It’s not just another set of ‘woe me’ debt stories. These people are showing courage under fire. Some of them suffered from bad health which then tipped them over the edge. One couple simply wanted a better future for their kids – nothing wrong with that.

Here is the link: The New York Times ‘The Debt Trap’ series on debt

Why more debt stories Mike? Well I think you can use these stories as further motivation to focus on your own debt situation. If any good is to come from their situation let it be that we try to learn what went wrong in their situation and how we can avoid repeating the same mistakes.

I found the series truly tragic and I was moved by their stories. Unfortunately I know these are stories that are being repeated everywhere. These three stories are just a sample of the torment that people are going through.

There is one thing saying that we are all in this together – there is quite another trying to live that reality. While we must always accept responsibility for our actions and we must solve our debt problems on our own – we don’t have to be alone. There are plenty of good forums and even in the comments section of posts like this where you can discuss your debt problems.

If things are bad and you feel that you simply can’t cope with your debt burden then perhaps you might consider joining your local Debtors anonymous. It’s just a thought. If you had friends and family to turn to for support then that would be ideal. However some people might feel more comfortable talking about their debt problems with people that they do not know. I respect and understand that.

Decide what is right for you and then do something about it. Get the support you need – don’t suffer alone. Get a release from the pressure and talk to someone.

I use this blog as a sort of release for my concerns about debt. I’m sure you will notice that my thoughts can sometimes meander and go off in tangents. This is just me working it out. I ask you to do the same. Work your debt problem out through some form of positive expression. Post a comment here about your debt problem. It is anonymous and other people are sure to offer ideas and words of support.

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While the mantra of ‘we are in this together’ is a powerful one, the reality of most relationships is somewhat different. Debt and money related problems will create a claustrophobic atmosphere in any relationship. Self preservation instincts kick-in in negative ways. After a while it is no longer a case of ‘our’ money problems but more likely ‘his’ or ‘her’ money problems. A split in thinking between the couple becomes apparent and if nothing is done to heal this split then it usually is not long before the split becomes real and permanent and the couple go their separate ways.

For those of you in a relationship that is currently experiencing money and debt problems then it can be very hard to see the ‘wood for the trees’. Your debt problems are probably so big, real and pressing that you do not have the time or perspective to look at the small problems developing in your relationship. This situation is highly understandable but unfortunately it can lead to serious trouble.

What to do?

I’m no relationship expert and I don’t claim to be. What I am suggesting here is based on personal experience, research and huge dollop of common sense.

One of the simplest ways to solve your debt problems and in turn help heal any rift in your relationships is to take the initiative and lead by example.

What this basically means is that you are no longer sitting around looking for others to help you but instead you are out there making it happen for you. Whether this means you getting a new or second job or selling your car for a smaller model or even cutting coupons – it doesn’t matter. It is the fact that you are demonstrating leadership and determination to make right past wrongs. You are out there fighting the good fight. At the end of the day your partner will see that you are taking action and making every effort to turn the situation around.

The hope is that your partner will, having seen your efforts to change, be encouraged to make changes of their own. When this starts to happen and they have made a few changes you can begin to plot a common strategy that both of you can work on. Common goals lead to teamwork and in turn lead to a move away from the blame and shame tactics that are so often used to hurt.

Generally a catalyst is needed to kick start change. In a relationship it can sometimes be the case that change doesn’t happen unless an external force comes into play. I say why not pre-empt change and be that catalyst? By taking the lead you are the one in control and you can direct the flow of action.

Debt is the slow rot that will sink your relationship. The guilt, fear and worry that it brings is enough to unsettle even the most solid of foundations. Stop that rot now. Take the small messy and ugly steps towards paying off your debts. Your actions don’t have to be pretty, clean and clever – they just have to move you in a positive direction.

The more serious you can show your partner that you are about repaying your debt and sorting your finances the more likely you are to stop the rot.

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In a previous series of posts I asked the question “Do you have the energy to fight debt?”. In most peoples cases the answer is a resounding no. The comment by the guy in debt is typical of the emotions and feelings that people experience when they are confronted by a wall of debt. Sleepless nights, worry, stress and the inability to take positive action seem to be the order of the day. I should know as I’ve been in that situation on more than one occasion.

The energy aspects and how to motivate yourself are dealt with in the ‘do you have the energy to fight debt’ article. In this post here I want to focus more on the fact that most people don’t seem to put themselves first when it comes to sorting out their debt.

When debt is coming at you from all angles the general tendency is to curl up into a little ball of negative emotions. Lack of knowledge as to how to deal with debt and lack of income to pay down the debt combine to create a very tight corner. A lot of people who find themselves in this situation tend to constantly beat themselves up. Somehow believing that things will get better if they beat down on themselves, that somehow the harder they are on themselves the quicker the debt will get paid.

This logic is clearly flawed yet the phrase ‘how could I have been so stupid’ is one that is repeated hundreds if not thousands of times.

What I learnt from my time in this tight corner is that the only person in that corner is YOU and the only person who is fighting your corner is YOU. You can be your own best friend or your own worst enemy. By beating on yourself you are not solving any problems. No matter how hard you try you cannot beat sense into yourself.

You need to be your own best friend.

The truth is that the only way you will ever get out of debt is by being your own best friend. You need to put yourself first. You need to tend to the worries and stresses you have in order for you to be effective in dealing with your debt.

What is one of the main things that the air hostess says when you are being shown the how to use the oxygen masks on a plane? Make sure to put your mask on first and then help your family. This makes perfect sense. If you can’t breathe and are losing consciousness then you are no good to anyone. By tending to your own needs first you ensure the maximum odds of survival for the people around you. If you try to solve everyone else’s problems first you are doomed.

The exact same logic applies to debt management. Look after yourself first. You are no good to anyone if your health – both physical and mental – is suffering as a result of you trying to dance the merry dance with your debtors or your family. Put yourself first. Be selfish – initially at least. Be selfish until you can steady your ship and get your finances in order. What use are you to anyone if you sit up half the night worrying and stressing and are too tired during the day to do anything about your debt?

Too often people try to tackle their debts when they are emotionally and mentally exhausted. Their efforts tend to be half hearted and misdirected. Their energy levels have been sapped by months of stress and worry. As a result their efforts tend to have minimal impact and they end up becoming more and more frustrated.

So how to put yourself first and your debt second?

Your goal is now to focus on giving yourself some breathing space so that you can get some perspective on your problem. I’m not saying you should go on an expensive holiday – far from it. I’m saying that you take a day or two to sit down somewhere quiet and brainstorm two lists.

The first list is all the things that you can do that will improve your mood. These activities have specifically to be low cost or no cost. Things like improving your diet, more exercise, more time with friends and family, a new low cost hobby. You get the picture.

The second list is a list of all the things that you can do to get yourself out of debt. These things can range from the simple to the hard – from selling your home to collecting coupons. Write them all down.

Now for the hard part, take one item from each of the lists and do them. Continue to do them until they are having a positive impact on your debt and on your mood. Once you have established these items as habits move on to the next item.

The key message here is to look after yourself – both mentally and physically. Otherwise you won’t be able to look after your debt. You will be no use to anyone if you’re a burnt out physical wreck.

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I’m as guilty as the next person of over indulgence – if I wasn’t I wouldn’t be writing this blog about trying to understand and make sense of debt.

I have often wondered what led to the furious spending and house buying that we have witnessed in the last few years. I think that while easy credit played a huge part in the madness there must have been something else at play. I always got the feeling that there was almost a collective agreement in society that it was good to spend your way to oblivion. Tacit approval to use your credit card was everywhere. Everyone else was doing. It was the case that ‘we are all in this together’ so don’t feel bad.

Then about a year ago I came across the concept of ‘Affluenza’. I thought that it was just the latest buzz word and would soon be consigned to the annals of history but then I dug a little deeper. The concept of affluenza was a perfect fit for that collective urge to spend that I had felt a part of.

Taken from Wikipedia.

affluenza n. 1. The bloated, sluggish and unfulfilled feeling that results from efforts to keep up with the Joneses. 2. An epidemic of stress, overwork, waste and indebtedness caused by the pursuit of the American Dream. 3. An unsustainable addiction to economic growth.

I couldn’t agree more with the definition above.

In reality we were taking part in a competition that we could never win. There was always going to be someone with a faster car or bigger house than us. It was a giant ponzi scheme and we are the suckers who will have to pay the price.

I’m not bitter and I don’t think you should be either. Ultimately it was through my own decisions that I ended up in debt. Had I don’t things differently I wouldn’t have this debt problem. Being bitter about your situation serves no purpose. Sure you want someone to blame and lash out at but in the end the answer is always the same. It was you who signed up for the good stuff and now you must take the bad stuff that comes with it.

Take the rage and anger you have at your situation and use it as the driving force to get you out of debt and cure you of affluenza. Channel that negative energy and get some positive out of it. Show the banks and financial institutions that while you may have been a little naïve in your spending that they won’t be able to count on your contribution to their bottom line.

The theory and research into affluenza are fascinating. If you want to learn more about what affluenza is and why and how it has such an impact then I recommend you read this book. Get it from the library or buy it second hand on amazon.

Affluenza: The All-Consuming Epidemic (Bk Currents)

As a cure for affluenza I can’t recommend the following book highly enough. This book takes a very different approach to personal finance. You will like it – its far from your average dry and boring personal finance book.

Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence

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The accounting concept that I am talking about is Prudence.

Taken from Businessdictionary.com

Prudence

“Accounting concept that requires recording (recognizing) the expenses and liabilities as soon as possible, but the revenues only when they are realized or assured. It implies that only that method of determining asset value or net income which yields the lesser amount should be used.”

What prudence basically means is that when you have incurred an expense or bill you make sure to recognize and acknowledge that expense as soon as possible. So if you buy something on your credit card but won’t receive the bill for a month, instead of waiting for a month to receive the bill you act as if you have already received the bill and are making plans to pay it. The key here is your plans to pay the bill. You need to acknowledge your expenses as soon as you incur them not when you get the bill for them.

From an income point of view the prudence concept is clear – don’t count your chickens before they hatch – in other words don’t count on income from any source until it is in your bank account. The income aspect is perhaps not so relevant to someone in a job that is paying a regular salary but if someone whose work involves overtime or commission then the prudence concept is very useful.

While the accounting concept of prudence was primarily devised for businesses where their income and expenses vary on a month to month basis it is an incredibly useful concept to use when managing personal debt. You need to think about how you run your finances as if you were running a business. That’s how serious you should be about your personal finances.

Expect more bills and less income

To really get things going for you on the debt repayment front you can bring the prudence concept one step further. Overestimate your bills and underestimate your income. Say for example you overestimated your monthly bills by $200 and your underestimated your income by $100. This may seem like a crazy idea but at the end of the month you have a positive difference of $300.

This ‘spare’ $300 can have an enormous positive impact on your morale and motivation. If you see that at the end of each month you have spare cash in your bank account you are going to feel wealthier and more in control of your finances. One great benefit of creating this float of cash is that you can meet any financial emergencies with confidence as you will have created a cushion of cash without even realizing it.

The simplest way to create this cushion is to inflate your expenses by 5% and deflate your income by 5% when you are creating your household budget. I know this sounds a bit counterintuitive and it might seem like a lot of extra hassle but you will be sure to notice the difference in a couple of months. If you can mentally prepare yourself to receive less in your salary each month then you will get a pleasant shock when you see that you have actually received more than you expected.

By overestimating your bills and underestimating your income you are not changing your real financial situation - not initially anyway – what you are doing is changing your perception of your financial situation. You are mentally creating a financial situation where you are earning less and paying more – it sounds crazy I know but in time it will create a very real positive effect. Remember perception is everything and in order for you to change your real financial situation you need to change your perception of it first.

Remember its all in your mind.

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Take from phrases.org.uk

TIME IS MONEY - “While this familiar maxim may seem like an invention of our hectic and impersonal modern society, it actually comes to us from the ancient Greeks. Antiphon, an orator who wrote speeches for defendants in court cases, recorded the earliest known version of the saying in ‘Maxim’ (c. 430 BC) as ‘The most costly outlay is time.’”

If time is money then lack of time means lack of money. In turn lack of money means more debt. So this can be read in another simpler way – lack of time equals more debt.

Now let’s turn this equation on its head – more time equals less debt.

So in theory if you had more time you would have less debt? Not quite but very close. The best application of the idea more time equals less debt is that the longer you give yourself to pay off your debts the more likely you are going to achieve that goal.

Often when we are in debt the urge to escape can be immense. We want to be free from this burden as soon as possible. Unfortunately the remedy for debt usually takes a long time. It is this fact that most people over look when they are designing debt management plans which in turn is one of the main reasons those plans fail. The ‘have it all now’ attitude that got them into debt in the first place is still present in their desire to get out of debt. They want to get out of debt in an instant.

If you have been in debt for any time at all you will know that it does not work that way. Going back to the time is money concept or more specifically more time equals less debt, the longer you work on reducing your debt the quicker it will happen. Ironic I know but the people who make a crazy dash to pay off all their debts in three months generally end up frustrated and disillusioned while at the same time their debt burden still exists.

Slow and painful? Yes and no. Yes it can be slow and painful but it doesn’t have to be if you plan it well and most importantly give yourself plenty of time. Time is of the essence in that you must act fast on taking action on your debt but my advice is not to expect to get out of debt fast. Slow and steady wins the day every time. You need to consistently apply the things you learn on this and other websites. If you do then you will come out of your debt a lot faster than you thought possible.

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However every once in a while I tend to go over to the dark side and use scare tactics. I don’t like doing it but I sometimes find it extremely effective. Often when I am trying to motivate myself and others I find that the softly softly approach only gets you so far. The results are much better when I stop being so nice and I focus on getting the job done by whatever means possible.

So now it is your turn.

Up to this point I have been encouraging you to tackle your debts in a nice positive way. Telling you that it will be alright and that everything will be fine if you just tweak your budget a bit. When in reality if you are not moving towards your goal of debt elimination and if you are not taking serious positive action then you are heading for trouble.

They say you have to be cruel to be kind and I think this is definitely one of those situations. I’m not doing this to hurt. I’m doing this to scare you into action.

I want you to read the following articles and imagine the torment these people must be going through. How tough and difficult life has gotten for them. I’m not trying to belittle them in anyway I simply want you to look at their situation and how it got so bad for them. I want to shock you out of your mental paralysis when it comes to your debt. Debt can happen to anyone of us and when the consequences come they tend to come thick and fast.

The Foreclosure Story Number 2: $136,000 a Year Income to Foreclosure.

Foreclosure, a personal story

Tent city

California town creates parking havens for homeless

Now that you have read the articles I want you to use the fear of those situations to motivate you to take action NOW. Every minute you wait means that it is a minute longer that you have to spend in debt. Make that call, find that bank statement, pay that bill. DO IT NOW.

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It’s not that I don’t have faith in humanity to achieve. I just know from personal experience how hard it is to tackle financial problems in an orderly and logical fashion. In my opinion it is near impossible for people to remove the emotion from money. That is why in this post I want to create a world filled with what are essentially robots.

Ok so in this logic driven world I am going to suggest what I think are the ten things that someone in debt could do to get themselves out of debt in the quickest time possible.

Learn everything you can about personal finance and budgeting

First and foremost this will be the foundation to get you out of debt. Learn as much as you can about debt management, budgets and personal finance. This knowledge when applied will serve you well for a lifetime.

Get your family and friends involved

Let your family and close friends know what you are trying to do. Don’t expect handouts because that’s not what we’re about but take any help that they are prepared to offer. The biggest form of help that they will give is the form of emotional support. (But in this world you are a robot so you have no emotion!).

Sell absolutely everything that you do not need

If you have two cars then sell one. If you have mountains of ‘stuff’ lying around your house that you do not need then sell it. Sell everything. There is no room for sentimentality. Strip your life down to the bare bones. Get rid of your possessions by selling them. This will give you a much needed cash injection and it will also declutter your home.

Consolidate your credit cards to a low introductory offer

Take all your credit card debt and look for a new credit card that offers you a low interest rate on balance transfers. Once you find the right card transfer all your existing credit card debt on to it. There are some great deals out there you just have to take the time to find them. Be careful though and remember to read the small print.

Shop around

It pays to shop around. You can make some serious savings on everything from your mortgage to your lawnmower. Use the power of the internet to compare costs.

Rent out a room or move to a lower cost area

If you own your home then rent out a room if it is feasible. If you rent your home consider moving to a lower cost area or consider moving closer to work to save on transportation.

Get a second part time job / work overtime

If it’s feasible get yourself a second part time job and ring fence any of the money that you make for your debt. So basically any money that you make goes directly against your debt. Alternatively if you can work overtime in work then do it.

Eliminate all your discretionary spending

What this means is that you shop for groceries only. You don’t spend money on luxuries – no daily latte, no daily newspapers, no smoking, and no gourmet sandwiches for lunch. Ok you get the picture. The aim is to reduce your spending to essential items only.

Cut up your credit cards

Once you sufficient cash flow built up to allow you to buy your groceries and meet your daily expenses then simply cut up your credit cards so that you are no longer able to use them.

Focus all of your attention on improving your financial situation

In order to get out of debt quickly you need to give 100% focus to improving your finances. Give it all the energy that you have. Like a laser beam cutting through butter you will melt away all obstacles in your path if you would just give your finances your full attention. When I say full attention I mean full attention – minimize everything else in your life so that you have no distractions.

The above list is by no means exhaustive and there are plenty of things that could be done immediately that would have a big impact on your debt. For me the key point I am trying to make with this article is that we all know what we need to do in order to reduce our debt. Its not rocket science. It can be reduced to the simple formula of reduce your spending and increase your income. It’s that simple.

In reality it never is that simple. That is why I wanted to stress the ideal nature of the items outlined above. We would need to be robots and devoid of emotion if we were to execute these items immediately. Even in the direst of circumstances it is with great reluctance that we do the items on the list. We know we should be doing them but getting round to doing them is another item altogether.

While the items outlined above are ideal that doesn’t mean that they are impossible to do. To me money and debt are all about emotions. You need to manage your emotions and your mental attitude towards debt before you can truly manage debt. If you can manage your emotions then you will get out of debt a lot quicker than you thought possible.

Right now you are probably in a place of fear and dread. These negative emotions are slowing down your ability to respond. Don’t worry this is a natural reaction to the realization that your finances are in trouble. Keep moving. It is important to realize that you need to go through these negative emotions in order for you to progress with your situation. Feel these emotions deeply – let them wash over you – then move on.

Simple? No. But no one every said this was going to be easy.

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For years I would struggle with the one sided nature of the debt management plans that I created or that were created for me. The huge problem with the debt plans was that while they very adequately covered my need to repay debt they offered absolutely no guidance on how I was to live my life on a day to day basis. All that debt management plans ever showed me was a bunch of numbers on a page and a set of targets that needed to be reached.

Now I don’t know about your experiences with debt management plans but in between all those numbers on the plan you have to squeeze in a life somewhere, somehow.

Honestly do they want us to become monks? Live a life of servitude to the banks? Ok we got ourselves into this and we are the only ones that can get us out of it and I wholly accept that. I have written about taking responsibility before but the point I am trying to make is that the vast majority of debt management plans are unrealistic and excessive. People don’t change overnight – old habits die hard.

Why are debt management plans so oppressive?

It primarily depends on who designs them.

If you design your own debt management plan, initially at least you will tend to be over optimistic with what can be achieved. Trust me on this. I have done it over and over again. I start out with what I think is a tough but achievable debt management plan but it suddenly turns into a punitive anti social whip which I use to beat myself if I strayed from it. I never allowed for everything and even when I thought I had been thorough I would miss something. After a couple of weeks on the plan I will slip back into my old routines and habits. I would come away from the whole experience dejected, disillusioned and still in debt.

If someone else creates a debt management plan for you then they tend to be even tougher still. Let’s say for example you decide to use a debt consolidation company. The person on the other end of the phone does not know you and unfortunately probably does not care too much about you as a person. They will see your income and expenses and using the latest debt management software optimize your spending. Needless to say the software will simply take every spare cent you have and put it against your debts not taking into account the softer things in your life like the daily newspaper or the occasional trip to the cinema. No it’s off to live in a cave for you.

What’s the alternative?

I found through hard fought experience that the best debt management plan is the one that incorporates a life plan.

What this basically means is that you cannot and should not create your debt management plan in isolation from your life. By life I mean the elements that make up your day to day living – things like your daily routines and habits, the time you spend and how you spend it with your friends and family, how you relax and unwind, how you have fun.

You have to look at the WHOLE picture of your life when you are creating a debt management plan. There is no point in sitting and hoping that you can stick to some ultra rigid debt management plan that will help you pay off your debts quicker but will mean that you will sacrifice a lot. Don’t get me wrong there WILL have to be sacrifices if you want to get out of debt. There WILL be changes if you are to shake off the shackles of debt. BUT you need to get perspective on the whole process. No debt management plan will succeed unless you make allowances for who you are.

My advice is simply this – don’t push the boat out too far when you are creating your debt management plan. Yes I know you have an urgency to get rid of this horrible debt that has been tormenting you but please be patient. You need to take a measured and realistic approach to it. If that means that it will take an additional year or two longer than you hoped then so be it. The end goal is the same. What you are trying to avoid is the endless start stop cycle that so many people trying to get out of debt get stuck in.

It’s like starting any new venture – you’re going to make mistakes – lots of them. The key thing is to try to do as much preparatory work by educating yourself so that you can try to avoid as many of them as possible. Can you avoid all the mistakes and make a perfect debt management plan? – No chance. You’re going to make mistakes but that’s a good thing. I’m just asking you to try to map out a plan that will help you avoid the main mistakes that people make as outline above.

The end of your debt is nearer than you think you just have to focus your time and energy on it.

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It appears that being frugal is becoming very fashionable. The credit crunch and how to be frugal are now the latest hot topics at dinner parties. I have to admit that I am impressed by the fashion industry’s ability to take advantage of what most other businesses would regard as a crisis.

Fashion companies, instead of sitting there moaning about how their sales have collapsed are embracing the whole credit crunch with gusto. At the same time they are capitalizing on people’s concerns about the environment too. The articles in the links below go into great detail as to how big business is cashing in on new economic and environmental trends.

The cynic in me thinks its just good business sense for the fashion industry. Another part of me thinks that anything that makes frugality more socially acceptable is fine by me.

Have a read of the articles below and make up your own mind. There are some great tips on saving money and some unique ideas on how to make it fun. As they say – frugality is the new black. J

The Frugalistas: Meet the women who can show you how to beat the credit crunch in style.

Penny Pinching Looks Great

Proud to be prudent: Meet the new army of frugalistas

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