Five reasons you're not out of debt yet

This is a guest post written by Erik Folgate, writer and editor for the Money Crashers personal finance blog. Money Crashers provide useful tips and tricks for related topics like investing, credit and debt, financial education, frugality, and more.

Getting and staying out of debt should be your number one goal when you first start getting serious about your finances. So many people in the world are in financial debt that it’s easy to assume that this should be the first step for many people. Many people find the thought of paying off all of their debt a daunting task, but it turns out to be easier than many people think once they set out a plan. The biggest problem many of us face is changing our habits and ways of thinking when it comes to debt. It’s so easy to finance everything in our culture, and going into debt has become a cultural norm. We often find that we continue to stay in debt even when we’re on a plan to pay it off. I am going to point out a few reasons for that to help you reverse the process.

1. You Haven’t Faced Your Own Worst Enemy: You.

Look at yourself in the mirror, because that’s the person that’s hindering your plan to get and stay out of debt. You must have a revelatory change about debt if you ever want to conquer it for good. Treat it like any other goal you’ve ever set out to accomplish, and be willing to make sacrifices to accomplish getting out of debt. You’ll never get and stay out of debt unless you tame the face in the mirror first.

2. You Don’t Have A Written Plan To Get Out Of Debt.

Getting out of debt is serious business, and you need to have a carefully crafted plan for accomplishing the goal. One of the more famous plans for getting out of debt is Dave Ramsey’s plan. Using the Debt Snowball Method, he teaches to list all of your debts from smallest to largest. Then, attack the smallest debt first, and once that’s paid off, put the money you were using to pay off the previous debt towards the next debt. There is some controversy as to whether this is the best way to get out of debt, but Ramsey focuses more on behavior, rather than numbers. He is more concerned with helping you build momentum, which will ultimately motivate you to finish your “get out of debt” plan.

3. You Haven’t Broken The Car Financing Cycle.

The moment you buy a new car or a newer car and you finance it, you’ve begun a vicious cycle of constantly relying on a car payment while owning a car. The average car payment in North America is over $350 a month! I don’t think you should drive a clunker your whole life, but if you can resist the urge to buy a new car, you can gradually move up in car by buying with cash when you have the money saved up and can afford the expense.

4. You Aren’t In Control Of Your Variable Expenses.

A variable expense would be any monthly expense that is controlled by your daily decisions and habits. Eating out, entertainment, dry cleaning, small vacations, gifts, and life’s little luxuries are all variable expenses that you can control. All of these types of expenses should be a part of your written budget, and you should put a reasonable dollar amount value on these expenses. Once you’ve hit the limit for the month, you stop spending in that category.

5. Your Fixed Expenses Are Too High.

It’s really tough to get out of debt if you don’t have any extra income to put towards it after all of your monthly bills are paid. If this is the case, you either have an income problem and you need to brainstorm ways to increase your monthly income, or your fixed expenses are too high. Are you house poor? If you’re monthly mortgage/rent exceeds 30% of your monthly income, then you may need to consider downsizing in house. Utility bills, insurance premiums, and auto expenses are more fixed expenses that can easily drain your monthly income if they are too high.

This article isn’t meant to put you down. It’s meant to help you realize the roadblocks in your financial life that could keep you from getting out of debt and staying out of debt. Getting out of debt is so important to good financial health, because monthly debt payments drain your monthly income, and it keeps you from saving for retirement, children’s education, and large purchases. It’s the first step to building wealth, but it’s also one of the hardest thing to do. Are you ready to start lifting the roadblocks that keep you from getting out of debt?

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