"I'm in debt up to my eyeballs. I can barely pay my finance charges. Somebody help me!"
If that sounds like you, read on. Here are a few reasons why you're swimming in debt and what you can do about it.
No spending plan. Without a plan or financial goals, you're headed down the road to digging yourself deeper into debt. A spending plan establishes goals and principles. If your goal is to save $20,000 for an emergency fund, then you need to avoid more debt along the way. Since debt must be paid back, it would take away from funding the $20,000 goal.
Keeping up with everyone else. Your neighbor just pulled into his driveway with a new Ford Mustang, and you immediately think about buying the new Infiniti luxury sedan. That's what we know as keeping up with the Joneses. But it doesn't stop there. Your sister tells you she just picked up the latest purse in the Louis Vuitton spring line, and you think about that Chloe bag you didn't really want until now. We do this to ourselves because we don't want to feel we're missing out on the finer things in life. But what we miss is the reality of the Jones' financial situation. If they're living on credit, you'd never know because you're so blinded by their bling. Take a step back and assess the real reasons behind your newest impulsive purchase, and then take action.
Lack of discipline. Just as you begin to think about purchasing a new car because your neighbor recently bought one, hopefully you have enough restraint to consider the impact on your spending plan. If your goal is to get out and stay out of debt, then discipline will play a major role in your daily financial life. Financial discipline will help you assess your goals and consequences when faced with a decision that could potentially take you off the plan. Discipline is your friend. Embrace it.
Buying a new car every few years. Remember the car your neighbor bought? Well, let's just say you’re about six months from paying off your current vehicle, but you've now convinced yourself that it's time to get a new car because "I deserve it." This is a classic reason why so many people dig in and remain in debt. Most people relish the idea of not having a car payment, and others relish the new car smell and feel every few years. You must decide what's more important to you – living a debt-free life or cruising in the latest model.
In your world, credit is king. You enjoy a little retail therapy because you've had a hard week.But your bank accounts are overdrawn. Not to worry, you've got good ole MasterCard coming to your rescue. The problem? Your cards are mastering you and not the other way around. You've become so addicted to the plastic that you hardly recognize your spending plan anymore. As with the guy from the LendingTree commercials, your life is largely financed by your debt. But it's driving you crazy and will cause many sleepless nights ahead.
Here's the thing about getting out of debt: It requires a strong but realistic spending plan that you can stick with through the end. This is a "living" plan that will change along the way, but that's the beauty of it all.
Forget keeping up with everyone else, and cut up your credit cards. Spending your time trying to impress people who don't factor into your bottom line is a waste of money and will impede your financial goals. Assess your financial goals, and decide if having a new car is truly worth the money spent. Remember, it's no fun being stressed because your finances are out of control. Take control now, and enjoy the fruits of your efforts along the way.
Ginger Dean is a licensed psychotherapist and founder of the personal finance website Girls Just Wanna Have Funds.