5-Day Debt Reduction Plan: Stop Waiting for Tomorrow


[Editor's Note: This is the first part of a five-part series on debt reduction. To read more, see 5-Day Debt Reduction Plan.]

Debt sucks. It ties up your resources, robs you of the ability to save, and can cause stress, anxiety, and depression. Still, debt is a big part of our society — so big that many don't realize the impact it has on their personal finances, even when they're struggling to keep up with payments.

Some people stick their heads in the sand because it's easier to ignore debt than take responsibility. The consequences of overcharging and overspending eventually catch up — and that burden can lead to other consequences, like physical and mental health issues — but it doesn't have to.

If your debt is out of control, today is the day to take control of your money.

The good news is that you don't have to be a financial guru or have a ton of cash to succeed. Whether you have a little or a lot of disposable income, you can begin chipping away at your debt little by little each day when equipped with the correct set of tools and a handy guideline.

See Also: Fastest Way to Pay Off $10,000 in Credit Card Debt

Debt Reduction Starts With a Decision

Be honest, how long have you been talking about reducing debt? A few weeks? A few months? A few years?

Now think back to the first time you expressed a desire to get rid of debt. Have you successfully paid off (or paid down) some of your balances? Or have your balances remained the same or increased?

If you answered "yes" to the last question, you're not alone. Getting rid of debt has its challenges, and at times you might think it's impossible. The fact that you're reading this article demonstrates a desire to change your mindset and your situation. It doesn't matter what you've done (or haven't done) in the past; this can be a new beginning and the first day on your journey to eliminating debt.

See also: How to Start Fighting Debt — Today

You're Not the Only Person With Debt, But You Still Need to Address It

Some people say debt is a part of life and everyone should stop whining and accept debt for what it is. Don't let the naysayers get in your head.

Yes, most of us have some sort of debt, but this doesn't mean we have to accept all types of debt. Student loans and mortgages are "good" debt. They are usually cheap (the interest rates are low), and both generally improve our financial lives (education helps us earn more; a home is a valuable asset).

Credit card debt, on the other hand, can be a vicious monster. It's expensive and most of what we borrow for will not improve our financial lives. But the moment we confront the monster and say "no more," the easier it is to break habits that keep us indebted.

See also: 8 Signs You’ve Crossed from “Healthy” Debt to “Problem” Debt

What Led to Your Debt?

There's not one particular bad habit, but rather several possible habits. Everyone has their own weakness — mine, for instance, is clothes shopping — and it's each person's responsibility to identify habits that keep them in a pattern of overspending.

Impulse Buying

Most of us are familiar with this type of buying. You go to the store with intentions of buying one item, but you walk out with three or four items — basically every trip to Target I've ever had; you know what I'm talking about. This behavior may seem innocent, but it can throw off your budget and increase the likelihood of debt.

See also: 13 Creative Ways to Avoid Impulse Spending

Lack of a Budget

If you never budget, you probably have no idea where your money goes, which means you could be overspending on nonessentials and using credit cards as an extension of your income. Keeping a paper trail helps you visualize how much you're spending and where your money is going, and that alone can be a deterrent to spending more.

See also: One Simple Thing You Can Do to Start Budgeting Today

Keeping Up With the Joneses

If your best friend or neighbor buys a new car, you may feel pressure to keep up and prove you can hang with the big spenders. But in reality, you're digging a financial hole for yourself.

We're all guilty of at least one of these bad financial habits. We're human, so we're going to make mistakes. But regardless of the habit(s) you're guilty of, you can break the cycle.

See also: How to Keep Peer Pressure From Destroying Your Finances

Lack of Income

This isn't a habit, exactly, but whenever our income falls short of our expenses, and we've cut as much as we can, it's time to find more money. Whatever side job or career shift you choose, keep your debt reduction goals in mind. The extra money you earn should go first toward your debt reduction plan.

See also: 100+ Ways to Make More Money This Year

The High Cost of Credit Card Debt

If you need help overcoming bad habits and breaking out of debt, it helps to have an understanding of the true cost of debt.

Take for example a $5,000 credit card balance. If you're making $100 payments every month, in your mind, you should be able to pay off this debt in roughly 50 months (4 years). It's simple mathematics, right? Well, not exactly. There's this "little" thing called interest, which is what you pay for the privilege of using credit.

Let's say the interest rate on that $5,000 is 18%. Making $100 payments every month, it will take almost eight years to pay off the balance, and you'll have paid over $4,000 in interest, for borrowing that $5,000. Think of how much interest you could earn if you invested that money instead.

When you get a credit card statement, the amount due is typically between 1%-3% of the total balance. It will take a staggering amount of time to pay off your debt if you only make minimum payments. If you're just making the minimum payments, to pay off $5,000, it would take more than 39 years. You would have paid over $8,000 in interest. 

"It will take a discouragingly long time to pay off a debt if you stick to only minimum payments," says Julie Ford, a financial planner in New York City. "Creditors want you to only pay the minimum amount so they can collect interest from you for as long as possible."

The more money you give creditors, the less money you have available for building a rainy day fund. And of course, if you don't have a reserve, it only takes one emergency to put you deeper in debt.

According to the American Household Credit Card Debt Study, the "average U.S. household with debt carries $15,762 in credit card debt," and a recent Google Consumer Survey found that "approximately 62% of Americans have less than $1,000 in their savings accounts, and 21% don't even have a savings account." As a personal finance expert who has experienced debt myself, these statistics are sobering to say the least.

When debt prevents saving for a rainy day fund, it may also interfere with your ability to save for retirement. Even if you have a 401K or an individual retirement account, you might only contribute the bare minimum, if anything. As a result, the prospect of working until you're literally on your deathbed is a real possibility.

See also: Everything You Didn’t Understand About Credit Card Interest

Find Your Motivation — And Stay Motivated

The road to getting your bank accounts into the black can be rough. What's the motivating force driving your desire to reduce debt? If you don't have an end goal or a reason for eliminating debt, it's easy to give up as soon as you hit a bump in the road. I've seen it time and time again, especially from chronic spenders. To avoid this pitfall, brainstorm and write down what you hope to accomplish by reducing debt.

  • Do you want to set a good example for your children?
  • Are you tired of losing sleep and worrying about your debt?
  • Do you want to buy a house, but fear debt will prevent qualifying for a mortgage?

Of course, it isn't enough to know what motivates you, but rather you have to stay motivated. The best way to do this is to surround yourself with likeminded individuals — those who share your goal and can offer encouragement along the way — and avoid those people who encourage your negative spending habits, like your house-poor friends who spend all their disposable income on Thirsty Thursday shots and late-night tacos. (We all still have a few of 'em.)

If your close friends and family are in debt and don't have a desire to reduce or eliminate their balances, don't expect these people to steer you in the right direction or provide the support you need. Look outside your inner circle and connect with people who share your mindset. For example, you can work with a financial planner, join a debt support group, or follow the debt success stories of personal finance bloggers.

See also: 10 Dark-Side Motivations to Get You Out of Debt

Stop Procrastinating

Procrastination is the avoidance of starting or completing a task. It's a natural human tendency and we procrastinate for different reasons. These reasons might include the fear of failure, lack of interest, and even the fear of success. But with regard to debt, procrastination might have everything to do with lack of knowledge. You know you need to deal with your debt, but you don't know how, so you put it off.

If you want to overcome procrastination, you have to learn ways to make debt reduction a reality. It's a step-by-step process that can take months or years. But the process is easier than you think when you have realistic expectations and set small, manageable goals for yourself

But before you can get to that point, you need to first find out how much you owe and learn strategies to monitor your debt. Check back tomorrow, and we'll take that first step by Adding It Up.

Debt Management Resources

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Faaast Cash

We just wanted to write and say thank you for sharing such a nice article on debt management. Debt steals your hard earned cash and keeps you from achieving the financial freedom you’ve been working so hard for. With these effective debt reduction plans you can do to cut down your monthly expenses so that you don’t have so much money coming out of your pocket before you even see it.