Has Debt Become our Therapy?

Half of Americans spend more than they earn, but don’t realize it! That’s according to the recent report released by Rasmussen Reports for Country Financial. In 2009, the Census Bureau reported that Americans spend $1.33 for every dollar they earn! How can we not realize that we’re overspending month after month?

Those statistics, even though shocking, are the “way of life” for so many of us that debt almost seems normal. It has been part of our everyday lives for so long that it’s hard to imagine our lives without it. Here is a great quote that sums up our current reality:

“Normal is getting dressed in clothes that you buy for work and driving through traffic in a car that you are still paying for - in order to get to the job you need to pay for the clothes and the car, and the house you leave vacant all day so you can afford to live in it.” - Ellen Goodman

I’m pretty sure that if asked the question, “Would you like to be debt-free?” most Americans, if not all, would shout a definitive YES! Why is it that so many of us who want to be free from debt keep adding to what we already owe? There are probably plenty of answers, but two primary reasons are: the need to impress others and the emotional addiction to overspending in order to cope with other life issues. In essence, racking up debt has become our therapy!

According to Gloria Arenson, a marriage therapist, overspending has become an addiction, and we use it to offset an increasingly stressful and hectic lifestyle. We are willing to use credit and pay interest on items we may not even use, just to get that quick feeling of satisfaction.

If you’re quietly raising your hand saying, yup that’s me, I want you to know that there is a way out. It’s not an easy one, but with conviction and perseverance you can ditch your debt once and for all. Depending on where you are financially, we’ll take you through a step-by-step process of eliminating your consumer debt.

Spending More than you Earn?

If you live in the camp of over-spenders, the first thing you need to do is align your spending with your income, which means that you start living within the boundaries of what you bring in.

The envelope budgeting system is the most effective way to get a handle on your overspending. Create a monthly plan, a budget that would allocate a specific amount of money to every category where you spend money, make sure the plan does not exceed 100% of your income, and then make a 3 month commitment to stick to that plan.

Once you start living within your means, you’ll be ready to take another step on the debt elimination journey!

5% Reduction in Spending

Cutting cost out of your budget can be mundane, but you can make it a fun challenge as well! What if you and your spouse had a contest of finding 5% to reduce in every budget category? Few categories like your mortgage payment may not qualify, but a majority of what you spend money on will.

So for example, if you spend $500 on groceries every month, 5% reduction would mean $25 dollars a month. How about your car or homeowner’s insurance? Did you know that re-quoting those once or twice a year could save you serious money? We just did ours last year and saved over $700 a year! If 5% is too much, start with 2% or 3%.

Finding cost reduction by a percentage can be a fun and non-threatening way to eliminate expenses, and at the end of it, whoever wins can be treated to something special. Imagine cutting out $15 out of just 5 spending categories. That would immediately release $75 a month towards debt or towards building your emergency savings fund!

Must Have a Plan

Finally, once you’ve mastered living on your current income and you’ve been able to curb a certain percentage out of your spending, your final step is to create your debt elimination roadmap.

On one sheet of paper, list all of your consumer debts, the balance you owe, and the expected payoff date. Place that list in a place visible to you and your spouse, and every time you pay off a debt, mark it off and celebrate it.

After paying your debt, take that payment amount and roll it over to your next debt in line and watch the balance melt away. Keep doing this until you finish paying off all of your debts. Depending on your financial situation, consider using a portion of your tax returns or any “extra cash” towards your debt repayment.  If you stick with the plan, you’ll become debt-free, and you’ll position your family for a great financial future!

There is no better feeling than knowing that you owe no man anything… except for love! In the light of the current economic situation, there is nothing more important than ensuring that you and your family are free from debt and prepared for whatever lies ahead!

Megan Pacheco is a writer and content manager for Finicity (provider of Mvelopes and Money4Life Coaching). She comes with 13 years of experience in the area of personal finances and her tips on budgeting, debt, saving, giving, money and marriage and more have been published by Yahoo Finance, AllParenting, FoxBusiness, DailyFinance, REDBOOK and others. You can contact megan at: megan.pacheco@finicity.com

Publication date: February 26, 2014

Photo courtesy: ©Thinkstock/tommaso79