There are lots of posts out there about debt payoff strategies. Some prefer the debt snowball method while others pursue the debt avalanche method. We will save that debate for a different post. Instead, we’re covering one’s options when overburdened by debt. Primarily, this relates to credit card debt or any other high-interest loans, but it could also be applicable for student loans, car loans, or even mortgages. Everyone has a certain threshold for acceptable debt, depending on factors such as income, apprehension level, and even disposition. But if we cross that threshold, how do we overcome that feeling of being overwhelmed by debt? In other words, when debt becomes crippling and paralyzing, what steps can be taken to push through?
Most experts agree that there is “good” debt and “bad” debt. Good debt is more like acceptable debt. Loans with low-interest rates such as mortgages or borrowed money that is a necessity such as student loans. Bad debt is normally credit card debt and other high-interest loans.
Personally, I hate debt. Ashley and I have worked hard to get rid of all ours except for our mortgage. We don’t have any car payments and we have just recently finished paying off all of our student loans last year. We did it by making small changes as well as a few big ones. Even though none of this debt was high interest, it still felt great to lift that weight off of our shoulders.
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A Growing Problem
Millions of Americans are in debt. In fact, the average household with credit card debt owes over $7,000. According to a recent survey, 69% of Americans have less than $1,000 in their savings account. Clearly, when people start to fall into debt, particularly credit card debt, it’s very hard to climb back out. One of the biggest reasons for this is that credit card companies charge outrageous interest rates north of twenty percent.
Want to see something even more nuts? Let’s say you do have that $7,000 credit card balance and the interest is twenty percent. If you only make the minimum required payment each month, it will take…wait for it…
20 YEARS to pay off! 2-0! 20!
And on top of that, with interest, you can expect to pay a little over $15,000 on that original $7,000 credit card bill after those 20 years.
It’s no wonder that these credit card bills never seem to get paid and no wonder that so many people are drowning in debt.
Reaching a Breaking Point
Everyone’s threshold for debt is different. For example, someone who makes $250,000/year is probably not overwhelmed by their $5,000 credit card bill. Throw another zero on that bill, and it’s a different story.
When debt is manageable, we can take reasonable, actionable steps to lower it and eventually pay it off. There are thousands of great ideas out there.
The real problem is when debt gets out of hand. At some threshold, we hit our breaking point and begin to shut down, thus making the problem even worse. Shutting down is a coping mechanism that unfortunately only exacerbates the problem. We become overwhelmed by the situation and we turn off.
Compare it to fainting from excitement.
Or collapsing from fear.
But the focus of this post is how to overcome that overwhelming feeling.
When we feel like curling up in a ball and giving up, how do we fight through it?
Here’s what I would suggest:
Step 1 – Acceptance
The first step to getting out of debt might be the hardest one. In order to move forward, you need to admit that you do owe money. You need to accept the fact that you owe money. But who are you admitting this to? Well, yourself of course, but I would take it a step further.
Tell someone else that you have debt.
It doesn’t have to be your best friend, it doesn’t have to be your mother, it doesn’t have to be your coworker. It could be a total and complete stranger. You could even send me an email and tell me! Who you tell isn’t important, but psychologically, admitting you have debt is a huge first step.
There’s an extra level of accountability that happens when you tell someone else.
This doesn’t mean you’re asking for help from your friend or family member or stranger. It’s a way to let it out. If you’re in debt, you’ve probably been there for a while, and holding it in is only making things worse. Let it go and get that weight off your shoulders so you can move forward to the next step.
Step 2 – Assessment
So how much debt do you really have? Is it all on one credit card? What are the interest rates on the loans that you have?
Before you can really start formulating a plan to pay off debt, you need to figure out where all of it is. Take a close inspection of all of your credit cards as well as any loans or mortgages you may have.
I create a spreadsheet for everything, so that would be my organizational system, but even laying out your various debts on a sticky note is a step in the right direction.
Step 3 – Options
The next step is to figure out your immediate options. This step won’t rid you of any debt or solve the problem, but it might help you out in the short term so you won’t feel so overwhelmed by debt. Here are some options to consider:
- Could consolidating your debt into one loan work to save you money?
- Are you better off transferring to a 0% interest credit card so that you can buy yourself some time?
- Will a phone call to the credit card company alleviate some of the pressure and allow you to get on the right track?
- Is there someone with some knowledge in personal finance you could talk to?
- Who are some great bloggers to follow to get some advice and maybe more importantly motivation and confidence? (Here are some of my favorites)
**It’s very important to also realize that you are in a vulnerable position here. Be careful that you don’t get led in the wrong direction. Trust your instincts and never follow the advice of one person without (doubling checking the sources.) Unfortunately, when you are overwhelmed by debt, it can be very easy to be deceived by so-called experts either by accident or on purpose.**
Step 4 – Income and Expenses
Write out a detailed income and expense sheet. Start to figure out exactly how much money you make each week and month as well as where exactly that money is going out. Some people like to keep a notepad to track all of this, but others use websites and apps like Mint and You Need a Budget (YNAB). I have used Mint for over 5 years and I’m very happy with it.
Over the next few weeks, you will get an idea of how much money you make and how much money you spend. And, most importantly, how much money you can put towards paying off debt.
Step 5 – Make That Payment!
This is the good one! This is where all of your hard work starts to (literally) pay off.
Make that first payment.
It doesn’t really matter how big or small it is, the fact that you have started to bite into this chunk of debt is reason to celebrate. Maybe it’s $50 towards a $20,000 debt, but it’s still a step in the right direction. You can hold your head high knowing that you are moving toward becoming debt-free. It may seem like nothing but it will feel great once you get there.
Before you know it, momentum starts to build. You will be able to look at your income and expenses to see how you can squeeze a little bit more out. That $50 can become $100 and then that $100 could balloon to $200 throughout the weeks in the months as you start to pay off your debt and take control.
Step 6 – Track It
Once you start making payments, it’s important to track your debt payoff journey. As an added bonus, I think this part is really, really fun.
I track all of my finances on Mint. When we were paying off our student loans, I loved checking in each month after I made a payment to watch the principal balance slowly shrink. It was a way for me to pat myself on the back but it also became a motivating factor. I became more determined to pay off a little bit extra each month whenever I could.
Other people keept track with an excel document similar to this one.
Or you could always draw out a thermometer by hand to better see your progress.
No matter what you decide to do, you will start to feel the relief. That load will be slowly lifted off of your shoulders as you start to overcome that feeling of being overwhelmed by debt.
What’s Your Story?
Do you feel overwhelmed by debt right now?
Or have you been overwhelmed by it in the past?
Maybe you have never felt overwhelmed by debt. What decisions have you made that allowed you to have the freedom of that feeling?
My story is somewhere in between these extremes. I have never felt crippled by debt, but it has certainly weighed on me throughout points in my life.
I’d love to hear how you are overcoming that overwhelming feeling of debt.