There are few things quite as painful as looking ahead at your future and seeing nothing but debt.
This post originally appeared on The Simple Dollar.
So many people today graduate with extensive student loans and consumer debt on top of that. They struggle to find a job and, sometimes, they never find the job that they want. Sometimes, people get married. Sometimes, people buy a home and get themselves into a giant mortgage. One day — often in a person's mid- to late twenties — they wake up and take an assessment of their life and all they see for the foreseeable future is crippling debt.
It's not uncommon to see people in their twenties and thirties owing several times their annual salary. When you're making $30,000 a year, $80,000 in student loans along with some credit card debt and maybe even a mortgage seems like a mountain that you will never be able to climb.
It can be incredibly disheartening. Often, it can be an excuse to simply not worry about it and just spend recklessly. I know both responses quite well. I felt them strongly in 2006, when I was facing a pile of debt far greater than my salary that seemed to be growing rather than shrinking. It was tempting to simply ignore it and keep spending like I always had been. I decided to face it and, eventually, I conquered it. However, I'm not sure I would have found success without a few key factors in my favour. Here are some steps I recommend to anyone who is facing a frighteningly large debt mountain.
First, make a fast dent. Sell off some stuff, like a video game collection or a DVD/BluRay collection. It's likely that you have some items of value stowed away in a closet. Sell most of them off, take that money, and throw it at one of the debts — preferably the one with the lowest balance.
When I did this, I was able to make one of my credit card bills completely vanish without getting rid of anything too important to me. It felt like an enormousvictory. Rather than debts building up, they were disappearing.
Second, chop up your cards. Learn how to live on your income. In this situation, it's a very poor idea to continue to finance your lifestyle using credit cards. I strongly suggest using cash for a while — ideally, for the next year or so — for every purchase you make. Nothing should go on a credit card if at all possible.
The idea here is to become aware that your day-in and day-out choices are not actually making your situation worse. Once you have a sense that the mountain isn't growing any more — in fact, it's shrinking a little — conquering that pile of debt begins to feel a lot more possible.
Finally, set and focus on goals that are based in reality. The reason you're struggling in this position is because the obvious goal in your mind — being debt free — seems impossible. That's the wrong goal to set. Your goal — period — should be to pay off the smallest debt you have. Ignore everything else. Just make the minimum payments on the other debts. Focus solely on that one debt and hammer it hard.
If you're living within your means, you should be making minimum payments on all of your debts without building new ones. Now's the time to try frugal tactics. Eat at home more. Learn how to cook. When you replace your light bulbs, buy more energy efficient ones. There are countless tactics like this — here are 100 to get you started. Now, not all of those will apply to your life and others will feel uncomfortable. Don't judge the idea by the tactics that are uncomfortable — just drop those ideas and move on to other ones.
I found it very useful to "keep score" with this when we were first turning our finances around. I strove to keep track of how low I could get our spending this month… then, next month, I'd try to break that record. It kept me motivated and it didn't take long to see that debt mountain was shrinking. Focus entirely on that smaller goal, though. Your goal is to get rid of that one debt. The other debts can wait — just make minimum payments on it. When you pay off that one debt, you should feel great about it. The next day, set a new goal — the next debt in line.
The worst move you can make is to not start today. Every day you put it off, the worse it gets. It will never be easier than it is right now to take control of your situation.
When Your Debt Load is Incomprehensibly Large [The Simple Dollar]
Trent Hamm is a personal finance writer at TheSimpleDollar.com. After pulling himself out of his own financial crisis, he founded the site in late 2006 to help others through financially difficult situations; today the site has become a finance, insurance, and retirement resource. Contact Trent at trent AT the simple dollar DOT com; please send site inquiries to inquiries AT the simple dollar DOT com.