four loans), getting this debt under control can play a key role in your overall debt management. So, we invite you to consider refinancing your student loans into one low-interest loan.
Refinancing allows you to take all the various student loans you have and conveniently merge them into one loan. This can make your outstanding debt a whole lot easier to pay each month and can potentially get you a lower interest rate, too.
If you have both federal and private student loans, you can’t consolidate all of them through the federal student loan consolidation program—and not all private lenders will allow this, either. But, if you qualify, you can do exactly that at SoFi. (It’s important to note that refinancing federal student loans with a private lender means you forfeit certain federal programs like income-based repayment plans and public service loan forgiveness.)
Also at SoFi: You can choose between fixed interest rates and variable ones, and select a term that works for you. As you make these choices, keep your financial goals in mind. If, right now, you want to free up your cash flow as you get your overall debt under control, you may want to consider a longer term, keeping in mind that doing this increases the total amount of interest you’ll pay over the life of the loan.
Though if you want to reduce the amount of interest you’ll pay over the life of your student loans, a shorter term is what’s needed to achieve that goal, but your monthly payments will likely be higher (which may work for you if you want to pay off your student loan debt sooner).
We don’t charge origination fees or prepayment penalties for student loan refinancing, and there are no hidden fees. None.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment or Income Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.