Accruing debt may seem like a necessary and inevitable part of life, but staying in debt does not have to be a lifelong burden. Unfortunately for many people, once they adopt a lifestyle out of their means by going into debt, they have a hard time getting back out of debt.
Here are five of the top reasons that people stay in debt and how to avoid them.
Humans are creatures of habit, and once we get comfortable with something it can be hard to change. We may become so used to the routine of charging our expenses, anxiously awaiting payday, nervously checking our bank account, transferring balances around to make it work, etc. that we can’t imagine managing our finances any other way. To step outside of your comfort zone, make a list of things you regularly purchase with credit and highlight those you could do without.
When your identity is tied into your possessions, letting go of them or downgrading can be a crisis of self. From expensive cars to regular lavish dinners and exotic vacations, keeping up with appearances can become a way of life that is too difficult for many to shake. The sad truth is that a lifestyle lived out of your means is not sustainable, and can abruptly end in bankruptcy, repossession, and other devastating losses. Take an inventory of your most valued possessions and evaluate why you cherish them so much. If it’s simply because of their monetary worth, perhaps it’s time for some soul-searching to improve your self-confidence and financial situation simultaneously.
Getting out of debt means making some sacrifices, like cooking at home instead of eating out, and spending less on entertainment and more on essentials. Doing the hard things is what trips many people up on their journey to eliminating debt because they simply aren’t willing to make the changes necessary to manage their money effectively. To overcome this hurdle, start small. Identify one small change that wouldn’t be too difficult to live without. Build momentum from there.
4. Failure to budget
If you don’t know where your money goes, it will be hard to get out of debt. Without a budget and a complete knowledge of what money goes in and out of your possession you lose control of your finances and the ability to pay off debt. Start tracking your spending and making an effort to know your balances at all times. Once you’re in this habit it will be easier to identify and modify unnecessary expenses and free up some funds for debt repayment.
5. Income misconception
The biggest of all may be that some people believe that they just don’t make enough money to pay off any debt. When it seems that you’re making payments on everything you own (or drive), how could you possibly get out of debt? Getting a side job or some other source of additional income would help, but the real key to successfully getting out and STAYING out of debt is to stop borrowing money. Make a pledge to just say no to anything you can’t buy with cash. Make sacrifices to free up some money in order to pay off current debt and start digging yourself out. It won’t be easy, but you can do it!