How to stop debt before debt stops you

To stop debt before it becomes an all consuming issue in your life is not an easy thing to do. Debt only becomes a problem when it has gone beyond the point where it should have been stopped. How often have we only looked at something when it goes wrong. Logically it makes sense. Why stop debt if it is not causing problems? It’s like going to the doctor when nothing is wrong.

But if you think about it you should go for your annual check up with the doctor. You take your car in for a service every six months right? The same applies to debt management. To stop debt we need to have our annual check up but in some cases annual is simply not enough. We need to check our financial pulse every month.

If you’re in a hole stop digging. The simplest way to stop debt is to stop everything.

Stop eating out

Stop buying luxury goods

Stop living beyond your means

Stop whatever it is that is causing your debt

To really stop debt you need to effectively stop living for however long it takes to get you back into a frame of mind where you are not worried about debt. No I’m not suggesting you join a monastery nor am I saying you should starve yourself.

Here’s an example of what I mean.

A friend was trying to sell his house. The mortgage had become a large burden and his plan was to sell the house and move into rented accommodation. The problem was the buyers for houses in the area had dried up so he could not sell it.

When times were good he lived the highlife, he bought a top of the range SUV and lots of other expensive gadgets. All of which were bought on credit. The house he bought was far from where he worked and as a result spent almost $100 a week on gas. This all added up to a lot of debt.

Realising he had a problem he decided to try to sell his house and rent a house closer to where he worked. He was also determined to sell his SUV and get a smaller car and sell whatever else he could.

So there were no buyers for the house which he had on the market for about six months. He decided the next best alternative was to try to rent out the house. He knew that he would not get the whole of the mortgage covered but he reckoned that between the rent he received along with the reduced car payments on the smaller car and the savings on the gas he could have a small net positive gain on his cashflow.

He was lucky. A family new to the area want to rent a house before they bought so they could get a feel for the neighbourhood. So with his house rented, one part of his plan was in place. Now where was he going to live? When he sat down and thought about it there was only one realistic option – he moved back in with his Mom. She lived in the same town as he worked. His Mom charged him a seriously reduced rent rate. This meant major savings for him but it also meant a loss of a certain amount of freedom.

Finally he sold his SUV (and lost money on it!) but he was glad to be rid of it as he no longer needed such a big car.

Here’s the moral of the story. My friend wanted to stop debt ruining his life. He had had enough and decided to take extreme action. He took the following steps.

1. 1. Made the decision that he was going to stop his debt in its tracks before it sent him to the poor house or worse still the mad house.
2. 2. Tried to sell his house. Not deterred by the lack of success he decided to rent out his house and with a bit of luck he did.
3. 3. Sold his SUV and bought a smaller car. This was a particularly tough thing for him to do as he loved his car but again it was either the car or his sanity.
4. 4. Moved back in with his Mom – now come on this has got to be the toughest thing a single guy in his twenties can do. I mean he loves his Mom but come on.

The story doesn’t end there. My friend plans to stay with his Mom for one year and then reassess the situation in relation to his house. If the market is still bad he thinks he may just rent a room in a house and move out from his Mom’s. The best part of this new arrangement is that since he is not travelling so far to work he can do more overtime. He reckons that in about 18 months if he keeps it up he will have eliminated all his credit card debt and his outstanding personal loans and just be left with his mortgage.

A good result I think. Now the question you have to ask yourself is this, “What am I truly prepared to do to stop debt ruining my life?”. What big sacrifices would you be able to make to help you repay your debt? Can you see yourself renting out your house and moving closer to work? Taking on overtime at work? Cutting back on your social life?

You have to remember that these changes are not forever – they only have to last as long as it takes to repay your debt. How fast does a year go by anyway? How fast does three months go by? Worst case scenario if you try and fail at least you will have learnt some valuable lessons in the process.