Ben’s Challenge, Week 5: Help for Getting Out of Debt

This is the latest update on my attempt to do the ReadyForZero New Year’s Challenge, using the Zero Debt Action Plan. To read previous updates click here: Intro, Week 1, Week 2, Week 3, Week 4.

Debt is a tricky foe for many reasons. As I’ve been working to pay off my credit card, I’ve been thinking about the reasons why it can feel so hard to take control of your debt. I’ll describe these 3 reasons below and then explain some tricks to combat them, based on my experience:

1) We forget to think long-term

When it comes to financial decisions, time plays a big role. As humans, we tend to prioritize our happiness right now more than our happiness in 6 months or 6 years. Our internal wiring makes us value immediate rewards rather than distant ones. And for evolutionary purposes, this emphasis on immediate happiness probably made sense. But in today’s complicated world, it can put us in difficult situations – especially when it comes to our finances.

For example, when you’re at a car dealership about to buy a new car, the overriding emotion you’re probably feeling is excitement. You’re picturing the moment when you walk up to your shiny new vehicle, sit down in the squeaky clean driver’s seat and put your foot on the gas pedal. What you’re probably not thinking about is the moment four years later when you’ll still be making monthly payments on the car. And likewise, once you have debt already, it’s hard to make the short-term sacrifices (i.e. not eating out, not going to the movies, etc.) that will help you achieve the long-term goal of being debt free.

2) Culturally, we don’t like to talk about our debt

There’s a sense that being in debt is embarrassing, which actually ends up giving our debt more power over us, because instead of getting support and useful advice from our friends and family, we choose not to tell anyone about it. But why is it supposedly so embarrassing to have debt? I suppose it has something to do with a fear of being judged as weak or lacking willpower. The reality, though, is that there are many reasons people get in debt. In my case, I’ve described how my credit card balance crept up while I was making a career transition. Others have been forced into debt by unexpected medical bills, layoffs, student loans, etc. We have a lot to gain by talking about our debt in a straightforward way (without embarrassment) and getting advice from each other.

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3) We let math get the best of us

I remember throughout high school and college I would often hear people say “I’m just not good at math” or “I’ll never use this stuff in the real world, anyway.” And while that sentiment is pretty widely shared, unfortunately it’s one of the factors that contributes to our pain when trying to get out of debt. We dismiss the power of math at our own peril. Financial institutions like banks, lenders, and credit card companies rarely make a decision without sound mathematical reasoning behind it. For example, when you get a credit card your interest rate, credit limit, and minimum payments are all carefully calculated based on decades of data. (Check out our article about the myth of minimum payments that explains why you’re usually asked to pay around 2% of your balance each month)

So… how can we combat these three things in our attempts to get out of debt?

1) Give yourself positive short-term feedback
To overcome the short-term pain of saving money and paying off debt, we need to give ourselves an emotional reward for doing the right thing. One way I’ve been doing this myself is using a budgeting spreadsheet to track my spending. That means every time I buy something I have to add the amount to the spreadsheet (and see the total go up), whereas every time I decide not to buy something, I feel excited about saving money. It has helped counteract that bias toward short-term pleasure. Now I can get as much or more satisfaction from NOT buying something as I would get from buying it.

Another way to accomplish this is to track your debts with ReadyForZero. If you do, you’ll have a big blue progress bar to help motivate you:

It definitely motivates me when I log in to my account and see how close I’m getting to paying it off. Trust me, the visual affirmation is powerful. You’ll probably want to jump for joy when you see it:

One other thing that bears mentioning here is that it helps to figure out which type of purchases generally are most troublesome for you. In Week 5 of our Action Plan we describe four different types of “temptations” that can trip you up:

  • Small impulse buys
  • Big ticket items
  • Social spending
  • Eating out

Which one always gets you?

For me personally, it’s eating out - that’s why I’ve been taking steps to address this problem, such as preparing extra food on the weekends and evenings so that I won’t spend money buying lunch during the week. You should try using our our handy budget spreadsheet to track where your money is going. (Next week, I’ll share how I’ve been using this spreadsheet to help me complete my challenge)

2) Share with people you trust
To combat the feeling that you’re all alone, reach out to those who care about you and tell them about your situation. In my case, I’ve been sharing my debt circumstances with my friends and family (including RFZ blog readers) and have gotten some great advice and support in return. If possible, I’d recommend sharing with the people in your life who you trust – you might be amazed at the kind of encouragement you’ll get.

We’ve found that it can be very motivating to receive positive messages from your support network, which is why we make it possible for our users to share their progress with someone via our notifications and snapshot features. That way, you get congratulations or encouragement when you need it, from the people who want to help you take control of your debt.

3) Automate the math
Just as financial institutions use math to get the results they want, you need to do the same. You need to understand how things like minimum payments and compound interest are affecting your quest to pay off your debt.

But luckily, you don’t need to tackle this on your own. Our software does it for you automatically, by showing you:

  • which debt to focus on paying off first
  • how to allocate extra money to get out of debt even faster
  • when you’re 25%, 50% or 75% of the way to your goal
  • how much interest you’re paying each day

The bottom line is that you need to use thoughtful tactics to take control of your debt. Don’t be afraid of it, embarrassed by it, or confused by it. Be proactive and lean on the people and the tools that can help you become debt free.

If you liked this article, please share it on Twitter and/or Facebook! And let us know in the comments below – which of these lessons is the hardest for you to take action on?

Image 1 by Menage a Moi; Image 2 by Katie Tegtmeyer; Image 3 by Mykl Roventine; Image 4 by ` TheDreamSky

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  • http://twitter.com/ReadyForZero ReadyForZero

    Great work. That blue bar is looking good.