3 tips for digging out of debt

That feeling of debt piling up on you: definitely not pleasant but more common than you might think! The combined balance on US credit cards is on track to hit $1 trillion. A recent study by Voya showed that 51% of Americans would rather give up their financial security than part with their smartphones, cars and vacations. Those are some scary numbers for me as a financial planner.

Everyone has a different set of priorities and life circumstances. No matter how you came by that outstanding balance, I want you to know that there are things you can do right now to improve your situation. Here is your roadmap.

Step 1: Face the issue.

Too many people get caught up in judgment when it comes to debt. They feel guilty, they regret their decisions, they experience a sense of failure. None of those feelings are constructive. If you want to dig out of debt, you must begin by separating your feelings from the facts. What has actually happened? What is the total amount you owe across all your cards?

Try to detach from the negative emotional spiral and simply make a list on a piece of paper. Credit companies make a lot of money on interest and penalties. The longer you ignore that statement or bill, the more money they make. So, own your debt. Go through the statements, call the companies, do whatever you have to do to get a complete and accurate picture of where you are today. No matter what that number looks like, take a deep breath and remember two things. One, many people owe a larger amount than you do. Two, this is where you begin making your situation better.

Step 2: Change your behavior.

Consolidating your debt into a single low-interest pile is a strategy, but this move alone won’t get you free of debt. You did not end up in this situation overnight. In fact, you are now facing the consequences of dozens of routine everyday decisions that have accumulated over time. Debt consolidation might get you a lower monthly payment, but that is not enough create the fundamental behavioral changes that are necessary to get you out of the pattern of accumulating debt.

Think about your triggers. What usually causes you to stray from the budget and overspend? If you are a “stress shopper” you may need to set up guard-rails for yourself. Consider instituting a mandatory 24 hour waiting period before making a purchase that is not in the budget. Putting your credit cards in a Zip-lock bag, filling it up with water and placing it in the freezer can also be surprisingly effective. Regardless of your triggers, are you in denial? Are you overwhelmed at the idea of changing your habits? Figure out what it will take to stop over-spending and set yourself up for success.

Step 3: Remember that there is no quick fix.

Unfortunately, there is no “get out of jail free and fast” card here. Your solution for digging out of debt must be sustainable in the long run – because it may take a while. If your solution depends on sticking to a budget, be sure that budget is reasonable. Don’t build a plan so austere that you won’t be able to stick to it for more than a few days. Surround yourself with reminders that will keep you focused on your goals. Put good financial decisions on autopilot by setting up automated transfers to pay down the debt.

As you are making debt payments, it is a good idea to also begin building an emergency savings fund. It may sound counter-intuitive, but I believe that sending every last dollar to pay down the debt is not constructive. Having 1-3 months’ worth of expenses squirrelled away will help you cover unexpected hits (like car repairs) without incurring additional debt.

Getting out of debt takes time, effort and discipline.

It is also worth it. At the very least, being debt-free reduces the stress in your life, increases your financial security and increases your future standard of living. So, use tools to keep yourself on track and celebrate small wins when they happen. Surround yourself with visual reminders of what it will be like to be debt-free. Stay committed. Finally, create a support network that will keep you accountable. With a little planning and lot of discipline, you can do this!
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