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How to get out of debt
Tuesday, 30 January 2007
I meet people all the time who have debt problems. They've taken up banks and finance companies on their offers of easy money, and spent it on consumer goods like holidays and cars. Now they've got the bill, and they're finding it's bigger than they expected. They passed on problems to their future self and now the future is here and they're regretting that decision.
So how do you get out of debt? Here are my suggestions.
Have a financial attitude change
Getting out of debt is a little like going on a diet or quitting smoking, it requires an entire attitude change. Most people get into debt in the first place because they're financially irresponsible. Now that the pain of their bad decisions is starting to bite, the want to escape. But like going on a diet for a month, there's little point in being financially responsible for a short time only. You may get thin, or out of debt for a few months that way, but what you really want is to be in a good position long-term. View this journey as a lifetime one, not just a short-term undertaking.
Be prepared for some lifestyle cutbacks
There is a famous quote from an unknown source: "A luxury once sampled becomes a necessity". This is the problem facing many of those who find themselves in debt. They are living a lifestyle they don't have the resources to sustain.
Changing to a more modest lifestyle is difficult for anybody. If you're used to catching taxis everywhere, then switching to taking the bus is going to be tough. If you're used to an expensive tropical island holiday once a year, then something cheaper is likely to seem squalid.
Unfortunately, lifestyle cutbacks are the key to getting out of debt. It is unrealistic to imagine you can keep living like you have while spending less. It's simply not possible.
The good news is that such negative lifestyle changes are temporary. If you accept financial responsibility, and put yourself on a more sustainable path, then in the long term you will enjoy a far better and less stressful lifestyle. I have pretty much never been in debt, yet I enjoy one of the best lifestyles of anyone I know. This is generally true for the financially responsible.
Be determined
Like all difficult life changes, getting out of debt requires determination to see it through. If you accept that your lifestyle will reduce for some time, but you are determined to see through the painful period for a more satisfying life on the other side, then you are likely to succeed. The practical advice needed to get out of debt is well known - try to bundle your different debts into one low interest loan, cut up your credit cards, arrange to make payments as soon as you get money etc. If you are determined to succeed in this enterprise, you'll likely find you can easily get good practical information on how to go about it.
Let important others in your life know about your decision
It will be difficult to get out of debt unless you recruit important others into helping you with your decision. If you have a spouse who spends up big on credit, then you have to get them to stop. If you have friends who are going to be upset if you can't go out with them as often, then you'll have to tell them the reason why. Often, it's pressure from significant others that causes good intentions to collapse. Anticipate this problem and take steps to minimize it.
So there you have it, my tips for getting out of debt. As you can see, they're not conventional wisdom on the subject. That's because such wisdom is widely available and I'm sure you don't need me to point it out to you. Instead, I've tried to add a little extra information that isn't so widely known and I believe is important.
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