This probably isn’t what you want to hear, but you could be the reason you’re stuck in debt.
The good news is that you’re far from alone, considering that, at the end of 2014, household debt in America was at $US11.83 trillion.
According to Beverly Harzog, author of “The Debt Escape Plan: How to Free Yourself From Credit Card Balances, Boost Your Credit Score, and Live Debt-Free,” if you’re in debt, there’s a good chance you’re making some mistakes that are helping you stay there or sinking you even lower.
Harzog would know. She used to be in debt to the tune of $US20,000, and admits to having made many “gateway mistakes.”
“Once you get comfortable with these mistakes, you’re just a few steps away from the bigger mistakes that take you all the way down the rabbit hole,” the author writes.
Here they are:
1. You’re in denial.
Harzog refers to this mistake as “head-in-sand syndrome.” When the author found herself in a mountain of consumer? debt and unable to pay her monthly bills such as rent and electricity, she simply stopped checking her mailbox, and therefore stopped receiving bills. And then one day she ran into the mailman who brought her back to reality.
“Unfortunately during my break from reality, everything had deteriorated to the point of ugliness,” Harzog writes. “Some of my accounts had gone to collection agencies. My electricity was about to be turned off. Serious stuff was happening because I refused to live in reality.”
2. You think of yourself as a victim.
Harzog says that the two most common complaints she hears from debtors who think of themselves as victims are, “the credit card companies tricked me,” and, “I experienced a crisis.”
When it comes to being tricked, the author writes, “Sure, we all indulge in impulse buys now and then, but you can’t blame $US30,000 of credit card debt on commercials or complicated fine print.” And while Harzog feels for those who experienced a crisis out of their control such as a medical emergency, she points out the harsh reality is, “It’s still your debt and you have to pay it off.”
If you continue to identify as the victim, she continues, “You’ll be too angry to stay focused, because getting out of debt isn’t for the faint of heart; it’s hard work, and you have to be all in.”
3. You don’t identify the real issue that put you in debt.
According to Harzog, it’s all too common that people fail to acknowledge the specific problem they have that led them into debt. “I’m talking about narrowing down your problem to the exact source,” she writes. “So saying ‘I spend too much time at the mall’ isn’t specific enough. If you don’t isolate the specific source of your problem, you can’t make the necessary adjustments.”
4. Your credit card debt isn’t your priority.
Harzog makes the distinction between good and bad debt: good debt comes from making an investment (think mortgages and student loans); bad debt comes “borrowing money for something that won’t appreciate in value.”
According to the author, credit card debt falls under the bad debt category, because when you buy something with credit — let’s say a laptop, for example — its value will depreciate as you use it, but your credit card company will be able to charge you interest until you pay off the laptop completely. So the longer you wait to pay off credit card debt, the more you’ll end up paying in the long run.
5. You’re only paying the minimum on your credit card balances.
Harzog poses a hypothetical situation where a person is $US10,000 in debt, all on one credit card, with an APR of 15%. The minimum payment is interest plus 1% of the balance. “In this example, your minimum payment for the first month is $US225,” she writes. “If you only make the minimum required payment every month, it will take you 335 months — that’s 27.9 years! — to pay off your debt. During these 27.9 years, you will have paid $US11,979.29 in interest.”
If you have the money to pay more, Harzog’s calculations show that taking the most aggressive approach possible to paying down your debt is the smartest — and cheapest — way to go.
6. You’re concerned with keeping up with Joneses.
Harzog brings up the fact that keeping up with the Joneses has risen to a whole new level today thanks to social media. “Social media, especially Facebook, has created a sort of virtual competition among users,” she writes. Outside of Facebook, “Your office can be a breeding ground for competitive behaviour, and this extends to material possessions that have little to do with where you work,” Harzog continues.
The author points out that if keeping up with the Joneses is keeping you in debt, it’s really not worth the stress you’ll feel when your bills arrive and you have to pay them. Plus, chances are, you don’t truly know what financial situation the Joneses are actually in.
7. You think personal finance is boring, and you can’t be bothered with it.
Harzog remembers that when she was in debt, she was anything but bored by personal finance. “I devoured books and magazines on this topic.” She continues, “These days it’s so easy just to hop online and pick a personal finance website that has tons of information. You can even pick sites that cater to your specific needs.”
If you need a place to start, check out some of these websites that will help boost your financial knowledge.
8. You haven’t considered asking for help.
Harzog suggests two sources you can consider using if you’re “so deep in the weeds of debt that you can’t see any path that will help you escape”: hardship departments at credit card companies and credit counseling.
According to the author, hardship departments are there for those whose debt came from a crisis such as unemployment or a serious illness. Programs through this department offer anything from a lower interest rate to lower minimum payments and waived fees. Harzog writes that credit counseling can be as simple as a phone counseling session where you can talk to and receive help from a professional.
9. You haven’t made financial goals for yourself.
According to Harzog, it’s easier to stick to your budget and stay on track with your finances when you have something concrete and defined that you’re working towards. “There’s something about keeping your eye on the financial horizon that changes the way you handle your money,” she writes. “It gives you a goal to work toward.”
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