Once we know the difference between good and bad debts, we need to take a deep breath and write down all our debts. Create four columns and – this is crucial – start with the debt which has the smallest balance; I’ll explain why in a minute.
Write the name of the debt, the amount you owe, the interest rate and the minimum monthly payment. Do that for each bad debt you have, with the second smallest balance on the second line, the next smallest on the third line, and so on. On the last line, you’ll have the debt with the biggest balance outstanding.
Now, total up the amount outstanding and the minimum payments. These might be scary figures, right? But at least now we know where we stand. We have an incredible capacity for burying our heads in the sand, not really getting our heads round the numbers because we don’t like them – there’s nowhere to hide.
We need to understand that if we only make minimum payments on these debts, they’re going to take forever to pay down. So, whatever that total of all the minimum payments is, we need to find more money than that each month to nail this debt once and for all.
Before we go on, let’s take a metaphorical step to the side and take stock. Now we know where we are, we need to ask how we got here. How did our debt get to this point? We weren’t born with this debt, so when did it start? Was there a trigger, or did we just drift and allow ourselves to get deeper and deeper into debt?
While I’m no psychologist, as you’ve probably guessed, I think there’s real value in trying to figure out what behaviours we need to change to reverse the damage. If we don’t do this, then there’s real danger that we will revert to type and end up in debt again.
Write down how you’re feeling right now looking at those numbers. Are you stressed, anxious, annoyed at yourself? Now flip this on its head – imagine you have paid down your debt and you have 3-6 months of your monthly expenses in the bank. How do you feel now?
These two motivations – getting out of the feelings you have now, and aiming towards those one-day feelings, are powerful. Write the emotions down because you’ll forget them and it will be good to be able to look back and remind yourself of how you feel right now, and what your motivations are.
So please, don’t skip this part, and be brutally honest with yourself. What are your triggers for buying things with debt? Do you reach for the credit card if you’re feeling upset, or hungry, or bored? Do you reward yourself with big purchases for little wins?
I tell you what, we are so good at rationalising things to ourselves. Personally, it took me years to work out that rewarding myself for eating well for a week with a binge of chocolate and crisps didn’t actually make much sense.
Seriously, I’m quite bright, but for years I couldn’t figure that out and wondered why I was getting fatter. Don’t lie to yourself, be honest, and make a resolution, a pact with yourself, because you’re the only one who can make a difference here. From today, things change.
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