Being in debt is hard! Like a quarantine 15 it sneaks up on you and it persists long after you think it will. I've been there and I felt, somehow simultaneously, that "this is just temporary" and "I'll NEVER get out of this!" As an advisor, I see debt persist for long periods of time unless you STOP charging more (switch to cash for a while, it feels good...and those credit card points can wait), and give yourself a fresh start.
5 Steps to Break the Debt Cycle
1. See the problem! Pick a day (today is always the best day to do something that needs to be done) and pull your debt into focus. ALL your debt, if it has a negative and a dollar sign, bring it to the forefront.
2. Commit to a plan - Pick out the debt that you want to pay off, not all debt is created equal. If the debt is tied to an appreciating asset, I typically don't worry about it much. That means your house, your student loans, business loan...anything that is secured by an asset that is growing in value. What's not included in that? Car loans, credit card debt, personal loans (unsecured lines of credit).
Tip #1: If you'e particularly oriented to live without debt, that's great! But, pay off your appreciating asset debt after your other debt. Consider the fact that at least a portion of your mortgage interest can be deducted (if you itemize) and will probably have the lowest interest rate, so should be paid off last.
3. Automate Success - Commit to paying the minimum on all the debt in your plan, just the minimum at first. Then, clear up enough space in your budget to pay extra on just one of those debts. Automate both the minimum payment and the extra amount each month so that you never pay a finance charge again and you don't have to login every month to make the payment! I try to automate any behavior I want to promote (savings, morning goals, etc.) and make manual any behavior I want to demote (like ordering from Amazon!)
Tip #2: Don't fluctuate the extra payment every month, pick an amount that will get you to your goal in a reasonable amount of time and pay that same amount extra to one card, usually the card with the highest interest rate. Review my Savings Waterfall if you're wondering where debt should fit in your overall picture!
4. Debt Snowball - Once you pay off the first debt, roll the extra payment AND then minimum payment on the expiring debt towards the next debt.
5. Set it and forget it - Where your focus goes, your energy flows, and if you continuously focus on your debt, you're building a behavior that you will (hopefully) never use again. Execute until you've paid off your last card.
That's it, SPADS. I can't stand when writers jam words in just to make a catchy acrostic to remember it by, so I'm sticking with SPADS. If you can remember that, great :)
It's not easy, I've been there. And, it's easy to think "If we just made more money..." or "if we consolidate this debt we could pay it down so much faster...". Maybe it's true, maybe it's not, but if it was always the case, I wouldn't see debt persist across every income demographic. The truth is, it's typically a learned behavior from your parents, and if you don't break the cycle, it's likely to become a taught behavior.
Dare to dream; enjoy the ride