“I feel like I’m on a bad roller coaster ride and I can’t get off.”
That’s a direct quote from one of my clients when we first met. She had a significant amount of debt that she just couldn’t seem to ever get rid of that was at the root of her feeling financial unstable. The weight of this debt was keeping her feeling stressed and overwhelmed instead of allowing her to pursue her dreams and live a life full of freedom and choice.
This woman was caught in what I like to refer to as the three points of the “Bermuda Triangle of Finances.” Point #1 = earning a good living and making good money. Point #2 = a decent amount of consumer debt (i.e. credit cards), typically between $20,000-$50,000. Point #3 = limited, or no liquid savings.
It’s a perfect storm – you work hard to earn a good living; you overspend because you aren’t fully aware of where your money goes; you accumulate debt as a result of living above your means; and you can’t ever really make a dent in your debt because every time you make a concerted effort to do so you make progress only to be interrupted by this little thing called LIFE. “Life” looks and sounds like unexpected car repairs or something unplanned for that the kids need for school or activities.
Feeling stressed about how to pay bills (including the heavy amount of debt you may have).
Carrying stress around with you all the time like a sack of “financial waste” which leads to physical issues and mental strain.
Underperforming at work because as much as you try, you are feeling weighed down by the stress of your debt.
Tons of fun, right?
Nope. It usually isn’t fun and almost every one of my clients show up with these symptoms and live the reality of the Bermuda Triangle of Finances. So my guess is that if they’re feeling this pain, you might be too.
So what can you do about it? Here are 5 steps you can take today to get out of debt (and stay out of it!):
1) Look the “debt devil” directly in the eye – It’s time to face facts and get around to documenting how much debt you really have. This might be hard, but it’s important. Without understanding the whole problem, you can’t best figure out how to solve it. Grab a cup of coffee, sit down, breathe deeply, and just start writing it all down. Keep it simple and write it on paper or use an excel worksheet. The point is just to get your arms around it all.
2) Stabilize the chaos – When you’re beginning to develop a plan to get out of debt, it’s important to stabilize your debt balances and stop adding to them ASAP. Otherwise, it’s like you’re in a leaky boat with holes in it in the middle of a pond (i.e. the boat = your debt), you’re sinking and trying to bail the water out (you’re trying to pay down the debt), but at the same time you’re pouring water into your leaky boat (new purchases). The best way I know to pull up the brakes on the debt issue is to start living on cash. If you must, keep one credit card in your wallet in case of some unforeseen emergency.
3) Reassess how you’re using your money – In order to get out of debt, you’ll need to free up some extra money from somewhere to start paying it down. The best way to do that it to see where you may be overspending. In order to solve the debt puzzle it’s very important to see what changes you can make in how you live your life to contribute extra money toward paying down debt.
4) Develop a strategy to pay down your debt – After documenting your debt down, it’s time to come up with a pay down strategy. I recommend that as the first step in developing your strategy that you “rank” your debt and decide which piece you’ll pay down first. The plan is to pay at least the minimums on all pieces of debt and to focus any extra money you have on one piece only until it’s paid off. After the first piece of debt is paid off, then you move on to the second piece, and so on and so forth until you’re done paying off your debt!
5) Save your way out of debt – This is an often-missed piece of the puzzle. Most people believe that if they have debt they should use any extra money they have to be responsible and pay down the debt. WRONG. In my experience with clients living in the “Bermuda Triangle of Finances,” there’s a delicate balance between being responsible and strengthening your financial foundation (i.e. savings). Life is always going to happen and you can’t plan for everything. With that in mind, it’s important that while you’re working a plan to pay off your debt that you’re also saving. Because if you save as you’re paying off debt, eventually when something unexpected happens you’ll be more likely to have the cash to pay for it and you won’t have to add to your debt and interrupt the repayment process.
While it may take a while to work your way through these steps, the energetic relief that you’ll feel once you have a debt repayment strategy in place will be palpable. You’ll be able to take your newfound energy into your personal and professional life, and you’ll no longer be weighed down by the fearful energy of your debt.
Debt strategy may not exactly be sexy, but it can be systematic…what step can you take today to begin moving toward a debt-free life?