Why is it so easy to go into debt and so hard to get out of it? I think for modern generations, there has been a culture of taking debt too lightly. Fortunately, for some of us, that culture is changing toward one of getting rid of debt or not getting into it in the first place. Meanwhile, there is still a more corporate culture that encourages debt, and it is one, as individuals, that we have to fight against in order to be solvent and live a good life.
Being offered a loan, whether it is a home mortgage, a car loan, a student loan or a credit card can be a powerful thing. Suddenly we have the opportunity to afford things that we couldn’t before. Oftentimes we take out too large a loan, more than we need or can support. Witness the housing crisis and adjustable rate mortgages, or students who took out loans to cover more than their basic college expenses and who can now not pay them back.
Credit cards often seem like “free money.” There have been numerous studies that show that consumers spend more when they use credit cards over cash. The debt that accrues on a credit card doesn’t seem to be real. In most cases, it is taken very lightly. Interestingly enough most of us start getting into debt in college, for the two above reasons–the student loans and the college credit cards. Credit card companies love to target college students. After college, we continue to rack up debt until it we become overwhelmed with it.
Dave Ramsey, financial guru, says that debt “has become normal. “It is sold so aggressively that many have come to believe it’s a financial tool. It’s not.”
It is time to start seeing debt as the serious situation that it is and doing everything that we can to first stop adding more debt and then eliminating the debt that we have. It isn’t that easy to do, because it does require a culture shift, a belief shift, an attitude shift. It has become hard to realize that it is okay not to buy into everything that is offered to us.
Ramsey recommends that we make some drastic changes in order to get out of debt, such as downsizing and eliminating extra expenses that aren’t necessary. He then suggests seven “baby steps” that we should take:
Save $1,000 as an emergency fund ($500 if you are on a low income)
Use the debt snowball plan (start by paying off the smallest debt)
Save enough money for 3-6 months of expenses
Invest 15 percent of household income into a Roth IRA and pre-tax retirement accounts
Pay into a college fund for (future) children
Pay off mortgage loan early
Build wealth and give back to others.
As each step is completely, confidence should be gained and debt taken more seriously.