5 Ways to Get Out of Debt
From Experience Life
Americans are wallowing in debt like never before. Counting all types of debt, from mortgages to student loans to credit cards, three out of four of us are in the red, according to the Federal Reserve’s 2004 Survey of Consumer Finances. In the first quarter of 2008, average household consumer debt (not including mortgages) amounted to more than $19,000, according to Federal Reserve data. While the current economic crisis has tightened restrictions on lending and led to a slight decrease in average personal debt load, falling home prices, negative net worth and stagnant wages have made existing debts all the more challenging to wrestle into submission. And most experts predict the current recession will be protracted and harsh.
The strain that debt puts on personal finances is significant, but that’s not the whole story. What the headlines rarely mention is the high toll debt exacts on our mental and physical well-being.
Two surveys last year hinted at the breadth of the problem. The first, conducted by the American Psychological Association (APA), found that 75 percent of Americans are stressed about money. The second, by the Associated Press–AOL, showed that people who were the most stressed about debt were also more likely to be suffering from digestion problems, muscle tension, migraines, severe anxiety and depression.
The good news: If we are willing to take a close look at our debt, understand its underlying causes and secondary effects, and then shift our spending habits, we can minimize not just our excess financial obligations, but also the stress-related physical problems to which they give rise.
Next: How to lower debt stress
If debt is stressing you out, here are three ways to reframe the way you think about what you owe.
Find at least one person you can be honest with about your debt. “Saying it out loud — ‘I’m up to my eyeballs in debt’ ó can be very powerful and help break the shame cycle around debt,” says Denver psychologist Stephanie Smith. The physical act of speaking can begin to alleviate anxiety, and friends can offer new perspectives. “We only see the bleakest of futures; we donít see our positive options,” she says. “Often when you talk to someone, they can shed some light on the situation.”
Choose your media influences carefully. If looking at pictures of fashionista celebs makes you want to own couture you can’t afford, curtail your fashion-magazine habit. If gadget catalogs are your weakness, get off those mailing lists. If watching lap-of-luxury TV characters makes you feel underprivileged, turn the channel — or turn off the TV entirely. “This stuff gets stuck in your subconscious and it is going to influence your emotions and your behavior even if you tell yourself it won’t,” says Stanford University health psychologist Kelly McGonigal. “Start to pay attention to that low-level twinge you feel when you see something you want,” she says. “By simply noting how you’re feeling, you can start to withdraw from the cycle of ‘I see, therefore I want.’”
Start saving. As soon as debt-laden people make a little money, they usually scramble to pay off bills, says Brent Kessel, a financial planner and author of It’s Not About the Money (HarperOne, 2008). So they never experience a feeling of abundance or the pleasure of being rewarded for hard work. Instead, they are always in the red, which makes them vulnerable to falling back into old habits of self-soothing by shopping. Kessel suggests opening a savings account and putting away a few dollars every week. “It doesnít take much to help shift your mentality away from deprivation to one of surplus.”
Next: 5 ways to start getting out of debt
5 Ways to Start Digging Out of Debt
Ready to be debt-free? Here are five ways to get started.
Set a budget for your weekly expenses, such as groceries and toiletries, and withdraw that amount of cash from the bank each week. Then spend only what you have in hand. “If you don’t have the cash, you don’t buy it,” says Stephanie Smith, a psychologist in Denver, Colo., who specializes in debt counseling. “We’ve become so accustomed to credit cards, we’ve lost all perspective of what cash can buy and of what we can and cannot afford.”
Drive a wedge between looking and buying. To help curb impulse shopping, make a list of things you want to buy, then wait, says Kelly McGonigal, PhD, a Stanford University health psychologist. The act of putting the item on a list gives you the warm fuzzies that come with the promise of reward, she says. “But, two weeks later, youíll be amazed at how much has fallen off the list because youíre no longer under the spell of the productís advertisement or fantasy.”
Reduce your wants. Think of emails and catalogs from retailers as “want generators,” says McGonigal. Contact these companies and ask to be removed from their mailing lists, or subscribe to a service that will do it for you, such as GreenDimes.com. Toss unsolicited coupons directly into the recycling bin. “When you are trying to save money, nothing excites the brain more than the idea that you are getting a bargain,” she says. “But, obviously, you’re not saving money if youíre spending it — even if it sounds like a deal.”
Don’t ignore debt. People don’t realize that the seed of the stress response is rooted in the unknown, says McGonigal. So trying to keep stress at bay by not opening the bills or balancing the checkbook is bound to fail. “Your mind will keep trying to solve this problem, and the less information it has, the more itís going to worry,” she says. “That puts you in a never-ending stress response and takes a huge toll on your health.”
Establish a pay-off plan. Having a clear strategy for paying your debts each month and knowing when you’ll be debt-free is great for peace of mind — and motivation. For tools you can use to start your own step-by-step payback plan, see the “Pay It Down” Web Extra! at ExperienceLife.com.