7 Reasons Why Your Still In Debt- and how to fix it!
I can’t seem to get out of debt- help!
The struggle to get out of debt is real! You are not alone. Getting out of debt is a top financial goal. In fact, debt is one of the biggest obstacles holding people back from quitting their jobs to pursue their calling. The world needs you, and debt shouldn’t be an obstacle.
Over the years as a financial coach, I found most people who struggle to get out of debt struggle for the same reasons. Once they understood why they were in debt, they got unstuck and got out of debt. It's possible for them, and it’s possible for you too.
BELOW ARE THE TOP 7 REASONS WHY PEOPLE STRUGGLE TO GET OUT OF DEBT:
No clue what you owe
No plan for spending
You don't prioritize savings
No debt payoff strategy
Lack of a debt-free mindset
You’re not working as a team with your family
It’s not the best time to focus on paying off debt
NO CLUE WHAT YOU OWE
I get it. You’re up to your eyeballs in debt; you know it’s bad, so why bother? If you struggle to get out of debt, it could be because it's hard to get out of debt when you have no idea how much debt you have. You have to pull the bandaid off and do an inventory of all of your debt. This is, so you know exactly where you stand.
It may not feel good (hugs), but knowing what you have is the first step to starting a strategy to kick debt to the curve. Either use tools like undebt.it or a spreadsheet to list your debts, including:
Name of Your Debt
Monthly Due Date
Interest Rate
Total Balance
Minimum Payment
The amount you paying
Estimated Payoff Date
NO PLAN FOR SPENDING
A budget is a written spending plan for how you will organize your money to meet your monthly, short, and long-term financial needs and goals. Your budget will tell you how much money you REALLY have to pay down debts.
Without a spending plan, you will overestimate how much money you have to pay off debt. An unplanned expense will eventually pop up, like birthdays or car maintenance, and money set aside for debt would need to be used to cover the cost. Start tracking your spending if you struggle to get out of debt and don't have a budget.
Budgeting comes down to three things:
A budget doesn’t have to be complicated. The less complicated, the better.
First, list your income
Second, list all your expenses
Third, see what’s left to use to pay off your debts
The best budgeting tool should be simple and easy for you to use without making you reach for a bottle of aspirin. Not sure where to start? Use the suggestions below as a guide:
Love details? Consider spreadsheets or programs like Tiller Money.
Like the idea of “physical boundaries” around your spending? Consider setting up bank accounts for your broad spending categories. Talaat and Tai, with “His and Her Money,” explain how they use bank accounts to budget.
If you like using technology, budgeting apps like YNAB or Everyday Dollar can help you track your spending. I love YNAB (You Need a Budget) simple concept of budgeting the money you have.
YOU DON’T PRIORITIZE SAVINGS
You CAN NOT get out of debt without saving money. Life and the unexpected expenses that come with it will not automatically stop because you decided to become debt-free. Cars will still need to be fixed, the plumbing may burst, and you may lose your job.
Savings is your “Debt-Proof” insurance that when you get hit with a surprise expense, a credit card bill doesn’t follow you for the next six months.
After creating a budget (because you need to know how much you can save), save $2,000 as quickly as possible. $2,000 doesn’t cover every surprise expense, but it will at least cover the small ones while you work out of debt. If $2,000 is too small, fine, increase to $3,000. The goal is to have enough to cover small expenses while you get out of debt as quickly as possible.
NO DEBT PAYOFF STRATEGY
The fewer decisions you must make, the easier it is to get out of debt. If you don’t have a plan of attack for your debt, just the stress of being in debt alone causes you to lose focus on paying off your debts. If you struggle to get out of debt, take the pressure off of yourself and pick a debt payoff strategy so it's one less thing to think about.
There are several debt payoff strategies.
Match the strategy to your stress. If you need it easy, choose a method you can do with little thinking.
If you're stressed about a particular debt, it's OK to prioritize that debt. Below are six debt payoff strategies you can use to pay off your debts:
Debt Snowball- you pay off debts with the lowest balance first.
Debt Avalanche- you first pay off the debt with the highest to the lowest interest rate.
Cash Flow - you pay off the debt's highest monthly payment/lowest payoff date first.
Lowest payments- pay off the debt the least amount of payments first
Financially damaging debt- start with lenders that can garnish your check like tax debt
Emotional Baggage Debt- get rid of the debt that has a negative emotional attachment
To learn more about each method, click here. If you don’t know where to start, start with the debt snowball- it’s easy and requires little thinking. You can always change your strategy later.
Use programs like undebit. It is to create a debt strategy. This program allows you to test drive the methods above to find the best one.
LACK OF A DEBT-FREE MINDSET
When you have a debt-free mindset, debt no longer becomes your safety net, your savings account becomes your safety net. When you have a debt-free mindset, if you don’t have the money to pay for something, you don’t buy the item on credit.
The key to a debt-free mindset is to plan for upcoming expenses, even if it means lowering the amount of planned spending or changing plans. A debt-free mindset may mean:
Temporarily taking staycations instead of taking travel vacations
Buying a less expensive vehicle or keeping the one you have
Consignment shopping vs. retail shopping
Saying no more than you say yes
Eating at home vs. eating out
Looking at your budget, not just your bank account, BEFORE making a decision
Deciding that debt is the last, not first, resort.
YOU DON’T WORK AS A TEAM WITH YOUR FAMILY
Getting out of debt is a family affair. Trying to get out of debt without working with your spouse is like a vehicle for four wheels going in a different direction. You will not get far and eventually damage your car, in this case, your marriage. Your spouse needs to be involved in the debt-free process.
This means both of you agree on the debt payoff strategy, even if it means it takes longer to pay off the debts. You both have to decide on the sacrifices you will make to pay off debt, what debt to tackle first, and how much to use monthly to pay off debts.
There are sacrifices EVERYONE in your family will need to make. Don’t leave your kids out. They are part of your family and deserve to be part of the process, especially if they have to make personal sacrifices, like dropping a school activity or seeing less of you because you’ll be working overtime.
Have a family meeting to discuss why you are getting out of debt and how this will help the family.
YOU’RE NOT IN THE RIGHT SEASON TO START PAYING OFF DEBT
There are times when paying off debt will do more harm than good. If you face a life event with an unknown price tag, hold off on paying off debt. These are events like:
Births
Deaths
Divorce
Major illnesses
Job Loss
Due to all of these events unpredictability, consider paying the minimums and boosting your savings account until you have a better idea of the final costs. Once you know the final costs, take the extra savings and knock out your debts.
TO RECAP, THERE ARE TYPICALLY 7 REASONS WHY MOST PEOPLE STRUGGLE TO GET OUT OF DEBT:
No clue what you owe
No plan for spending
You don't prioritize savings
No debt payoff strategy
Lack of a debt-free mindset
You’re not working as a team with your family
It’s not the best time to focus on paying off debt
NEXT STEPS
I believe in a “Start Small, Start Simple” approach to finances. To start, pick ONE item to work on initially. Next, take ONE simple step, such as this weekend, you will research budgeting tools. All you need to do is commit to taking one small, simple step.
Getting out of debt means changing your lifestyle. It’s changing how you make financial decisions and how to talk to your family or friends. It means facing the music and seeing how much you owe. It also means making savings a priority, which may seem counterintuitive, but getting out of d
