I have people pouring what seems like their heart and soul to me because they really want to change and improve their situation.
This is something that I love about being a personal finance blogger – the fact that I can (hopefully) help someone change their life and teach them how to manage their money better.
Many of the questions I receive involve debt and what they can do to change their situation.
Someone told me they had over $200,000 in student loan debt, another person recently told me they had over $100,000 in credit card debt, some are hiding their finance problems from their families, some have told me that they are beyond house poor and they don’t know what to do.
The list goes on and on about the stories that I have heard.
I think the first thing a person needs to do when it comes to eliminating their debt is to realize WHY they are in debt in the first place (the next step is to actively reduce your debt – read How To Eliminate Your Debt). If you don’t know what your problem is, then it would be hard to make a positive change.
Yes, it is great to just start attacking your debt, but you also don’t want to fall into a vicious cycle of going into debt over and over again.
Here are some of the many reasons for why you may be in debt.
When I was in the middle of paying off my $40,000 worth of student loan debt, I remember being asked why I wanted to get rid of my student loan debt so quickly.
You know the saying about how there is no such thing as a stupid question?
Well, I thought that question was extremely stupid. I thought (and still think) it was probably the most stupid question I have ever been asked or heard.
I can’t remember the conversation exactly, but I remember them saying something about how I’m young and I should enjoy my money more and that I can worry about my student loans later.
Why not just pay off your debt more? Would you really rather have than 100th pair of jeans instead of putting more towards your debt? I know for a fact that I will probably completely forget about an article of clothing (even though I love clothes!) and I will appreciate my debt being paid off more.
I still enjoyed my life while I was paying off my debt, and I definitely do not think I was suffering at all.
It’s been around seven months since I completely paid off my student loans, and I couldn’t be happier!
You also never know what may happen. If you wait to pay off your debt and instead spend your money on things that you don’t need, you may fall into a bad situation. What would happen if you lost your job, came across high medical bills, or something else?
Wouldn’t you have wanted your debt to be gone?
Your credit card is not a new income source. If you treat your credit card this way, then you should cancel your credit card.
Oh well if closing your account means that you will be lowering your credit score, you are probably doing worse damage anyways by racking up large credit card bills that you can’t pay.
If you are using a credit card, then you should be working to pay off your balance completely each month.
Many people compare their debt amounts to others in hopes that they will feel more “normal” about their debt and not feel as bad. An example would be if you are 30 and the average 30-year-old has $10,000 worth of credit card debt (I completely just made that number up). You then use this number as a “guide” to yourself so that you can feel more comfortable about your debt.
However, WHO CARES about how much debt another person has? How exactly does knowing what the average amount of debt a random 30-year-old has affect you?
Is that person you?
So, why would another person’s amount of debt even matter to you? That makes no sense!
Just because someone else has $10,000 worth of credit card debt from buying too much clothing does not mean that you should too. You never know, this amount may be breaking them on the inside even if they aren’t showing it.
Yes, you may be awesome and think you deserve it, but should you really be buying it? Just because someone else just bought a 100 inch 3D TV (or a mansion, nice car, gadgets, a crazy-expensive wedding, etc.) doesn’t mean that you should as well.
You might think “oh well they have a comparable job to mine, so, if they can afford, then I can too.”
However, you have no idea how this person is paying for it. Maybe they saved for years, or maybe they are just putting everything on their credit card.
I recently talked to someone who has over $100,000 in credit card debt and I could tell they were in panic mode. They bought way too much house, way too much car, way too much everything. They thought they deserved it all since others were buying something similar.
You don’t need to keep up with the Joneses!
If you’re feeling extra brave, please share how much debt you have (house, car, student loans, credit cards, etc.).
I started last year with over $3,000 in credit card debt. Depending on your own experience with credit cards, that may sound like a lot or a little to you.
Either way, you can probably understand why one of my New Year’s resolutions last year was to become debt free in 2012. It really is no fun having debt, and I would actually even go out on a limb and say credit card debt is the least fun kind of debt to have.
So… how’d I do? Pretty well! I was able to pay off my entire credit card balance and reached my goal in July of last year.
But as soon as I had paid off my debt, I ran into a new problem. It was hard to maintain the good financial habits I had developed once I knew that my debt was gone! These habits included:
These were the habits that helped me pay off my credit card debt quickly – even faster than I expected – and it felt good to know that my behavior changes had helped me reach my goal. Which is why I found it troubling that these habits started fade away once I became debt free.
The truth is, getting rid of debt is an extremely urgent goal. It’s also very hard to ignore. Those two things made it easy for me to stay focused and commit to the habits listed above. Once I was out of debt, the urgency and the focus were not there anymore. I started to feel more positive about my finances (which is good) but that positive feeling lulled me into ‘easing up’.
I stopped using my budget spreadsheet for awhile. I went back to buying lunch out of the office everyday. And I no longer looked for ways to make extra money.
After reviewing my progress (or lack thereof) for the last few months as part of my preparations for the New Year, I identified several practices that will help me get those good habits back. Hopefully these can help you as well, no matter what your goal is:
1. Create a goal: There really is nothing like a goal for providing motivation. In fact, I think there is something about our human psychology that requires this type of focus on a single objective to create any lasting behavior change. So… what’s my goal? I’ve decided that I want to save at least 20% of my take home pay this year.
2. Envision your future: Your goal will be more powerful if it is associated with a vision of where you want to go. For me, the long-term vision that motivates me is having financial security, which means an emergency fund of at least $12,000-$15,000 and to eventually have some measure of financial independence, which means enough money saved up to retire early (I know that’s a reaaaally long term goal).
3. Have monthly targets: In addition to your main ‘big picture’ goal, you need monthly targets. These will show you whether you’re on the right track and they help you maintain that sense of urgency every month. In my case, the monthly targets are to save 20% of my take-home income each month and to know exactly how much I spent each month.
4. Allow yourself small rewards: One of the things that tripped me up after getting out of debt was that I really wanted to reward myself for accomplishing that major goal, and that resulted in some additional spending. The problem wasn’t that I spent a little extra for one month, it was that I continued to spend a little extra. That’s why you do need to give yourself rewards (i.e. one dinner out or one trip to the movies – whatever makes you happy). The trick is to enjoy those nice things and to look at them as special treats rather than things you can do all the time.
5. Spend time with like-minded people: It may sound strange, but you are who your friends are. Research has shown over and over that we tend to act in ways similar to those around us. If you’re spending time with people who don’t have financial goals and/or who like to spend well above their means, you’re going to have a difficult time sticking with your plans because you’ll be trying to ‘keep up with the Joneses’. On the other hand, if you spend more time with people who share your financial goals, it will be easier to stay on track.
For anyone who is still working on paying off their own debt, please check out our Credit Card Debt resource center, our Student Loan Debt resource center, and our Debt Consolidation resource center. And anyone can get some great tips from our Budgeting Tips resource center. If you’re looking for a community of like-minded people as you pay off debt in 2013, don’t forget to check out the Debt Movement where we’re trying to pay off $10 million in 90 days together!
Benjamin Feldman is a personal finance writer for ReadyForZero, a startup company that is helping people pay off debt with their free online tools. You can follow him on Twitter @BWFeldman and at the ReadyForZero blog.
Do you ever feel like you are trying to keep up with the Joneses? It seems like everywhere I turn, a big purchase is happening to someone I know. A massive 3 story house, nice cars, fancy vacations, a new iPad every other month and everything else.
When a friend goes out and buys the next greatest phone or buys a new car every couple of months, it kind of makes you wonder, and maybe it makes you jealous?
I’m not going to lie, the jealous monster takes over my life every now and then. This is something that I am working on and something that I need to change in my life. Am I the only one? Sometimes I feel like I’m the only person who is jealous and no one else has these crazy feelings. Since my extra income seems to be continually increasing, sometimes I feel the urge to spend it.
Maybe the jealous monster has taken over your life as well and you are trying to keep up with the Joneses.
We know someone who isn’t showy with his money, he is careful with how he spends his money. He doesn’t buy all the latest gadgets that don’t mean anything to him. Instead he spends money on his family, vacations, making his house into a home, family gatherings at his home, and other things that truly mean something to him.
He is the perfect example that just because you “might” have money to spend, it does not mean that you should. Buying all of the newest things all of the time doesn’t always mean everything in life.