Jun 16 2010

Reader question: How to get motivated to pay off debt?


My friend (she was also a bridesmaid in my wedding, so yeah, <3 her!) has a great question. Brittany is about to move from a low-paying job in China (and her expenses were also low) to a higher-paying job in Hong Kong. Cost of living will be much more, but she thinks she will have some more wiggle room in her budget at that time.

She writes:

I’ve been thinking since I’ll finally be making enough to do more than just eek by (let’s hope!), I should try to start getting my finances in order: Pay off my credit cards (I have two) and then my student loans (I don’t have too much, but it sure would be nice to get them out of the way ASAP). But I have a really hard time getting motivated when it comes to finances. I’m curious if you (or your fellow bloggers/readers) have any tips for single (or should I say as yet unmarried, wink, wink) people trying to work on saving. I imagine that it’s much easier to save when you have more concrete goals — a car, a house, a spouse, a baby — but since I have none of the above and probably won’t for a while, I’m just finding myself in a rut. I have my $1000 emergency fund, but beyond that, it seems hard to save much when I don’t have a clue what I’ll use it for.

I just can’t seem to conceptualize it. I like living in cities where I don’t need a car, so I can’t imagine saving for one. Likewise, I like being mobile and moving to diff cities/countries for jobs, so I can’t see myself buying a house anytime soon. Maybe I need to set some sort of goal (Europe trip?). Well, anyway if you have any tips or can recommend any other posts, I would be much obliged!

It doesn’t sound like you have any big savings goals right now, though a trip to Europe could be a nice reward once you’ve paid off your debt and saved for that.

Rather than focus on saving money, address those credit cards and student loans. They are tangible goals. You can see the balance go down. These things really need to be dealt with before you start saving for big things anyway. After you pay off all your debt, you can take a break from hyper-finance mode, or you may be extra-motivated to pad your savings account.

How much does being in debt bother you right now? Does it make you mad? It should. Have you looked to see how much in interest you’ve already paid, or will pay if you don’t do anything differently?

Try to come up with a tangible number. How much is your debt costing you?

For me, I know we paid $910 in interest on our car loan. Our credit cards? No idea. I’d be surprised if it was less than $1,000 but surely it was more.

At your current pace, how long will it take for you to pay off your credit cards? You can use this calculator to find out.

Credit cards typically have really high interest rates. Plus, they way they amortize the interest is not in your favor. At least with a car loan, there is a set term limit (i.e. if you only pay the minimum, the car WILL be paid off in 48 months, or whatever). With credit cards, even with a balance of only around $2,000 (or less, depending on the interest rate) if you only pay the minimums, you won’t ever pay the card off.

I know some people like credit cards for the cash-back rewards. If you’re carrying a balance, you’re paying for your reward x 10. So just stop using the cards and pay them off.

I know Brittany is already familiar with Dave Ramsey and his debt snowball strategy. Not sure if she’s tried putting it to work, but it’s worth a shot!

Try creating a visual of what your debt looks like.

I used Monopoly money to show our car loan debt at one time. It was scary to see all those $500s! You could use Monopoly money or create some with paper and put it somewhere you’ll see every day.

You could make a list of some of the credit card purchases you’ve made that you’re still paying for. Hard to say exactly what those items would be, but you could look at past statements and make some sort of list.

If you were saving for something specific (like a trip to Europe) you could keep a  little picture of the Eiffel Tower in your wallet, or carry around a Euro like Karen did.

Since we’re saving for a house, I think I will find a picture of one that looks like the kind of house I want and tape it to my fridge. Or wrap it around my debit card.

Break your big debts into chunks.

I don’t know how much money we’re talking, but if the number freaks you out, break it down. I blogged more about that here. Think of your student loans in terms of semesters or classes, perhaps. It’s a smaller amount and you can reminisce on all the fun, learning and nonsense as you go.

Remember that being out of debt means your own cost of living is lower. You can be pickier about the jobs you take, where you live, and how you live your life if all of your paycheck is going toward your own goals, rather than paying off debt. Being out of debt is like getting a big, tax-free raise.

Add up all your minimum payments for your credit cards and student loans. What percentage of your take-home pay is that? Wouldn’t it be way more fun to put x% toward something besides payments?

Tell other people your plans to get out of debt!

This one is so huge, I think. Yeah, it’s personal. Yeah, people don’t always talk about their debt. But maybe they should.

I almost always have a progress bar going on the sidebar of my blog. I do this to keep my goal on my mind, to have some accountability from my readers, and because I love seeing that little progress bar move!

If you’re not comfortable with using actual numbers, you can use percentages as a representation of your overall debt.

I read somewhere (wish I could find it!) that a man wanted to lose a bunch of weight. So he weighed himself every morning and posted it on Twitter for all to see. And I think he ate better and exercised. But if people knew your debt number, would that scoot your progress along?

Don’t want to blog it or tweet it? Ok. But tell some friends. Tell your boyf. Tell your parents. Tell someone! And maybe you can find someone in your social network who is in a similar situation and you can motivate each other and keep each other on track.

Figure out how you’re best motivated and hit it hard.

Maybe it’s not thoughts of driving a car, free and clear. Or sitting in your own back yard, sipping lemonade. Or thinking about any other “someday” goal. “Someday” will come, but it can be too abstract to be motivational.

Write down (and the writing is important, I think) all the reasons why you want to pay off this debt. It can help to put your own reasons into words. Revisit that document periodically and add to it, if you are newly inspired.

Create a budget.

It doesn’t have to be ultra-rigid. You’re allowed some breathing room. After all, you’re in a new place and surely you’ll want to explore. But all the same, map out a budget and list all your regular expenses. Decide on a minimum amount you want to pay extra toward debt per paycheck. If the minimum extra is too easy, bump it up!

And decide on an entertainment budget.

Whatever is leftover at the end of a pay period, put that toward your debt.

Of course, you could always be more aggressive with it!

Readers: Brittany wants to hear from you. Please share how you’ve found motivation and some things she might try.

Posted under Uncategorized | 7 Comments »

7 Responses to “Reader question: How to get motivated to pay off debt?”

  1. Oops. That should have been “eke” by. I use eeeeeek too much… as in eeeek, a scorpion in my soup! (Sorry, I’m the consummate editor.)

    But I am really interested to hear what advice others will have to give! I’ll be back to comment more later! Thanks so much, KDFA! :)
    .-= Brittany´s last blog ..Happy Dragon Boating! =-.

  2. If you really not having any plans for buying a home or getting married and having kids, it should not be difficult to pay off your debts. This alone is the biggest motivation according to me.
    .-= Personal finance´s last blog ..President Obama to Address People on Oil Spill Issue on Tuesday =-.

  3. Kacie: Here’s the link you were looking for from The Simple Dollar: http://www.thesimpledollar.com/2010/05/29/the-public-humiliation-diet-five-things-worth-learning-about-your-money-and-improving-yourself/

    Brittany–I can attest that Kacie’s advice is good and putting those numbers out there for others is painful, but it’s also an amazing reality check. I know that Kacie’s blog has a lot of readers who have seen the obscene amount of debt I carry and so it’s like having an audience to watch me fail or succeed. It has DEFINITELY helped to motivate me to get things paid off and help me keep my word to myself.

    My starting place was making a guesstimate budget–I knew how much I spent on fixed expenses (housing/electric/phone/etc) but I had 0 idea how much I was spending on gas/food/eating out/etc. Once I had a handle on my budget I saw areas I could cut back and have a fixed amount that I pay in extra payments each month to get my balances down. We plan to do that before we save up for anything in particular, but you could do both at once if it’s more encouraging to get rewarded as you progress.

    Best of luck!

  4. Hi Brittany! I agree with Courtney! The most important thing for you right now is to understand where your money is going, even if you’re not ready to be ultra strict about limiting your spending. Just knowing that you’re spending $XX on eating out every month is powerful information when you start getting serious about finances.

    As far as motivating yourself to pay off those credit cards and student loans, I agree with Kacie that it helps to understand how much that debt is costing you in real numbers. How much interest have you already paid? What could you have done with that money instead? It’s tough with credit cards, because there is no term limit. So you can’t tell yourself, “If I pay off this card two years early, I’ll save $XX in interest.” But you can look at the obscene amounts of money you’re losing in interest and motivate yourself that way.

    I think once you start paying down debt and seeing those numbers decrease, the motivation will come to you. When you’re used to being in debt, it’s easy to be complacent about it. But I found that once I decided to get out of debt, watching my progress was enough motivation for me.

    Good luck! xoxo
    .-= Karen´s last blog ..In which I finally overcome my denial about moving again =-.

  5. Here’s some more motivation. Think how much more attractive you will be to a future spouse/partner if you don’t come loaded down with debt. Money is the #1 cause of divorce in the U.S. – probably everywhere. My husband and I discovered Dave Ramsey before we got married and boy, is it a wonderful life now. I’d been married for 13 years to someone who drank, gambled and frittered away money and was gun shy. How you handle money DOES matter in a relationship. Prove you are responsible and smart and “kill” that debt, girl!

  6. I agree with the tips, especially sharing with friends. My friends have been really supportive and understanding, which helps.

    For me, a big motivation was reading other PF blogs-it showed me that people are going through what I am going through-I am not alone in my struggles. It also showed me that it’s possible to get out of debt by reading success stories. Last, it showed me that being frugal and budgeting is not crazy and that it makes sense. It’s easy to get caught up in spend, spend, spend, but reading blogs of people in saving/paying down debt mode encourages me to keep at it.

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Hey! I'm Kacie, wife and mother of 3. I write about my family's finance: how we save money, improve our spending, and plan for the future.

I hope I can inspire and encourage you to improve your situation. See disclosure.

I'm adopting a much slower-paced posting schedule, and treating this as a hobby blog now.

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