Escape the shackles of debt and steer your therapy practice towards a flourishing financial future—that's what I'm here to help you achieve in our latest episode.
I'll guide you through the 5 step plan we walk our clients through, as well as share a recent mistake I made with debt.
This is a must-listen for practice owners ready to take control of their finances and say goodbye to debt for good.
Learn our money management system in Episode 2
Debt Snowball Method
Debt Avalanche Method
Emotional Heaviness Method
Escape the shackles of debt and steer your therapy practice towards a flourishing financial future—that's what I'm here to help you achieve in our latest episode.
I'll guide you through the 5 step plan we walk our clients through, as well as share a recent mistake I made with debt.
This is a must-listen for practice owners ready to take control of their finances and say goodbye to debt for good.
Learn our money management system in Episode 2
Debt Snowball Method
Debt Avalanche Method
Emotional Heaviness Method
If you're struggling with debt in your practice or in your personal life. Today, I'm going to guide you through a process to get rid of the debt and free up more of your cash. My name is Craig and I'm the CEO of Desi Financial Coaching. Our goal is simple to help you run a therapy practice that is permanently profitable. If you own a solo or group practice, we're here to help you build a business that creates more time, makes more money and serves more people. This is the Therapy Business Podcast. Welcome back, practice owners. And today we're going to be digging into a topic that can cause some anxiety and stress, because it's something that we have all probably dealt with at one point or another. And, truthfully, we know that 78% of Americans are struggling with debt right now, and so, if that is you, if that resonates, the first thing I want to say is you're definitely not alone in this. You are part of the common practice owner. The common thing is to have debt, to start a business and to start accruing debt. Now, what we want to do is we want to realize that this is a problem potentially, and start to address how can we get out of that. Debt in our practice can really create an emotional toll. There's a lot of shame involved with debt. We can have fear, fear that we're not going to be able to pay our bills, that we're not going to be able to pay our clinicians. It can create this heavy weight of stress or overwhelm as we're trying to pay things and we look down and there's not enough money in the account. So we then go have to charge it or take out a loan or pull from our line of credit or whatever it is, and this cycle just feels like something that we can't get out of. It's almost like those whirlpools in the ocean and that you're trying to swim out of it, but the harder you swim, the deeper it starts going in and at one point it's just almost like you feel like giving up. We don't want that to be what's happening to you with debt, and so today I'm going to guide you through a process of how you can systematically begin to chip away at this debt Now. First of all, we want to look at debt as in itself, as not necessarily inherently good or bad. Right, there is such thing as good debt, so a great example of that is your mortgage for your house. Most people don't have the money to go out and pay cash for a home, so we need to borrow in order to become a homeowner Now. Being a homeowner is great for your future, it's great for your nest egg, it's great for a lot of financial reasons, and so in order to get there, typically you're going to need to borrow money.
Speaker 1:A lot of times I run into business owners who need startup costs Now in therapy practices. Luckily, usually you can start up with pretty minimal costs. If you think back to when you started your practice, it was likely just you in the practice. Maybe you had an office space that you were renting, but there wasn't a whole lot of things you need to run out and get. Typically, when we work in the practice, startup costs might include some furniture if you're meeting clients in person, so you know a couch and some lighting and different things like that, but nothing crazy, whereas other industries might need to go get equipment in order to do their job. So if you screen print t-shirts, you're going to have to go invest in a screen printer before you ever screen print your first shirt. So upfront costs could possibly be a reason to take out debt and it could be a good reason because, again, you're gonna invest in that screen printer and it's gonna, in turn, turn into revenue for your business.
Speaker 1:There's a key distinction when it comes to debt, and the key is we wanna be proactive. Those examples of good debt were instances where you're being proactive about it. You're going into it with eyes wide open, you've crunched the numbers and you are making a calculated decision to take out a mortgage so you can become that homeowner. Where the problem happens is when we are reactive with debt. Did we take out this debt with a purpose or a plan to pay it down? Or did we take out this debt because it was a reaction to a low bank account? Or it was a reaction to fear or anxiety or stress or feeling like we're not gonna be able to make payroll next week? Think to those debts, because the debts that we're reactive on are the ones that are the biggest problem. Reactive on are the ones that are the biggest problem. Those are the ones that are carrying that shame along with it.
Speaker 1:I, not too long ago and as the money guy, this is really hard for me to admit, but I fell into that reactive debt cycle last year. I've been coaching people on finances for eight years now and to have to admit that I was part of that reactive debt cycle is hard for me to say, but what had happened was the business was going and we started hiring these coaches under us much like you hiring clinicians to work under you and we were in this phase of growth and investing in these new employees and my client load started to drop intentionally and we started building up these coaches client base. And there was just this period of growing pains, we'll call it. And so I'm running the credit card and I remember really well there was this week where I went to go pay down the card and the amount of my bank account was less than the balance that was on the card and that pit in my stomach feeling hit and I'm going okay, you know, I'll pay what I can. Next week Hopefully it's better than the next week, still not better, in fact the gap grew and by the end of the month we're starting a new month and I'm carrying a $1,500 balance on my credit card. So I'm going okay, I need to make sure I pay that down this month. But things are just continuing to happen and even when I'm looking in my account and I see I have cash and savings. I could turn around and go pay that balance down today with the cash and savings.
Speaker 1:Fear was crippling me. I was afraid to take that cash, pay down the card, because then I'm going well, what if I need that money? What if I'm in this kind of cycle? Right now, I just need more revenue kind of going through this cycle in my brain of how can I solve this. Well, long story short, six months or so later, I'm sitting there with an $8,000 balance on my credit card and I'm embarrassed. I'm embarrassed about it because I'm on calls with an $8,000 balance on my credit card and I'm embarrassed. I'm embarrassed about it because I'm on calls with my clients helping them pay down debt and we're talking about how it can really tie your hands, and yet here I am carrying an $8,000 balance on a credit card that just spiraled out of control. And I know you can probably relate to this as a therapy practice owner who's working with clients and giving them advice and listening to their problems and trying to guide them through problems that you might be dealing with in your own life, that you don't feel like you have as much control on it. It's easier to maybe speak into their lives, but at the same time, maybe yours is crumbling in that area, maybe you're helping people through marital counseling while your marriage is struggling. So that's exactly the weight I was carrying. Now, I'm happy to say, I started to get proactive about it and I use some of these exercises that I coach my clients through that I'm going to share with you today to help get me out of that hole. So here's how we work through that.
Speaker 1:There's five key steps in order to breaking this debt cycle for good and digging out of that debt hole. So the first thing is to have a money system set up. So in general not just for debt but for managing your cash you have to have a cash system in your business. Now, in episode two, we walked you through the system of profit first, the system that we use in our business and the system that we teach all of our practice owners that we're working with. But in a sense and in a nutshell, I recommend listening to that episode if you haven't but basically it's using bank accounts to manage your finances.
Speaker 1:Having multiple bank accounts, each of them nicknamed with a specific purpose. We have an income account where all your deposits from Simple Practice, wherever you're accepting money get deposited into this income account and it sits there and waits and then you take the money from that income account and you divide it across these other core accounts. We have an account for owner's pay. That's for you, the business owner, to make sure that you're getting paid, even when business is good or bad. We have an account for operating expenses. This is an account to pay your expenses, to pay your day-to-day bills. We have an account for taxes. We have an account for payroll or contractors. If you have a team of clinicians under you, we recommend having an account specifically for that. And then, finally, we have an account for profit, so that we can be intentionally profitable. We're gonna set aside money into that profit account. So we need to have a money system, and the reason is we can't make progress without it and it's gonna cause us to be proactive instead of reactive, and that is the key. When we have a system, we have a plan, and when we have a plan, we can make educated decisions, we can be proactive and we're not just reacting based on what's in our account.
Speaker 1:Once we have a money system in place, that moves us to step two, and that's where we're going to list our debts. So go through your debts and list them out. We're going to list out the balances. So what's the current balance on each debt? What's the payment on each debt? What's your minimum monthly payment? And then what is your interest rate? So we want to know those three key elements and go ahead and list them on a sheet. You can list them on a sheet, you can list them on a spreadsheet, piece of paper, whatever works for you.
Speaker 1:Now I like to see the payments, your monthly minimum payments, for a couple reasons, and we'll get into how we might use this when we're paying down debt. But I also like to total up the total minimum payments you have across all of your debts and I call this your magic number. So as you add up your personal loan, the business loan, minimum payments, your credit card minimum payments, fill in the blank whatever loans, debts you have. What that total is we call the magic number. The reason is because this is the number you're going to reclaim when you get rid of all your debt. It's going to be like you signed 10 new clients. When you recoup that money, when you pay off the debt and you free up that money, it's more money in your business to invest in growth, to invest in people, to invest in marketing, to invest in the things that are actually going to help the business and not anchor it down.
Speaker 1:Now that we have our numbers, so we have a system in place, we have our debts in front of us. We know exactly what each debt balance is. What the payment is is what the payment is, what the interest rate is. Now we can come up with a game plan to attack that debt. The key here is which debt do we attack first?
Speaker 1:There is power in focus. Where a lot of practice owners go wrong is they try and make extra payments on all the debts at the same time. So it's five credit cards, each credit card. They're paying an extra $50 on top of their minimum payment and they're frustrated because they're just not making progress on getting those debts paid down. We want to put focus on one debt at a time. Now I'm not saying don't pay your minimum payments. We want to pay minimum payments on everybody. No matter what method we're using, we're going to make sure we're paying our minimums on everybody, so that way we're not taking your credit, they're not getting sent to collections, but any excess money we can gather together. We're going to focus on one specific debt at a time.
Speaker 1:Now, there's a few methods of choosing that first debt. You're going to do One of the most common ones, and typically the one that we see work the best, is the debt snowball. The debt snowball is listing your debts in order from smallest to largest, based on their balance the smallest balance to the largest balance and we're going to focus all of our attention on that smallest debt first. Then, once that debt is gone, we're going to move on to the next debt and the next debt down the list. The reason this works really well is because, typically, your smallest debt is going to be able to get knocked out fairly quickly. Maybe it's just a few hundred dollars, maybe it's 1,000, one to $2,000, whatever it is. You're gonna be able to knock that thing out. And it's going to provide two things. It's going to provide a dopamine hit because you just had a quick success. You had a quick win by getting rid of something. You're checking off something on that list. You're able to cross it out. The second benefit is you're going to free up some money in your bank account, in your monthly payments. So remember that magic number when you pay off that smallest debt. We have just shrunk that magic number down a little bit. Now.
Speaker 1:The debt snowball, while effective, is not always the best route for everybody, and so, as I list these out, I just want you to know. If you're not sure which one is the best for you, we usually just recommend airing on the side of the debt snowball because universally it's a great way to get out of debt and for most people it's going to be beneficial. That said, I know everybody's different, so another method you could look at is the debt avalanche, where you're prioritizing interest rate, so you're paying off the debt with the highest interest rate first. The debt avalanche is going to usually save you money in the long run, meaning you're going to pay less interest by the time you are, from now until you're debt free. However, sometimes the highest interest rate is not the smallest debt and you might take a while paying down that highest interest rate one. So it might be a while until you get that win or until you free up some cash in your monthly payments.
Speaker 1:Another one that we usually recommend clients to really consider is a method called the emotional heaviness method. Is there a debt in that list that just carries an emotional weight. As we talk about all this and we talk a lot about numbers, it's easy to forget about that emotional side, and money is emotional. Is there a debt that you're carrying with you that maybe carries that extra emotional weight? I had a client once who we were working on their debt elimination plan and come to find out they had a debt in collections because they hadn't been paying on it. And when I started asking them about this debt, it turns out this was a debt that was for hospital bills for their son who was going through a fatal treatment, and they eventually lost their son, and so just seeing and paying this debt carried such a heavy emotional toll on them that they pushed it out of sight out of mind. Now, what we determined was it's not really out of sight, out of mind. It's always lingering there because they know in the back of their mind it's there that they owe this debt. They're still getting phone calls, they're still getting letters in the mail and emails about it.
Speaker 1:So we decided to prioritize that debt as the one we are going to focus our attention on. It was in collections, they weren't paying on it, so they didn't have a minimum payment, but we knew getting rid of that was going to free up so much mental real estate and it was going to help them get at least one step past that it was no longer going to be weighing on them. So the emotional heaviness if there is a debt in your list that just carries a little bit of extra weight, it's okay to prioritize it first. Even if it makes no mathematical sense, even if it is not your smallest debt and it has no interest, that's okay If it carries some kind of emotional weight. If it was a stupid decision you made in business, which we've all made, and some kind of emotional way, if it was a stupid decision you made in business, which we've all made, and it's just hanging over you and every time you see it it just puts that pit in your stomach, that's okay to prioritize it first. So we want to figure out those plans. If you want to learn more about those on our blog Alicia, one of our coaches on our team she wrote blogs outlining each of these debt elimination methods, so we'll link that in the show notes. Go ahead and look through them if you want to read more in detail how each of those methods works to find the one that works best for you.
Speaker 1:Once you have a game plan, we're next going to move on to step four, which is to open a debt destroyer account. We're going to use those bank accounts that we're doing in our business to start attacking debt aggressively. We're going to open an account I recommend opening an account and nicknaming it Debt Destroyer. So, on top of those accounts we listed earlier, open another account and we're going to create its sole purpose to be debt, and then we're going to allocate just a couple percentage points. Whatever you can spare maybe 1% or 2% of all your income can go into that account. If things are feeling super tight, maybe 1% or 2% of all your income can go into that account. If things are feeling super tight, then 1% is fine. It's not going to make a big difference to put 1% of your sales into there, and then at the end of the month, you will have accumulated some money and you can go ahead and turn around and throw it on whatever debt you decided to focus on first. Then you also have your profit account, which you're allocating money toward as well. In the profit account, what we teach our clients is at the end of every quarter, you're going to take that money and you're going to use it as a bonus. So, whatever you've been putting aside all quarter long for those three months, you get to take out and pay it out to yourself as a bonus. However, if you're focusing on paying down debt, this is a great opportunity to use that money to pay down some debt. Now some clients opt to take out their. If they're focusing on debt, they might pull their profit out monthly to just help catch some steam and help move the process along. But just know, opening a debt destroyer account and using your profit account is a great way to catch up and get some speed and get some extra cash to throw on this debt. All right.
Speaker 1:Finally, step five is to stop accruing new debt. There is nothing more frustrating when you're trying to get out of debt than that two steps forward, one step back, feeling that idea that you are putting all this energy and effort into paying down the debts you have and then you have to go and take out a pull from your line of credit because payroll is due or you have to pay an invoice. You don't have the cash, so you go charge it to a credit card. So we want to prioritize not accruing any more debt. And if that means we have to slow down getting rid of debt first, that's okay. We want to make sure you're not accruing any more debt. And if that means we have to slow down getting rid of debt first, that's okay. We want to make sure you're not accruing anything new. Then we can start focusing on attacking your debt. All this boils back to that game plan having a proactive system to help you through this money.
Speaker 1:If you are struggling with debt, you are not alone and there is hope. It's just one step at a time. Don't focus on the big picture, the big number glaring at you. Don't beat yourself up. You're not a failure for taking on debt, but there is a way out of it. And so, just one step at a time, power and focus. Focus on that one small one. Start making some progress there.
Speaker 1:If you don't have the finances to pay your minimum payments, or if you're just trying to scrape together some extra cash to really focus on that smallest debt, I recommend making some phone calls.
Speaker 1:Call your lenders, call your credit card companies and negotiate smaller payments.
Speaker 1:It doesn't hurt to ask, and I think you'll be surprised how many are willing to work with you to whether it is a smaller payment, whether it's a pause on payments for a month or two.
Speaker 1:Just make sure it's not going to affect your credit as you're talking to them about these things. But we've had a lot of success with clients talking to the credit card companies and asking for a reduction in credit card payment which they're able to then take. Let's say they save a hundred dollars a month on that credit card payment. That's a hundred dollars more that they can start throwing at that first debt that they're focused on and that they can start chipping away and getting that thing out of the way. Then they have whatever that payment they were throwing on that debt to go to the next one and it just starts accumulating and they start then getting that shovel getting to really hammer down on this debt. Thanks for joining us on the Therapy Business Podcast. Be sure to subscribe, leave a review and share it with a practice owner that you may know. If your practice needs help getting organized with its finances or just growing your practice, head to therapybusinesspodcom to learn how we can help.