Get Out of Debt

Are you fooling yourself?.....

Get Out of Debt

Date: 3/27/2018

Debt affects far more than our bank account. It creates stress, limits our choices, strains relationships, and keeps people awake at night.

A lot of people I know are in debt. Most of them would like to get out of debt but are at a loss for how to do it.

Yet many people successfully get out of debt—and stay out of debt. What are they doing differently?

I was very curious to know how they do it and the following is a summary of 4 principles these people use...

1) Commitment. Being commited to get out of debt is a great first step.

How do you become commited to getting out of debt?

Being commited results from being motivated to achieve your goal.

How do you become motivated?

Being motivated results from knowing why it is important for you to achieve your goal. Therefore, the first step is to ask yourself: "Why do I want to get out of debt? How will my life be better when I am out of debt?" You may have a few reasons. Most people need specific reasons to really feel motivated---not just vague ideas.

Then make your commitment "official" by writing down these principles and hanging them up in your home, carrying them in your wallet, etc.

Live with an constant awareness of your goal of getting out of debt, and why you absolutely want to get out of debt....

2) Procedure. Now that you are commited to getting out of debt you are ready to take action.

The first thing to be aware of is: There are no mysterious secrets to this. Getting out of debt is really rather straightforward and practical.

Let me tell you a personal story. In Israel, the banks allow the clients to be in overdraft. I once read that 60% of israelis are in overdraft. Years ago my bank allowed me to be 15,000 shekels in overdraft. One day I got a phone call from the bank. They spoke very nicely when they called my attention to the fact that I was 23,000 shekels in overdraft. Of course I knew I was in overdraft, but I had stopped paying attention to just how serious it had become. They said that someone was going to phone me to explain how to get out of overdraft. A few days later a bank representative called and spoke to me very respectfully for about 20 minutes. The main point that the representative said was "Shlomo, there are no 'tricks' to getting out of overdraft. If you are earning 10,000 shekels a month and spending 11,000 shekels a month you are only going to get more and more in debt. You need to take an inventory of exactly what you are earning and what you are spending. Then figure out how to increase your income and/or reduce your expenses." At that time we turned to an organization here that assists people with financial problems and they sent us a financial coach who taught me and supervised me in becoming aware of my income and expenses. Many of the ideas in this article are based on what that coach taught me.

You can also speak to a financial coach. Or, if you want to try it on your own, here is the basic procedure that financial coaching teaches:

---Look for ways to increase your income. This could be extra hours at your job, or doing extra jobs. And, when was the last time you asked for a raise? If it is appropriate to ask-- ask!--but consider how to ask and when to ask.

--- Look for ways to reduce expenses. Here are three ways:

A) --A good first step is to take an inventory : Spend some time going over your expenses and---this is important-- write everything down! Where is your money going? Which expenditures can you eliminate or, at least, reduce? By the way, this process is going to take you a good few hours.

B) Before spending money on anything ask yourself: "Do I really need this now?"

If you do not need it, don't buy it!

If yes, you really do need it, then ask yourself: "Could I find it for a cheaper price?". Then think where you could find it for a cheaper price.

Practice asking yourself these questions until they become your natural, automatic response. This will help you become aware when you are spending money and make you think before you buy---all of which will help you reduce your expenditures.

C) Another great way to reduce expenses is: Stop using your credit card all the time! Acquire a debit card. Pay in cash. Get a pre-paid card. A friend of mine who was in serious debt joined a 12 step "Debtors Anonymous" group and this was the first thing they told him: "Stop using your credit card thoughtlessly. If you don't have the money, don't buy."

If you are like me, you are probably thinking that you cannot manage without your credit card.

Okay... Try this:

Level 1--- Leave your credit card at home once or twice a week. This way you will become more aware of when you do use it and help you to break the habit of just automatically pulling it out to pay. Before you read any further... pick a specific day that you are going to leave your credit card at home and not use it.

Level 2 --- When you are comfortable with the above, try leaving your credit card at home except when you plan to use it. For example, if you are going shopping, take it. Don't take it just to " have it in case you need to buy something".

Level 3---Try alternatives as those listed above: pay in cash, acquire a debit card, or a prepaid card.

3) Maintenance. Once you are doing the above, you should have some extra money!

Congratulations! You deserve to pat yourself on the back because this has been a major accomplishment. Actually do congratulate yourself. Why? Acknowledging this and congratulating yourself is a good way to inspire yourself to continue.

However...BEWARE! Resist the temptation to use your extra money for those "extras" that you have always wanted!

Rather, use it to pay off your debts. "Commitment" means that getting out of debt is a top priority. You can tell yourself that eventually you will buy those "extras" ---but not until your finances are more under control.

Once you have significantly reduced your debt use that extra money to set up an emergency fund. That is, a fund you can draw on when unexpected necessary expenses arise so that you won't have to go into debt again (Dental expenses, for example). Aim for it to be $1000 and then keep increasing it.

4) Follow Through.

This is where many people fail. How can you keep yourself going in reducing and eliminating your debt?

You could simply remind yourself about this list and constantly reread it . However there is a much more effective method...

Find a friend to do this program with you and speak periodically (once a week or bi-weekly). Discuss how it is going. What are some of your challenges? How did you surmount them? In my experience most people do not have the self-discipline and motivation to do this by themselves. It can be very challenging (like most worthwhile things we do) Therefore doing it with someone else is a more effective way. I can personally testify that having a friend to speak to about an issue you are having is very effective.

Also, don't rely only on this short article. Do more research on how to get out of debt. Learn new strategies and decide which ones are good for you. On the other hand, continue to use the basic ideas in this article. How? Pick a specific time to reread this article. For example on the first of the month--every month! This will help you keep these ideas in mind.

There are three main reasons people fail to follow through:

A) Don't let yourself get discouraged when setbacks occur. Sometimes circumstances arise that throw you back into debt. There might be an unexpected expense. It could be you make a mistake. Be resolved to continue working to get out of debt no matter what happens!

B) One of the main reasons people do not follow through on their goals has to do with understanding how motivation works. When you start a program like this typically you are motivated by a negative feeling of being in debt. Negative motivation is great to get started. It really does hurt to be in debt!

The problem is that negative motivation usually does not keep people motivated over time. For that, you need some positive motivation: A very inspiring goal, for example (see below). Therefore, think of positive reasons you want to achieve your goal of getting out of debt and keep them in mind to keep yourself motivated! What will being out of debt do for you? How will it improve your life?

This point is really a crucial one and I want to develop it more...What often happens is that people begin achieving their goal...in this case they begin to reduce their debt. Then, as they reduce their debt, the negative motivation is not as strong because they are not in such big debt anymore. The more they get out of devt, the more they lose their motivation until they lose interest entirely. Then they may just gradually fall back into their old financial habits and, eventually, back into debt. Be aware of this phenomenon and you will be able to achieve your goal of getting out of debt. By the way, this is one of the main reasons people fail on diets. As they lose weight they lose their motivation. they don't look or feel so bad anymore. This phenomen often occurs in other long range goals we have in life such as in business, marriage, exercise.

C) Another reason people are unsuccessful following through is because they don't think that they are capable to doing it---particularly if they know a lot of people in debt and who were unable to get themselves out of debt.

However: Many people have done it successfully and, by applying these principles, you can do it too! Create an affirmation. For example-- Tell yourself "It is possible to get out of debt and stay out of debt and I am determined to do so." Then, keep saying it to yourself during the day. Do this in a disciplined way such as at one or more of your meals.

Keep in mind that the reward is great! Think of what getting out of debt could do for you. People who have gotten out of debt report feeling more freedom, experiencing less stress, enjoying life more, feeling healthier, having more self confidence, and being more productive...

Once you are out of debt the next step may be to increase your income and build your savings. See the article "Beliefs 7: Concluding Remarks" and the Aruch HaShulchan's 4 Principles explained there...