Latest posts by R.J. Weiss, CFP® (see all)
What’s the first step to becoming debt free?
It’s not building an emergency fund. Nor is it listing your debt in order of interest rate.
It’s cultivating the burning desire to want to get out of debt.
If you’ve ever thought about getting out of debt but haven’t gone through–this post is for you.
Getting out of debt is work. Your willpower will be tested many times over.
When that time comes to quit, you’ll need to have a big enough purpose.
Below are four mindset shifts that will allow you to cultivate that burning desire.
- Related Reading: 8 Things To Do Today To Get You Out Of Debt Faster
- Related Reading: Student Loan Success Stories To Motivate You Right Now
How To Start Paying Off Debt: 4 Essential Mindset Shifts
# 1 – Your Debt Is Impacting Other People
When it comes to motivation, a wide body of research says that making your purpose about other people is more effective than making it about yourself.
Use this new knowledge to your advantage.
Think about all the ways your debt is impacting others.
How does it impact your spouse, your children, or other family members?
Will your children’s education be impacted? Will they develop bad money habits of their own? Is it causing stress in your relationship?
Make your purpose about other people.
It’s one of the fastest way to kick start your debt payoff journey.
# 2 – When You Finance Anything, You Finance Everything
In economics there is a concept called opportunity cost. Opportunity cost is the potential gain from other alternatives when one alternative is chosen.
For example, say you have student loan debt at 7%.
The most common way to view that debt is a payment to fit into your monthly budget.
Another way is to look at its opportunity cost. When you have debt–every dollar you spend means forgoing one dollar of debt repayment.
Back to our example, say you want to buy a TV for $1,000. You’ve even saved up for this new TV and can pay for it in cash.
It feels like you’re buying that TV debt free. However, as you still have a student loan balance–you’re buying that TV at the cost of paying down $1,000 off your student loans.
This is no different then taking out a loan to buy a TV.
# 3 – You’re Cheating Yourself Out Of Things
We go into debt to buy things we can’t afford to pay for upfront.
The mindset is often–“if it wasn’t for debt, I wouldn’t be able to afford these things.”
With this mindset, debt is viewed as a major benefit to society. A way in which we can buy nice things and have fun experiences today.
Ironically, the reason most of us can’t afford those nice things and experiences is because of debt itself.
Every dollar that goes towards interest payments is another dollar you can’t spend on yourself.
In other words, debt isn’t helping you get what you want. It’s the very thing that’s preventing you from getting what you want.
# 4 – Compound Interest Works Both Ways
If you’ve ever read a personal finance book, there’s no question you have come across an example of the power of compound interest.
Something along the lines of–if you invest $1,000 a year at 8%, in 40 years you’ll have over $275,000 (which is true).
Compound interest is a powerful thing. Unfortunately, it works both ways.
When you carry debt–that debt is compounding.
Say you carry a $2,000 credit card balance with a 16% interest rate. As of now, you’re only able to make minimum payments of $60 a month.
It will take you 126 months and $3,365.72 in total payments to pay off that debt—that is the power of compound interest!
If you are new to The Ways To Wealth, welcome! My name is R.J. Weiss. I’m a Certified Financial Planner® sharing the best of what I know about making money, saving money, and living the good life. Here are some of my favorite sites and products I use or recommend:
- One of the simplest, smallest changes you can make to save more money us by using SwagBucks. Swagbucks allows you to earn up to 20% cash back, when you shop at your favorite stores. Plus, when you sign up through my link, you’ll receive a $5 bonus you can use on stores like Amazon, WalMart, among others.
- One fast way you can earn more money online is by completing surveys. If $200-$400 a more in income each month would make a difference in your life, I highly recommend you give online surveys a try. To maximize your earnings, sign up for as many sites as possible (use a separate email address), then login once a day to see what surveys you can earn the maximum amount from. The survey sites I recommend are both free to sign up and free to use. Here are my 5 favorite: Swagbucks, MyPoints, SurveyJunkie, YouGov Global Test Market
- Credit Sesame: This is a free and useful tool to monitor your credit. You get access to your TransUnion score and free credit monitoring, e.g. Credit Sesame alerts you when there is activity on your account. Plus, if you’re trying to increase your credit score, you can use the credit analyzer for guidance. Sign up for free.
- Want to make more money? Here are over 100 clever ways you can make more.