Breaking Free From Debt: Practical Strategies for Teachers
Have you ever sat up at night worrying about money? Have you ever felt like no matter how hard you work, you never seem to have enough money at the end of the month – too much is owed to too many? Has the stress of paying the bills ever affected your work, mood, interactions with students and colleagues, or your general motivation as a teacher?
Almost every person in the teaching field, or any other profession, can relate to these exact same, and often debilitating concerns.While living requires expenses (such as food, housing, clothes, transportation, and savings), there is one type of expense that weighs heavier than all others. An expense that, when paid, offers little tangible benefit to your life and may even, after being paid each month, somehow still become an even greater burden.This, of course, is debt.
Debt, especially when it accumulates, can feel like a heavy burden. It’s not just about the numbers - it’s about the stress it can cause and how it impacts your peace of mind, making it harder to plan for the future or respond to life's unexpected moments. Reducing debt can provide relief, offering you greater control over your finances and ultimately helping you feel more secure and happy.
When debt is reduced, it frees up your hard-earned money for things that matter most, whether that’s saving for an emergency fund, investing in future goals, or simply having extra cash to enjoy life without feeling stressed. Even small, consistent steps toward paying down debt can add up over time and make a significant difference - and this is the philosophy we will focus on here.
Debts & Liabilities: What's the Difference?
Definition of Debt: A specific type of liability that refers to money borrowed from another party, usually with interest penalties. Importantly, debt can have a varying level of “badness,” a concept we will explain later in this article.
Definition of a Liability: Debt and liabilities are often used interchangeably. However, debt is usually used to describe just borrowed money, whereas liability is used to describe any financial obligation you have to pay.Debt is a form of liability; however, not all liabilities are debt. A car loan is both a debt and a liability, as it involves borrowed money and a financial obligation that must be repaid. The insurance that needs to be paid on that car in order to drive it would be considered a liability, but not a debt.
Debt Usually Isn’t “Good”, but it Can be “Bad”
There are many opinions on this topic; for example, some claim that there are “good” forms of debt, along with “bad” forms. However, for our purposes, we will use the term “bad debts” to discuss the bad form in isolation.
Some debts are better than others: Some debts are taken on because they provide a better overall option than an unavoidable liability. An example of this is buying a home rather than renting. In some cases, the debt is a better option, as the liability (housing expense) will need to be paid regardless, via rent. However, with home ownership, at least you are accumulating value in your percentage of home ownership, also known as equity.
Debt can be used (carefully) as leverage: Debt can be “leveraged” or used for an ulterior benefit; it can help you “turn corners”, sort of like using a break when driving a car (ex., becoming a homeowner through a home loan, or receiving a degree to advance your career). However, 90% of the time, it will slow down your plan with no discernible benefit and thus needs to be carefully managed and used sparingly.
Bad debts: Debts that we will consider “bad” for our purposes here almost always stem from an unnecessary “want” vs. “need”. This makes them very pernicious as often there is limited value to what they are used to purchase- unlike better debts such as a car for transportation or a house for housing needs. One additional feature of most bad debt is higher-than-normal interest rates, which can lead to a debt trap if the borrower becomes overextended.
What are some Bad Debt Examples?
Examples of bad debts include things like:
Credit Cards – Credit cards are considered bad debt instruments because they often have very high interest rates and are highly accessible- anybody can apply for multiple credit cards. They can be used to purchase anything at almost any location, and it can be very hard to track the accumulation of debt.
Payday Loans – Payday loans have exceptionally high interest, often almost doubling the amount needed for repayment, and can lead to a cycle of dependency, robbing debtors of their source of income.
Car loans – Car loans can be considered bad debt if they include:
Higher than normal interest rates.
Overleveraged in the length of the term and amount of monthly payments, usually due to purchasing too expensive of a car.
Are unnecessary, as in an extra vehicle that is not required for transportation needs.
What Makes “Bad Debt,” Bad?
Some of the key factors, and why we classify some debts as being worse than others (bad) include factors like:
Higher than normal interest rates (often considered predatory)
Little or no tangible property purchased as a result of the debt (unlike, ex., owning a home, or investing in your education)
Too easy to take out the debt – makes “reaching for it” too easy
Often contributes to a reliance on the debt when used to supplement income
Often associated with aggressive and hostile collection methods
How to Get (and Stay Out of Debt): Practical Solutions
Now that we know what bad debts are, how they are defined, and what makes them so pernicious, let's now address some simple solutions to help deal with debt in your life. As an educator, adopting these daily/monthly financial habits can help you get out of debt and stay there, allowing you to not only enjoy life but also free up your mind and energy to be the best teacher you can be. Let's get started.
How to STAY Out of Debt
The number one strategy to help you stay out of debt is to: build (and stick to) a budget. We all know about budgets; it’s a pretty simple concept. However, most people do not use a budget, or simply do all of their budgeting in their heads, then wonder where all of their hard-earned money has gone each month.
So what is a budget? A budget is a well-thought-out, pre-determined, written plan for expected income.It is more than just a preference for how you will plan on spending your money for the month; it is an actual document, spreadsheet, or software application that has been completed and is based on prior spending habits and projected future income.
Key features of a budget:
A budget needs to be a recorded document (spreadsheet, software application)
A budget should be based on previous spending and estimated future spending
A budget should include a system to track spending in real-time
A budget should be balanced, either breaking even or holding a surplus at the end of the month
A budget should be based on defined time periods (ex., a month), and should be revisited and updated periodically to make sure it still accurately reflects expenses and income.
There are thousands of resources available to help you plan and build a budget, so we won’t go into detail on how to build a budget in this article. However, once a budget is built, one of the keys to success that we will address here is to have a system in place to track your spending in real-time. Some of these include using online tools or applications such as YNAB™ (You Need a Budget) or GoodBudget™. A tried-and-true, but more traditional method for people who prefer to use cash is the envelope system.
The Envelope System
This system involves allocating cash into physical envelopes labeled for your budgetary spending categories and is designed to provide a visible way to manage your money.
Here’s how it works:
Create Your Envelopes: Start by identifying spending categories and subcategories from your budget. Focus on variable expenses and create a labeled envelope for each. Recurring and fixed costs, such as rent or mortgage, do not require an envelope.
Allocate Income: After receiving income, decide how much money to allocate to each category based on your budget. Place the cash into the corresponding envelopes.
Spend from Envelopes: Use only the cash in each envelope for the designated category. When the money in an envelope is gone, spending for that category must stop until the next budgeting period, encouraging discipline and accountability.
Adjust as Needed: If a category has leftover money at the end of the month, it can be saved, rolled over, or reallocated to other categories. Conversely, if funds in an envelope run out early, you may need to adjust spending or transfer money from another envelope.
Have an Emergency Fund
Last, but not least, make sure you put together an emergency fund for times when unexpected expenses pop up. An emergency fund (of $1,000 or more) can help prevent you from reaching for the credit card every time an unexpected expense occurs in life – something guaranteed to happen.
How to GET Out of Debt
In this next section, we will not address how to pay off bad debts. While a simple concept in principle, most people struggle, and end up either never getting out of debt, or accumulating more debt over time – even if they are successfully using a budget. Often this comes down to one principal: not having a proven and reliable debt payoff strategy. Next, we will review two proven strategies to help systematize your debt pay-off plan.
The Debt Snowball
The first debt reduction strategy we will discuss is the debt snowball. The debt snowball is a method where you allocate a percentage of your budget to debt payoff every month, and then specifically target your smallest debt with the intention of paying that one debt off as fast as possible before moving to your next largest debt.
How it works: Budget to pay off your smallest debt as quickly as possible. This could be a credit card, a bank loan, a car loan. Do this while still making the minimum payments on all other debts you owe.Once paid off, take the money you had been paying on that first debt and contribute that (along with your minimum payment due) on your next largest debt.
Then repeat this process as you move up the ladder of your debts.You will notice that your overall monthly debt payment across all debts does not change as you pay off each debt individually.
Why it works: This method is effective because it maintains a steady overall debt payment as you pay off each debt individually. By paying off and eliminating each debt, then rolling that freed-up money into the next debt, you prevent using that extra money elsewhere in your budget and instead apply it to the next debt, accelerating debt reduction. It also provides great motivation as you can start to see “wins” as you pay off each small debt one by one, before moving on to larger debts - like a snowball.
The Avalanche Method
Next, we will discuss the avalanche method for debt reduction. The avalanche method involves paying off debts with the highest interest rate first before moving on to debts with lower interest rates.Just like the debt snowball, this method has you roll your payments over to the next debt; however, rather than starting with the smallest debt you own, you are starting with the debt that has the highest interest rate.
How it works: Budget to pay off your debt with the highest interest rate (APR) as quickly as possible, this could be a credit card, a bank loan, a car loan. Do this while still making the minimum payments on all other debts you owe.Once paid off take the money you had been paying on that first debt and contribute that (along with your minimum payment due) on your next debt with the next highest APR (annual percentage rate).
Repeat this process as you move up your debts.You will notice your overall monthly debt payment across all debts does not change as you pay off each debt individually.
Why it works: This method works because it mathematically reduces the overall interest paid as you pay off your debts. It also has the same benefit as the snowball method of keeping your overall monthly debt payment even as you work down your debts.
Conclusion
We hope this article has provided you with some helpful strategies for managing debt. We want you to know that as an educator, you are highly valued and your profession is crucial to ensuring the future of the numerous students you educate daily. As a teacher, managing debt and hopefully eliminating debt should be a gradual process that, once complete, will allow you to focus on what truly brings you joy and fulfillment. Your well-being is essential, and your financial planningis a significant part of that, both for you and your students.
About Model Teaching
Model Teaching is a leading K-12 Professional Development and Continuing Education provider.Model Teaching’s courses focus on what’s important to teachers: relevant content focused on specific teaching strategies and evidence-based best practices, delivered in a format ready to be used in the classroom. Model Teaching courses are designed by certified educators and provide clear guidance in a highly structured format focused on classroom implementation. Additionally, all Model Teaching courses come with a range of templates, tools, rubrics, and student-facing materials, all ready for use in the classroom. Model Teaching courses allow teachers to earn continuing education hours or credits for license renewal and salary advancement in most states and/or school districts across the U.S.
Course: A Financial Literacy Mindset for Teachers
For a more comprehensive look at some of the strategies and tools discussed in this article, feel free to enroll in the full-length course: A Financial Literacy Mindset for Teachers, offered online and self-paced by Model Teaching.
