77 million Americans have at least one of their debts currently in collections (Urban.org, 2014).
That’s over one third of Americans who have a credit file. Unsecured debt is simply too easy to get, and we quickly find ourselves up to our eyebrows in debt with no apparent way out, especially among the younger generation.
Now, I’m not here to knock debt counseling or debt consolidation (but don’t even get me started on some of these credit repair scams!) but this is honestly something that requires more than just outside help. The change has to come from within.
How does credit card debt get out of control?
So what got you here? Without rubbing your nose in it, you should be able to comfortably admit to at least one of these downfalls:
- Poor spending habits, or buying unnecessary things
- Spending money you don’t have
- Poor budgeting, or lack of a good budget plan
- A costly emergency situation in your past
Yes, a debt consolidation loan is an option, but without changing your habits, you’re just going to fall back into the same pit over and over again. So let’s talk discipline.
Discipline is Essential
The word “discipline” has taken on some very negative connotations. Kids especially hate the word. Discipline, they think, means not being able to do whatever it is that you want to do. It means straight-laced and is a deterrent to fun. But that isn’t the only meaning of the word.
Discipline can also mean “self control". For example, those who want to be physically fit, “discipline” themselves by living a healthy and active way of life. The discipline makes them happy. It doesn’t mean that they are being denied any pleasure at all.
Debt discipline is not a form of financial punishment. Debt discipline is a way of life that provides much pleasure, peace of mind, and self-assurance. Now some people consider the word “budget” to be a dirty word, but you need to remember that “debt” is the REAL dirty word…not to mention that it is also a four-letter word. So what do I expect you to do about it?
1. Form a mental picture of where you want to be. What’s it look like? How would you feel if you were debt free? What would be better? Write it all down, and keep your eyes on the prize.
2. Stop using your credit cards. Now! The first step to getting yourself out of a hole is to stop digging! Don’t start using them again until you’re out of debt and are able to pay them all off.
3. Eliminate all unnecessary expenses. See what you can cut out, even if just for a year while you get back on your feet again. Be careful not to cut out anything that might save you money in the long run.
4. Set up a new budget. Obviously your old one wasn’t working out, so it’s time to reevaluate. Or maybe you never had a budget, that’s ok, don’t beat yourself up about it, millions of people make the same mistake. Certainly take the time now to figure out weekly, monthly, and annual expenses.
It may take several tries over the course of many weeks, as we often forget one or two things, and then have to re-work the budget all over again. That’s ok, too, even multi-million dollar businesses make budgeting mistakes. It often take months, dozens of meetings, and lots of rough drafts before they settle on the final budget plan, and they have accountants on staff!
5. Avoid going to places where you’ve overspent in the past. If you were an alcoholic, I would advise against going into a bar, because it’s an undue temptation that could easily cause a back-slide in your recovery. Now, there’s quite a stigma for alcoholics, but shopping can be an addiction.
According to a 2013 survey , 37% of respondents claimed they experience feelings of guilt or shame after shopping, and 18% said they “often purchase things they did not need nor plan to buy when they went shopping. I’ll reiterate: avoid the places where you overspend. Off the top of my head, I’m gonna say “no shopping malls". There’s just too much going on there, and everything is overpriced.
6. Don’t spend what you don’t have. According to that same survey, 19% of respondents say their primary reason for using credit cards was to pay for things they couldn’t afford. Any credit counselor would agree with me on this. Don’t use credit cards to pay for things you can’t afford.
That’s like the definition of going into debt. Of course right now, you’re following Step 2, and aren’t using your credit cards at all…right? Good. When you do start using them again, please, please, make sure you follow this step.
7. Make a list, check it twice. Make two lists actually. First of all, always go shopping with a list. Try to slow yourself down enough whereby you can actually focus on the list-writing task at hand and spend some time considering and reevaluating it.
Make a list of the things you do have. This can help you avoid going to the store and buying something you didn’t need. One tip I’ve heard was to take a picture of your refrigerator so you can always look at all those pretty magnets and pictures your kid made at school. Kidding! Take a picture of the inside of the fridge and cabinets so you can double-check your inventory as you’re shopping.
8. Figure out what causes you to spend outside of your budget. Everybody breaks down, everyone has a “trigger" that could cause them to “relapse". Maybe it’s part of your self-destructive tendencies- woah, ok, let’s not go there. Part of changing your habits, though, is identifying those “triggers" so that you’re ready to deal with them when they arise.
This short but insightful article from 2008 describes how the author realized that every time he had a bad day he would go out and buy himself something to try and cheer him up. In an effort to break this habit, he found a few other things to do that could cheer him out without spending any money. Check out some of his ideas, the post is only about half a page long.
9. Tell your family, friends and other people close to you what you’re going through. Maybe your friends like to go out to eat once a week and every time you go with them you end up breaking your budget. Letting them know where you’re at is absolutely necessary to resolving a situation like this. This is a great way to hold yourself accountable.
Yes, you’ll have to admit to them that you’re not perfect, but safe money is betting they already knew that. If they’re a good friend and somewhat mature, they’ll support you in this. Having that support is more helpful than you might imagine. Believe me, you want all the help you can get.
So for the third time, I’ll admit that, yes, debt counseling and debt consolidation can be helpful. I’ll even admit that not all credit repair services are bad. In fact, I’ve started my own company doing just that, and I can personally tell you that I’ve been able to help many people, provided they are willing to help themselves. In other words:
The one that experience the most success in resolving debt are teachable, willing to change their habits, and follow advice.
About the Author: Joe Lawrence is a real estate investor, small business owner, and business credit coach. As a way of helping other new business owners like himself, he created the Business Credit Workshop, which gives all kinds of free advice to business owners. Check out his website at BusinessCreditWorkshop.me.