The Numbers. According to statistics, nearly 80 percent of adults in the United States carry some kind of consumer debt. Owing money seems to have become a way of life, though a surprising 70 percent of those in debt consider their debt load to be undesirable. The question begs to be asked, “why do people put themselves in such a situation to be in debt when they don’t want to be?”
The answer to the question isn’t simple and clear-cut. In some cases it may involve personal spending habits while in other cases it might relate to an unforeseen set of circumstances. Either way, debt can cause unhealthy stress, and people can sometimes be quick to judge. Neither being stressed nor being judged is particularly helpful and can lead to depression, feelings of failure and strained relationships among other negativity. So perhaps a better question to ask is, “what can someone in debt do to change their circumstances and dig their way out?”
A Pull in Different Directions. Sort of like raising kids, there’s no single “right” way to do it, yet everyone seems to have an opinion on the topic. As a consumer searching for answers, it becomes very easy to get sucked into one camp or another with regards to which regimen to follow. There is no shortage of financial experts, books and methodologies targeting people who need a little financial wisdom. The problem is, many of the pre-packaged debt payoff programs treat the journey to debt freedom as a cult-like religious following rather than a progression towards financial literacy and financial independence.
Rather than adopting a “one-size-fits-all” (one-size-fits-none) approach, it’s important to consider debt, income, expenses, and financial goals in context with the individual’s household, habits, and goals. There are two parts to the debt payoff equation: the math, and the individual’s lifestyle. To be effective, any get-out-of-debt solution needs to address both.
The Method. The math is the easy part. Math is sterile. Math is cold, matter-of-fact. It’s not influenced or affected by opinions or emotion. It’s predictable, with no surprises. Unfortunately, though, it’s also very misunderstood or perhaps intimidating to people who aren’t math-savvy or analytical.
The lifestyle part is what’s difficult. Anyone who has ever made a New Year’s resolution (and failed) knows exactly what that means. People have the best of intentions to improve their plight in life, but along with temptation and the emotional ups & downs of triumphs and setbacks, people’s “wants” frequently win out over their “needs”.
Between the two, it’s essential to find a workable balance. Here’s the meat and potatoes of a good, solid, and livable plan to get out of debt and start making progress towards healthy finances:
- Brainstorm and Scale Quantities. People are rarely successful if they make drastic changes or quit habits, cold turkey. Little changes cumulatively make big differences. Order the medium instead of the large. Turn back the thermostat two degrees in the winter or up in the summer. Figure out what’s not being used, like land line phones or premium TV channels and scale back. Then figure out the monthly savings, and rather than spend it elsewhere, apply it to debts.
- Create a Budget. Creating a budget is more than placing planned numbers in rows and columns and then trying to live by them. Budgeting effectively involves brainstorming ways to cut back on costs without cutting back on quality of life. It’s an example of finding the balance between the math and the lifestyle. By applying the savings from brainstorming and scaling quantities down to debt payoff, the household budget allows progress in becoming debt-free without drastic changes to lifestyle.
- Redirect Cash Flow. Rather than direct depositing paychecks into a zero percent interest checking account, perhaps open a high yield online savings account at 2% to 3% interest. Let the money accrue interest in the account and then move money in batches once or twice per month for bill payments. The end result, simply by rechanneling the direction of cash flow, will add substantial resources to pay down debts without any effort at all.
Some simple habit changes can make paying off debts seamless and easy without having to live on beans and rice for every meal. In most cases, minor changes that require little to no sacrifice will produce the benefit of shaving years and potentially thousands of dollars in interest off of consumer debts.
As a general rule, people embrace habits that don’t deprive them of what they want. So a math/lifestyle balance is the key to sticking to a debt payoff plan rather than systems that rely on raw willpower or require self-deprivation. Taking the time to improve financial literacy can make it possible to “have your cake and eat it, too.”