You don’t have to be a reckless spender to find yourself in debt. CNN touts that “one in three American adults have ‘debt in collections.’”
An Urban Institute study reported that 77 million people are so severely in debt that their account has gone to collections, while a Detroit Free Press article warns, “Young adults have more credit card debt than savings.”
Regardless of the angle, debt, severe debt, is an American epidemic.
A Break Down Of Causation
According to Bankrate.com, the top ten causes of debt are:
- Lower income, same spending habits
- Divorce
- Lack of money management skills/poor skills
- Underemployment
- Gambling
- Medical expenses
- Lack of savings
- Lack of money-communication skills
- Holding out/waiting/”banking” on a windfall
- Financial illiteracy
But what happens when you find yourself in debt repeatedly? It’s time to take a closer look at the reasons behind perpetual, avoidable debt.
According to Dave Ramsey, there are six main causes for people staying in debt:
- They want to keep up appearances
- They are unwilling to sacrifice
- They fear change
- They are addicted to stuff
- They don’t know how
- They are lazy
So, how do you climb out of debt once and for all? Especially if you notice a recurring theme of continual debt-to-safety-to-debt wheel of fate, it is important to stop and analyze the causes for initial debt and the reasons for apparent insurmountable financial disease.
As with your medical health, financial heath is propelled by lots of hard work, dedication and realistic awareness. Denial will only perpetuate decaying health, physically or financially.
Step One: Take an honest assessment of your financial situation.
Before you can make a plan for diminishing debt once and for all, you have to understand the severity and expanse of the situation. Take into account all loans: student debt, mortgages and car payments. Know exactly how many credit cards you and your family have – make sure to count retail cards and reward cards in addition to traditional credit cards. Any plastic that can hold a debt/requires payment needs to be acknowledged forthright. Finally, collect all bills: anything that requires a payment plan or regular payment must be added into the mix. When you’re in debt, every $100 medical bill, $25 late fee for utilities or billed car repair must be accounted for.
Step Two: Take responsibility.
Playing the blame game or lying to yourself will not change the circumstances. Nobody cares if you don’t think it’s your fault. You owe the money. You have to pay the money. You can’t talk your way out of substantial debt. Get over the stigma. Take credit for your own shortcomings and accept the situation.
Step Three: Educate yourself and your family.
Money management is not an innate human skill. We are not born knowing how to allot and predict and plan with 100 percent accuracy. And, sometimes, it is due to sheer ignorance that adults find themselves in debt. Whether or not a lack of financial education or money illiteracy is the root cause, understanding how credit works and how to budget are both beneficial life skills.
Step Four: Set realistic goals, with the end result being permanently digging yourself out of debt.
Each step should be attainable and based on practicality. However, do not fall into the mindset that “it’s going to take too long, so it’s not worth it.” Keep your eyes on the goal, but use baby steps to get there if necessary.
If interested, here’s a tried and true how-to guide for drafting financial plans. The plan states, “The important thing to remember is that your plan is a guide, not a crutch. It is a tool to keep you on track. Like any good guide, though, it can be tweaked to meet your needs and adjusted based on what obstacles you encounter on your journey to financial security.”
Step Five: Perseverance.
It’s not an easy path. It’s not fun. The journey is oftentimes downright painful. But, avoidance and half-hearted efforts will not grant you the ability to squeak by. “These people know what to do,” Dave Ramsey states, “They know how debt can affect their marriage, their stress levels, their relationships, and their future, but they just aren’t motivated to make a change.”
Many times, just climbing out of debt is not the largest challenge, it’s maintaining the healthy financial security that is attained through a debt-free life. Learn how to budget and embrace a life of financial freedom.
This article is part of a collaborative project between NASDAQ contributor and Benzinga Managing Editor Joe Young and Benzinga Personal Finance Writer Rebecca Sheppard.
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