Debt addiction is real. Unlike drugs, it isn’t a chemical dependency. Instead, it’s more like a mental state where you cannot conceive of living another way. It is a genuine and very serious issue worldwide, particularly in North America.
In the United States, people constantly try to live beyond their means. With a debt addiction, what you are buying is irrelevant. The key is that you are buying what you cannot afford. You are a heavy debt user if you regularly spend money you don’t have. If you cannot afford to pay your bills and yet continue to spend money recklessly, you are a debt addict.
- Do You Have a Debt Addiction Problem?
- What Should You Do Next?
- Strategies for Paying Off Debt
- The Truth About Bankruptcy
- The Final Word on Debt Addiction
Do You Have a Debt Addiction Problem?
While there are many resources that can help you determine if you are a debt addict, there is a simple way to know: do you constantly spend more than you earn and live off of credit without making any concrete steps to change? If yes, you are a debt addict.
Do you become agitated or nervous when you think about living without credit cards? Can you feed your family if your credit cards are taken away tomorrow? Do you regularly miss your payments or struggle to pay the minimums on your outstanding debt? Are you in over your head, but you keep digging deeper? Those are all signs of debt dependence.
What Should You Do Next?
If you or someone you know answered yes to these questions, you may be wondering about the next steps. Debtors Anonymous is an organization that can help debt addicts and their loved ones overcome the struggles of debt addiction. Here are some other steps to take as well.
Recognize That You Have a Debt Addiction Problem
The first thing to do is recognize that you have a problem and take concrete steps to get out of debt. You can lean on Debtors Anonymous, a supportive family member or friend, an online community, or even me (I can help answer financial questions if you send me an e-mail). The key is to express that you have a problem and find someone to hold you accountable for your recovery.
Now that you have acknowledged the problem, stop feeding the beast. Quit shopping for things you can’t afford. You may have to make some painful lifestyle concessions, but that’s okay. You don’t have to go out constantly with friends, eat meals at restaurants, go to the bars and spend money on alcohol, go to the casino, or have the newest style in your wardrobe. Take a step back and only spend on actual needs. Eliminate the wants and excess.
Build a Debt Addiction Recovery Plan
You won’t be out of debt overnight. Chances are, if you have a debt problem, working your way out will take years of dedication and hard work. But remember, many people before you have done it, and some are starting the journey out of debt every day. You can do it, too.
Come up with a list of all of your debts and get going on a debt snowball. Just like this reader worked out of student loan debt, you can work out of any debt. As long as you are dedicated, willing to sacrifice, and work hard, you can beat your debts.
Strategies for Paying Off Debt
Once you’ve recognized your problem with debt, stopped spending, and crafted a recovery plan, you can begin taking practical steps to pay off your debt. Here are some simple ways to start chipping away at your debt:
- Sign up for credit counseling: If you truly feel that you are unable to manage your multiple monthly credit card payments by yourself, consider signing up with a credit counseling service. Credit counseling organizations are able to consolidate your debt into one monthly payment, which is usually smaller than the monthly payments you are already making, and often can reduce the overall amount of debt you owe.
- Restructure your monthly budget: Frivolous spending is one of the top reasons for excessive debt. If you want to pay off your credit card debt while still being able to afford monthly expenses, you will need to redo your monthly budget completely. Review previous bank statements and look for areas in which you can reduce spending. Instead of spending $50 on coffees and cheeseburgers, put that money towards your credit card debt.
- Stop charging your cards: Many people struggle with not using their credit cards once they choose to pay them off. They have become so used to their credit cards supplementing their regular budgets that they don’t know how to survive without them. When you decide to pay off your debt and don’t believe you are able to stop using them, hand them over to a trustworthy friend or simply cut them up. Do whatever you have to do to prevent yourself from continuing to use them.
- Start small: This may sound counterintuitive as you are paying more interest on the larger amounts owed; however, by paying off your smallest card amounts first, you are better setting yourself up for success. With each card you pay off, you will feel like you are achieving something and more inclined to pay off your other cards.
- Pay with extra funds: Did you receive a large check from your favorite uncle for your birthday? Or make more than expected during your garage sale? Put that extra money immediately towards your credit card debt. Don’t allow yourself the chance to blow your new wad of cash on a new TV or new outfit. Use it to pay off your credit card debt, as this will enhance your life’s quality in the long run.
The Truth About Bankruptcy
People with debt addictions might think that bankruptcy is an easy way out of their financial crisis. The fact of the matter is that bankruptcy is a serious issue and can have serious implications that impact you for decades. Plus, it doesn’t treat the root of debt addiction, which is reckless spending.
Debts Forgiven, Sort of
Many people think bankruptcy is a good idea because their debts are forgiven. This is true to some extent, but it’s the only tangible “benefit” of bankruptcy.
When you declare bankruptcy, a judge in bankruptcy court can reduce the debt you owe across the board. It is at the judge’s discretion how much your debt is lowered, if at all, and the repayment terms.
You could have the majority of your debt wiped out or only a small portion. It’s a big risk to declare bankruptcy and only have a fraction of your total debt forgiven.
Either way, it is not a simple solution where you are off the hook. You are still liable for paying back something.
What Bankruptcy Means For Your Finances
The best way to kill a credit score overnight is through bankruptcy. When you declare bankruptcy, your credit report will tell any creditor, landlord, or insurance company for seven years. Even if your finances are perfect from bankruptcy going forward, everyone that matters still knows for nearly a decade.
When your credit score drops and your credit report shows bankruptcy, you will also have difficulty getting new loans and credit cards. If you can get new credit, the interest rate will be much higher than someone without a bankruptcy on their record.
While this isn’t a big deal if you are trying to get a low-limit credit card and pay it off in full every month, if you get a mortgage loan, look out. The higher interest rate will cost you at least tens of thousands of dollars over the term of the loan.
Alternatives to Bankruptcy
The best way to avoid getting into bankruptcy is to avoid getting into a bad situation in the first place. Do not fill up your credit lines with stuff you can’t afford. Do not live above your means. If you are already in trouble, try implementing some of the debt repayment strategies mentioned above before declaring bankruptcy.
You can also work with the creditors to defer payments, lower interest rates, and come up with a plan to pay down your debt. For instance, in my banking days, we would always try to work with people who called us and told us they were in trouble. We would come up with a payment plan that would not adversely impact their credit score and help them get into a better position.
The Final Word on Debt Addiction
Debt addiction is a serious problem for many people, and it’s one that should be taken seriously. If you or a loved one struggles with spending above their means, don’t hesitate to reach out for help. Recognizing the problem, accepting accountability, and cutting your spending habits can go a long way in putting yourself in line for financial success and improving your life.