Friday, June 14, 2019

Living Debt-Free

Through a combination of good luck and good habits, I’ve never had a problem staying out of debt. I’ve had to work at understanding what causes others to have debt problems. This is where Shannon Lee Simmons’ book Living Debt-Free has helped me. She lays out a wide range of debt management plans that take into account human nature and the underlying reasons why people have trouble with debt. The book contains a great many stories of people Simmons helped out of debt. These stories illustrate her points well and made the book an entertaining read.

Without thinking too deeply, we might believe that making someone feel shame about being in debt would drive them to cut their spending and pay off their debts. Simmons says the opposite is true. People need to feel good about some of the choices they’ve made to generate the sustained enthusiasm necessary to spend a few years digging out of debt.

“The stronger the negative emotions connected to your debt, the more likely you are to fail at your debt-repayment plan. You’d think it would be the opposite, but it’s not.”

If you’re in debt and don’t have a handle on your finances, “It’s likely that you feel guilty or afraid when you spend money. You never really know when spending is okay or when it’s going to lead to more debt you can’t pay off.”

An interesting part of the book it the idea of “tripwires.” Simmons suggests that you examine your spending over a few months and identify all the purchases you now regret. She then wants you to look for a pattern among these purchases. Possible examples are overspending on vacations, buying things your children don’t need, or fear of missing out. She wants you to identify your tripwires so you can catch yourself before making a purchase you’ll regret later.

Simmons doesn’t believe in scaring people with how much interest they’re paying. “The problem is that using scare tactics as the sole motivating factor almost always leads to failure over the long run.” She prefers to have you find your “touchstone,” which is the non-financial reason you have for wanting to get out of debt. She offers a list of questions to answer to help identify your touchstone. Keeping your reason for wanting to get out of debt front and center in your mind will help you maintain your motivation.

The book contains a series of steps for analyzing your spending, setting a realistic spending level, and calculating your “magic amount,” which is the amount of your income you can put towards debt each month.

Simmons stresses the importance of being realistic about how much you need to spend. If you choose a spending target that’s too low, you’re just setting yourself up for failure. “People give up on their Debt Game Plan if the plan doesn’t feel doable. I’ve seen it again and again.”

“If you’re in a situation where your Magic Amount is zero and you need to reduce expenses, try to reduce Fixed Expenses first, before reducing your Spending Money.”

Simmons has specific recommendations for how to set up your bank accounts. It’s aimed at having a separate chequing account to isolate the money you can spend each month however you wish. This gives you “permission to spend that money to zero without worrying that you’re using money earmarked for bills or savings.” If you want pizza and the account has money in it, you can have the pizza. “No guilt, no shame, no worries. No debt.”

Some minor not-so-good parts of the book

There are a few references to Astrology. Perhaps these are just meant to keep the book light and fun, but they are a red flag for me. I had a family member who believed in Astrology, and she made important decisions about her life and relationships taking into account Astrological nonsense. These few references to Astrology undermined my confidence in the author.

In Simmons’ own story of digging herself out of debt, she planned to withdraw $13,000 from her RRSP and “Once I paid the tax penalty, I’d have $9,100 left.” I know many people mistakenly think of the withholding tax on RRSP withdrawals as a “penalty,” but as a CFP, Simmons should know better.

After cleaning out her RRSP, “That was it. All of my savings, gone. Poof!” It’s common for people to think of their savings and debts separately, but the RRSP withdrawal was just recognition that it had already been spent slowly over time.

The interest rate on payday loans “can be as high as 60 percent.” Try 390%, and that’s before compounding. The compounded interest rate on payday loans is about 3600%!

When you’re in a position of needing to sell investments to pay off debt, Simmons says “you don’t want to sell if you’re in a loss position.” This isn’t good logic. It’s a bad idea to sell something just because it went down, but if you need the money to pay off debt, it shouldn’t matter whether the investments are trading higher or lower than your purchase price.

In a strategy Simmons calls “Stack and Swap,” it can be a good idea to pay certain debts off first to eliminate their minimum payments to free up cash flow. She says to “pay off the [debt with the] lowest amount owing,” but this isn’t right. It’s the ratio of minimum payment to debt that matters. If the lowest debt is $1000 on a credit card with a $30 minimum payment, paying it off won’t free up much cash flow. The targeted loan has to have high payments relative to the debt amount for “Stack and Swap” to work.

In a story about a person named Lee with tax troubles, the difference between $500 and $325 is calculated as $125.


Overall, I found this book both entertaining and illuminating. While I don’t have debt troubles myself, I’m glad to get better insight into how to help others who do have debts. The book has some parts I didn’t like, but they weren’t central to the main themes.


  1. I'd love to see a an analysis of her concepts as they apply to weight loss. The whole idea of being realistic, of needing quick wins to feel good to put in the ongoing effort, etc, all seems familiar.

    1. @Anonymous: I've never struggled with my weight, but I've watched family members fight with weight loss, and I think you're right about the parallels between getting out of debt and losing weight.

  2. I wonder if the “Stack and Swap” approach isn't supposed to work in terms of math so much as it is about psychology: if you have 10 debts you can't pay off, getting 2 of them completely off the books (even if they are small) can make someone feel like they're making good choices and improving their situation, whereas just paying off more of one (even if it's the one that should, mathematically, be paid off first) isn't nearly as rewarding, psychologically.
    A person can check off "HELOC debt" on a mental checklist, whereas just paying off more of the Visa feels like more of the same.
    Just my 2c

    1. @Anonymous: That's an idea I've seen in several places, but it's not what the author means with "Stack and Swap". She's specifically looking to free up cash flow by eliminating some high minimum payments. The relevant section is clear on this point.