5 Reasons Why You Are Still in Debt
By Daniel Rodriguez | Dr. Budgets
You have a balance on your credit cards and you have decided to pay them off in two years. That’s great! So you simply take your total balance and divide it by 24 to find out what you should pay each month… then, two years later, you’re out of debt, right? If only it were that easy!
Paying off debt isn’t just about figuring out the numbers. There are a lot of emotional considerations involved that may make it hard to pay off debt, which might explain why the average American household carries $15,762 in credit card debt.
Here are the 5 reasons why you are still in debt…
Lack of Motivation. Maybe you tell yourself you want to get out of debt every year, but at the end of the year you have the same amount (or more) debt than you did when the year began. You have a desire to pay off your debt, but your actions are painting a different picture… your desire to purchase what you can’t afford is stronger than your desire to pay off your debt. The reason why you are still in debt is because your goal to pay off your debt isn’t strong enough (or at least not stronger than your desire to swipe your credit card).
Lack of Knowledge. Maybe your goal to pay off your debt is strong, but you just don’t know how to start paying it off. Do you pay off the credit card with the highest interest rate or the one with the lowest balance? Do you do a balance transfer to a 0% credit card? Do you continue to use your credit cards while you are paying them off or do you cut them all up? You can pay your debt in a variety of ways, but if you don’t start somewhere it won’t pay itself off! My recommendation is you start by putting your credit cards away and stop using them until you are completely out of credit card debt. Once you put your cards away, you can then decide whether to pay off the highest interest rate or the lowest balance card first. If you haven’t started because you feel you don’t have enough knowledge, then this is probably the reason why you are still in debt.
No Budget. You can have the motivation and a plan for how to pay off your debt, but without a realistic budget (healthy spending plan) your progress will be limited. If you don’t know where your money is currently being spent and you don’t have a plan for how to spend it, then you can easily miss opportunities to make a significant dent in your debt balance. So, figure out how you are currently spending your money using a spending tracker like Mint.com, then develop a budget so you can allocate as much as possible toward your debt repayment goal. If you don’t have a budget, that could be the reason why you are still in debt.
Financial Emergency or “Financial Emergency.” Sometimes true financial emergencies happen… unexpected hospitalization, major auto repairs, or having to take a last minute trip to attend a funeral. Most of the time, though, they are probably only a “financial emergency.” Needing new tires or routine maintenance on your car is not a true emergency. Having to pay your car registration is not an emergency. Your annual insurance bill is not an emergency. Taking that last minute trip with your friends is not an emergency. I could go on and on, but the point is that all of these so-called “financial emergencies” are all things you can plan for in your annual budget. If you find yourself constantly encountering “financial emergencies,” that may be the reason why you are still in debt.
No Accountability. So, you have the motivation, knowledge, and a budget that factors in “financial emergencies,” but you are still not making much progress toward paying off your debt? The biggest reason could be a lack of accountability. When you have someone hold you accountable to your goals, something magical often happens… you start achieving those goals! Accountability is often the missing ingredient to achieving your goals because with accountability you have someone to report to about your progress. And it is much more enjoyable to tell that person you are on track with your goals, rather than having the conversation that you are failing miserably. So, have someone hold you accountable, whether it is your spouse, a friend, or a Dr. Budgets money coach. If you find that you have done everything, but you are still in debt, then the lack of accountability is probably the reason why you are still in debt.