In November 2015 Harris Poll conducted a survey on behalf of the financial blog NerdWallet to better understand U.S. household debt. They found that the average American home carries $15,762 in credit card debt and $130,922 in total debt (consisting of things like mortgages, student debt, auto loans, and credit cards). In a recent post, we discussed the positive uses of debt and how not all debt is bad. Debt is good when it can be used for economic gain – whether that means expanding your small business or investing in more education to increase your income. Debt is good when regularly paid off because it helps build your credit score. Unfortunately, debt is bad when it imprisons us to hefty interest payments and spirals out of our control. On the trails of the day when we celebrate our freedom, I felt it only fitting to discuss the freedom that comes from paying off debt.
Over the past few weeks, I have been enjoying the book Daring Greatly by Brene Brown, a leading researcher on the topic of shame and vulnerability (if you haven't read it, I highly recommend it). Several times during the course of my reading I’ve thought about how relevant shame can be when it comes to making smart financial decisions. So often we let our shame over poor past financial decisions keep us from making the changes we need to in order to set ourselves up for success going forward. One of the findings of the Harris Poll was that many individuals underestimate/underreport the amount of debt they’re actually carrying, something psychologists attribute to embarrassment, among other factors. The report noted that “70% of Americans say there is a greater stigma around credit card debt than any other type of debt, which might help to explain why other forms or debt – including mortgages – are more accurately reported.” How then are we to proceed with dealing with debt and the same associated with it?
According to Ms. Brown, shame needs three things to thrive: secrecy, silence, and judgment. In contrast, she says, “Shame cannot survive being spoken – and being met with empathy.” For many, the first step in dealing with crippling debt is simply acknowledging it – speaking the words out loud to someone who responds not in judgment, but in encouragement. Only then can one begin to build a plan for freeing themselves from debt.
Once you’ve stared debt in the face and called it what it is, it’s time to formulate a strategy for paying it off. There are a variety of ways to go about it, but a key aspect of many strategies is to pursue a strategy that you believe you can follow through on. For some, this means picking the debt with the highest interest payment and paying that off first. For others, this means picking the smallest debt and using the momentum from paying that off to attack the next largest chunk of debt. What’s important is that you persevere and that you find encouragement to keep going when you need it. Personally, I find it helpful to tell a close friend or mentor when I set out to accomplish something difficult because I want someone to know who will hold me accountable, and speaking it out loud to them makes it more real.
If you’d like to speak with someone about developing a plan to pay off debt and put yourself back on track for a successful financial future, feel free to give us a call. We’d be happy to discuss your options and help you develop a game plan that will help you succeed.
Issa, Erin. “2015 American Household Credit Card Debt Survey.” Nerdwallet. 2015. https://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/.