Sometimes people just land in a debt trap –the loss of a job, a large medical event, and bingo, you’re deep in debt. For others, it’s a gradual evolution based on a combination of factors. In order to get out of debt, you first need to understand how you got there. Once you do, you can begin the mechanical process of reversing the trend.
There are reasons people get into debt, and here are a few of the big ones.
Too much debt to begin with
This may sound obvious, but part of the reason you can’t get out of debt is because you have too much debt to begin with. That debt needs to be serviced each and every month, and it’s taking a big chunk out of your paycheck. Not only does that mean that you don’t have money to begin paying down your debts, but it also means you have less money to live on, forcing you to tap credit cards anytime you need a little extra.
The first thing you have to do is to stop borrowing any more money! But right after that, you need to find a way to whittle down those debts – quickly!
Start by targeting the debt that has the highest monthly payment; that will give you some immediate budget relief and allow you to begin paying off other debts. In order to payoff the high payment loan, look into getting a loan from a family member, or selling off some significant assets. Do you have an extra car you can sell? A boat? A recreational vehicle? Or even some jewelry?
It may not be easy or even comfortable, but once you get your biggest monthly payment out of the way, you’ll have some breathing room to start going forward.
Paying high interest rates on debt? Consider using Lending Club to refinance your high-interest debts. Many people find they can cut their interest costs by 40% or more. It’s worth checking out.
High cost of living
We certainly don’t want to get into “the devil made me do it” excuses, but there are factors beyond our control that contribute to debt. Basic necessities, such as housing, healthcare, education and utilities have become disproportionately more expensive in recent years. And if you have teenage children, food is no small expense either.
The point isn’t to justify overspending, but to recognize the basic budgetary obstacles that we face, and to respond accordingly. If you have too much debt, you’re going to have to take a close look at your basic living expenses.
That might mean giving serious consideration to downsizing your living arrangement, sending your children to less expensive schools, or selling an expensive vehicle for one that you can more easily afford. It can also mean eliminating some services that you’ve gotten used to over the years, such as cable TV or unlimited cell phone minutes.
Seeing wants as needs
One of the emotional limitations of living in a prosperous world is that we come to see wants as needs. You may for example, see trading in your car every five years for a new one as a need. You might justify it by telling yourself that will cut down the cost of repairs. But that’s hardly a need – it’s a want.
Many people today have come to see the annual family vacation as a need, not a want. This notion is fueled in part by the fact that’s become a common event in so many households. As desirable as an annual vacation may be, it’s not a necessity, and should be fair game for elimination if you want get rid of your debt.
Restaurant meals are another example. You’re busy, tired, you don’t have much in in the house to cook, so you default to eating in restaurants. That pattern isn’t a necessity either, it’s a convenience. If you have too much debt, convenience is a luxury you probably can’t afford.
If you’re serious about getting out of debt, you have to constantly be evaluating the wants-vs.-needs equation. If it isn’t a true need, then it’s a want that you don’t need to spend money on.
Not enough income
Debt is usually the result of an imbalance between income and expenses. You can fix the problem with a combination of lowering your expenses and increasing your income.
This effort doesn’t necessarily need to be radical. You can probably help your situation tremendously by getting a part-time job working maybe 10 hours a week. Or you might be able start a side business doing something your particularly good at. This can include repair work, tutoring, child- or pet-sitting, property maintenance or computer troubleshooting. Just about anything that you’re above average in can be turned into a side business to make extra money.
Still another possibility, though it may be longer-term in nature, is to find a way to increase your market value on your job. Find out what skills you need to get promoted up to the next level, or moved into a better paying position in another department. The answer may also be to find a better paying job elsewhere. That’s not so easy to do these days, so be prepared to focus on improving your situation where you’re at now.
While you’re busy cutting expenses and earning extra money to pay down your debts, you should also combine it with an effort to build up your savings. A lack of savings is a major cause of debt problems. People who don’t have savings are forced to rely on debt anytime they need money.
At the beginning of your debt payoff efforts, you probably won’t have enough income to save a serious amount of money. Plus you have to make a choice between putting money away or using it to payoff debt. Decide for yourself which effort will get you to your goal faster. For some that means attacking their debt. For others paying off debt may require getting some money in the bank first to have a cushion that will prevent them from having to use debt.
No matter how you work it out, you will need to begin the gradual shift from being a debtor to being a saver. There’s no time like the present to begin that transition.