In Phase I: The Foundation Phase, Step 4, we recommend that you work to Pay Off All Consumer Debt. That is a critical step in building the foundation of your financial plan.
But exactly how do you go about that if debt seems to have gotten the upper hand on you? Unlike the old Nike commercials, you can’t Just Do It when it comes to debt. Debt is usually caused by getting caught in a cycle of debt, and before you can eliminate it, you first need to break that cycle.
Here’s a blueprint to make that happen.
1. Turn off your TV.
As Christians, we know that we must be careful about what we put into our heads. That means immersing ourselves in Scripture, and doing our best to avoid the more toxic elements of the secular culture.
The same is true when you’re in debt. You have to reduce or eliminate the temptations to consume that will ultimately keep you in debt, or threaten to drive you even deeper into it.
That’s what TV does!
While we might think of TV as mostly a form of passive and inexpensive entertainment, there’s a lot more going on with it than we realize. More than anything else TV is an advertising medium. No matter how much you may be entertained by it, advertising is the primary purpose.
Not only is TV saturated with commercials, but the programming itself often provides subtle – but significant enough – cues to consume. For example, TV programs display certain lifestyles – typically those that are economically above average. What we see on TV influences how we live and what we buy. If we see people living the good life, we will want it too – maybe not consciously, but fresh desires will be created.
If you spend several hours a day watching TV, you’re soaking all of this in. And it’s having an effect on your consumption patterns. TV will get you to buy what you can’t afford by going into debt.
You may not be able to get out of debt without seriously reducing or completely eliminating your TV watching. From a financial standpoint, TV is not harmless!
2. Find cheaper friends.
Your friends can have a profound influence on your spending habits. If you are unable to keep up with them financially, you may use debt to bridge the gap.
As human beings, we have an innate desire to mirror whatever “normal” is in our social circles. We’ll often spend more than we should in an attempt to keep pace with our closest friends. But if the friends you have tend to be carefree spenders and live at a higher level than you can afford, you may need to give serious consideration to lowering the status of those friendships.
You cannot compete with people who have greater financial resources than you, but you can go all the way to bankruptcy court trying to do it.
Of course, you don’t want to terminate important friendships, but it may be worth sitting down with the free-spending friends, and being honest that you can’t afford to keep up with them. If that damages the friendship, it may be time to move on and find friends don’t put as much financial pressure on you.
3. Live beneath your means.
We talk about this elsewhere in each of the different phases, but it’s especially important in The Foundation Phase, and even more so if you want to get out of debt.
You cannot make progress in your quest for financial independence unless you create breathing room in your budget. That means living beneath your means. In this way, you create the extra margin in your cash flow that will enable you to both pay off debt, and ultimately to begin saving money. Speaking of which . . . .
4. Become a saver.
This is probably the most underrated aspect of breaking the cycle of debt. It is likely that the most basic reason why people can’t get out of debt is because they use credit cards and other forms of debt as a substitute emergency fund. Whenever they need money, they simply swipe a credit card or take a new loan.
That’s a cycle that dooms you to a lifetime of debt. The only way to break it is to create an actual emergency fund that will replace credit cards as the preferred source of money in a crisis.
Depending upon your temperament and habits, it may be more important to build up at least a small savings account before you begin paying off your credit. After that, all extra cash from your paycheck can be focused on paying off debt.
5. Embrace cash.
You won’t be able to get out of debt if you continue to use credit for your purchases. You’ll have to embrace cash as your preferred form of payment. That doesn’t mean literally paying cash – though it doesn’t exclude it – but rather shifting the emphasis from credit cards to cash, checks, and debit cards; money you actually have!
Paying cash puts an end to the creation of new debt. Until you master this concept, you’ll never be able to get out of debt because you’ll constantly be creating new debt.
6. Increase your income and bank the difference.
Depending upon the level of debt that you have, you may need to increase your income in order to get the upper hand on your debt. This is particularly true if your budget, based on your regular paycheck, is maxed out and has very little flexibility.
If you can use newfound income to pay off debt, it will create an obvious incentive to maintain that income at least until your debts are fully paid. If you are able to pay down of your debts out of your regular paycheck, the addition of a second income will speed up the process.
Breaking the cycle of debt be something like getting your body in shape – it has to be approached with a comprehensive plan. You will have to address emotional factors, pastimes, practices, and even the company you keep. Try using a combination of the strategies above, and you may reach debt freedom faster than you ever imagined.
Do you struggle breaking free from the cycle of debt? Leave a comment and tell us your story!
Sipho Mbalula says
My business failed in 2012. I had to get employment as a driver. All my dept is around R1 000 000 and interests are piling up every month. I had to get a job and my salary is only R8 000. I don’t know what to do and my head is cracking