There is nothing quite as crushing on a person’s spirit than the overwhelming burden of debt without a lighthouse of hope guiding the way out. In fact, when a person in debt loses sight of how to get out from the oppressive yoke – he will often go further into debt with the attitude that at least he can have what he wants…until it all comes crashing down like the little piggy’s house of straw.
Let’s hope that never happens to you as you get a firm handle on your debt issue today. So how do you get out of debt? Here are some considerations:
Do You Need to Lower Your Standard of Living?
We need the brutal truth here – debt comes when our spending exceeds our income and this most often occurs as a result of wanting too much. The quickest way to eliminate debt is to engage in some soul searching and determine what a realistic standard of living for our income is. Everyone wants to live like the guy one pay grade higher. The problem is that this cycle never ends no matter how much you have. How much better we would all be if we lived one pay grade lower than what we really earned. If debt is a result from living beyond our means (and not simply because we needed an expensive surgery or got a surprise bill), we need to make some big changes. This is just one example of changes that could be made regarding a vehicle:
- Having only one vehicle instead of two
- Getting a cheaper vehicle without all the bells and whistles (Accent vs. Accord)
- Getting rid of the vehicle and taking the bus
The same can be true of where we live. Is it reasonable to live where we are based on our income? Are we trying to live a standard above what our wages currently allow? It took our parents time to accumulate the things they wanted and we may need to adopt the same attitude as well.
After coming to terms with having a problem of over-spending or living beyond your means, you next need to attack the problem at its core and change it long-term. If keeping up with the neighbors is more important that debt, then there is little that can be done to help.
It could very well be that you are not living far beyond your standard of living in any significant way but that you have an existing debt that isn’t going down as quickly as you would like. How can you reduce that debt? Here are some ways:
Stop new debt. Don’t buy anything on credit. Just stop going into further debt today. Don’t go into debt because you failed to save for a trip, or to buy gifts for your friends, or for any other reason. If you are serious about paying down on debt you need to stop the hemorrhaging.
Examine your interest levels. If you have big credit card debt and want to pay down on the cards, what are you doing with rewards cards? You only earn rewards if you spend more and the whopping interest on your balance is eating you alive. Shop around and get a lower interest card if possible. Phone your existing card and get a better rate or a different kind. Cut, burn and eliminate those high interest cards that give only a couple percent back on your 20% interest rate.
Save for emergencies. What??? Save when you have debt? This makes no sense! But it does…the process is to wean you off credit cards and other forms of borrowing. Problems will come up and you will need an emergency fund to buy new tires or some other unexpected problem that requires cash. Wean yourself off credit as a backup by building up even half a month’s worth of wages.
Make spending hard. Credit cards frozen in a block of ice in the freezer? Savings account not linked to your debit card? Whatever it takes, make impulse buying difficult. By the time you go to the bank and wait in line, you may have already re-thought the cowboy hat or designer salad tongs.
Attack debt with a plan: There are many ways to attack your debt – one that makes more sense mathematically and the other sense emotionally.
- Mathematically: pay off the highest interest rates first. You will saving money on the higher interest payments.
- Emotionally: if your debt payments appear to make little progress you may give up in despair. Attack the smallest amounts first and have the joy of seeing bills disappear. This will give you the inspiration you need to stay the course.
Don’t shuffle the problem around. Paying off one credit card with another or simply rolling it into your mortgage or borrowing from your retirement fund is not paying down on debt.
Dealing with debt might seem easy for those without it much like thin people think losing weight is easy. But often there are other emotional issues that need to be addressed as to why we over-indulge financially or otherwise. Only after we deal with the real problems can we then go about the task of paying off debt in a responsible way…and stay out of it!