Our 2016 New Year’s resolution was to finally pay down all your debt. But it’s now May, and your balance has hardly budged. What’s going on? Here are the top 10 reasons why your debt isn’t dwindling — and what you can do to get debt-free by the end of the year.
1. You Are Still Using Your Credit Card
To quote my old sailing instructor: “The boat is taking water, Missy. You might want to plug that hole before you start bailing. A’yup.”
Don’t add to the debt you are trying to pay down. Leave your credit card at home, freeze it, or even cut it up. Just. Stop. Using. It. If you cannot pay cash for something, then you cannot afford it.
2. You Don’t Have an Emergency Fund
Your car breaks down. Your computer breaks down. You break down. If you don’t have an emergency fund in place, all those unplanned costs go right back onto your credit card. Before you start reducing debt, you should first put $1,000 into a savings account.
Life happens. Think of your emergency account as the financial equivalent to your car’s air bag. It’s more likely that you’ll walk away from an accident if you’ve got something to cushion you against the crash.
3. Your Income Is Too Low
If you are using your credit card to pay for necessities like groceries or utility bills because you are short on cash, you will be in debt for a long time. Credit cards are a very expensive method of borrowing money.
If you are in this situation, you need to raise your income by any (legal) means necessary. Can you get a part-time job? Can you save on housing by renting out a room in the house, even if that means you have to sleep in the living room or share a bedroom with your kids? Can you apply for food assistance? Now is not the time for vanity. Vanity is for rich people. (See also: 100+ Ways to Make More Money This Year)
4. You Are Keeping Up With the Joneses, and the Joneses Are Stupid
Peer pressure keeps you poor. It’s true. Many people would rather struggle to pay their huge credit card bills than admit that they can’t afford lunch, concert tickets, private school for the kids, car insurance, etc.
The people who make you feel bad about not spending money that you don’t have are never the people who will help you get out of debt. Don’t let other people dictate how you spend the money that you earned.
Shut down the Joneses by telling them that you are saving up for your dream. For example, anytime anyone pressures me to spend money that I don’t have I say, “That sounds lovely, but I can’t afford that because I am saving up for a camera body so I can work professionally as an architectural photographer.” What’s your dream? A home? A vacation? An education? Early retirement?
Your dream is also a great motivator to get out of debt. My husband really wants to go to Easter Island for his 50th birthday (he’s currently 48). He got serious about paying down our line of credit when he realized that we won’t have the time to save up for that vacation if we don’t pay down our debt by the end of this year.
5. You Are Only Paying the Minimum Balance
Banks love it when you only pay the minimum balance. The longer you take to pay down your debt, the more money they make by charging you interest. Even if you can only pay $20 more than your minimum balance per month, every little bit helps.
For example, say you are carrying a $5,000 balance on a credit card with a 12% APR. If you pay the minimum monthly payment of $100, it will take you 70 months to pay off the card and you will pay an additional $1,966 in interest! But, if you raise your monthly payment to $120 per month, you can pay off the card in 50 months and pay $1,500 in interest. Just about anyone can create a side hustle to make an extra $20 per month. That little bit of extra work will save you $466 in interest!
6. You Lack a Plan
Only one out of every three Americans has a detailed household budget. This means that the majority of Americans have no clue where their money goes. It is impossible to make smart financial decisions if you are only guessing how and where you spend your money.
People that successfully pay down their credit cards quickly throw every spare dollar at their debt. The only way to find every spare dollar is to create a budget. If you have never created a budget, don’t stress. It is way easier than you think.