Get out of debt before it’s too late.
Realize that debt stems from complacency and carelessness. It is driven by an individual’s personal problems that yield to habits or even attitudes that result to overspending. As such, there are numerous ways to get into debt but, there are only three steps to get out. The key thing here is to adopt the right attitude and habits.
This is a 3 step process to get out of debt permanently:
Step 1: Get out Debt by Understand Why You Are In Debt
In order to get out of debt successfully, you have to look at your debt as your responsibility. Do not blame any lending institution for your problems. This means that you need to have a strong financial awareness and plan. A big part of this is delaying your gratification and associating wealth with intrinsic values.
Debt is caused by habits, and these habits keep you in a vicious cycle of debt. These are the habits that get people into debt:
- Emotional Spending & Addition – Are your spending habits connected to how you feel? Emotional spending stems from boredom, need for entertainment, anxiety and much more. Identifying the root cause of your unnecessary spending habits is the first step to change. Addiction is similar to emotional spending as it may be a consequence of a deeper personal problem. Just like any other addiction, debt can be very destructive.
- Entitlement & Instant Gratification – This is basically the belief that you deserve all good things in life regardless of the financial cost. I mean, why shouldn’t you have that designer bag, shoe, new car, expensive pedicure – when all your friends have it. Instant Gratification is closely related to entitlement as people with an entitlement problem often want instant gratification in the form of either enjoyment, pleasure, satisfaction or even some form of self-worth.
- Self-Worth Linked to Material Things – The advertisements today manipulate people into believing that a certain product will make you seem wealthier, attractive, happier, and smarter or even have the best figure in town. Don’t fall for the marketing gimmicks. Only you can define your own self-worth.
- Having No Plan & Complacency – No Plan? Make one. That is the difference between a true wealth creator and a debt accumulator. Debtors tend to detach spending, saving and earning. As a result, they have no budget, no plan for retirement, no tracking of numbers and no strategy for increasing earnings. Therefore, debtors tend to live from month to month because they have no long-term plans. Complacency and attitude towards debt will surely keep you in debt. Small debt here and there to fuel your desires will add up to serious debt and complacency will lead you to bankruptcy and foreclosure.
Step 2: Get out of Debt by Changing Your Debt-Forming Habits
In order to get out and never look back, one has to change their debt-forming habits. Break the habit, and adopt new wealth-creating habits. So what are the debt-forming habits that you need to change to get out of debt:
- Break Your Spending Habits – To break free from emotional spending, you can adopt the 30 days no spend challenge. If that is too much for you, try holding off buying something for three days, if you still want the item after three days then it may actually be worth buying.
- Break Your Addiction – Simply avoid all forms of addictive behavior and live a well-balanced life. Eat healthy, exercise and feed your mind with productive things. I know this is easier said than done, but if you feel that you need help, don’t hesitate to contact a professional for help.
- End Your Entitlement – seek to only purchase what you can afford or immediately pay for with the money you have. Save money on anything you need. This way you are only entitled to what you can afford.
- Delay Gratification – Delaying gratification is one of the best ways to tackle this. Hence, purchase items every 3 to 5 years of even more extended time horizons. This gives you more time to save up and really think twice about the things you think you need. This way, you can pay cash for all your purchases to lower costs.
- Disconnect Self –Worth From Material Things – A good habit is to separate your spending from your feelings of worth. You are and cannot be defined by your possessions. Therefore, dig deep and unearth your purchasing motives. Figure out if they are genuine or based out wants relating to self-worth.
- Have a Plan – set up a plan to secure you financially. Develop reserves for inevitable rainy days and take out insurance for those risks you cannot afford to lose. Save monthly from earnings for retirement.
- Be Proactive – respond proactively and take it upon yourself to be responsible for any impending financial problems. Living on your salary from month to month is no way to live.
Being proactive means:
- Making realistic budgets and setting spending limits.
- Tracking your daily spending.
- Ensuring financial accountability.
- Paying down your existing debt and seeking to live debt free.
- Learning how to curb emotional spending or completely divorcing emotions from shopping.
- Setting a shopping schedule.
- Forcing waits times to delay gratification or give you some time to rethink your purchase decisions.
- Avoiding situations that may cause excessive spending.
- Increasing your income.
- Take out insurance for the risks you cannot afford.
Step 3: Get Out of Debt & Become Debt Free
When you take debt on and become responsible for it, it opens doors to a debt free life. This way you can easily get your life back on track and maintain a positive cash flow. The first thing you need to do is pay off all your existing debt and don’t take on any more.
Here are some things that you may do:
- Organize existing debt ensure no more hemorrhage to your finances. You may consider consolidating all your debt and refinance to lower interest rates.
- Sell unnecessary things in your possession and quickly pay down your debt.
- Structure remaining debt and pay it off using the snowball (pay off the small debts first building up to the bigger ones) or avalanche (pay off debt with the highest interest rates first to the lowest) method.
In order to keep debt at bay, manage the risks in your life in order to secure your dreams and live a fulfilled life. Finically successful people know and are aware that bad things happen and these things can get you knee deep in debt. You may manage the unexpected and get out of debt permanently, by taking on insurance for the losses you cannot afford.
These potential areas are:
- Life insurance to replace income, if the primary breadwinner passes on.
- Disability insurance to protect you against major injury that may cause loss of income.
- Fire Insurance to protect against destruction of property.
- Liability insurance to protect against debt obligations that can potentially wipe out all your savings.
- Health insurance to protect you against the high costs of healthcare.
- Set up and emergency fund to help you pay unexpected expenses i.e. sudden job loss, contributions to family emergencies or merely car problems.
When you plan for the unpredictable events in your life, these things will not forever set you back and result in serious financial ruins. So if you plan to get out of debt, ensure you get out permanently.
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