3 Mindset Hacks on How to Manage Your Debt Problems
A financial app, a financial advisor, or even a financial book can’t save you from debt – at least not by themselves. Your mindset is your one, true lifeline. So if your thoughts aren’t right, you’ll forever stay in that cycle of living paycheck-to-paycheck, borrowing money, or worrying about your credit.
Anyone can learn how to manage debt problems if they choose to, but they have to believe there is a way out first, something that many financially-challenged people fail to remember. So how do you see your situation? Do you truly believe that reducing your debt is a possibility? Or does it seem more like a fantasy to you?
Questioning Your Mindset
Unless you’re honest with yourself, you’ll never see the potential flaws in your thinking that keeps you in debt. But if you’re willing to do so, as painful as it may feel, you’ll put yourself on the path to debt elimination fast. How do you start? You look inward, truthfully answering questions about your attitude towards money.
Complete this short quiz.
1. I believe that debt is a part of life that no one can escape.
2. I can’t save money and live comfortably at the same time.
3. My friends have no effect on the way I spend.
4. There are certain things I should own or be doing at my age.
5. My financial situation won’t improve even if I get rid excess possessions.
For those of you answered mostly “True”, you likely have what’s known as a “fixed” mindset. Don’t take this as an insult, but it means you don’t believe in change or improvement very much. In your mind, what you have is what you have to work with. It’s a manner of thinking that can take the form of someone assuming that they can never improve their level of ability, intelligence or talent (or in this case, their finances). It’s actually quite depressing to think this way.
For those of you answered “false” for most of these questions, you most likely have what’s called a “growth” mindset. You’re the kind of person who doesn’t rely on luck, genetics or “handouts” to make it in life. You accept your situation and work with it, knowing that you can always do better no matter where you start.
The concept of growth vs fixed mindsets are outlined in many books, one of them being Malcolm Gladwell’s book, “Talent is Overrated”. Even though they’re often used to show the differences between talented people and those without extraordinary abilities, they can help you understand the importance of thinking correctly if you want to manage debt problems.
To Manage Debt Problems Think “Growth”, Not “Fixed”
Here’s how this stuff relates to your finances. Your thought process, mindset, attitude – whatever you want to call it – shapes the actions you will take. Remember, people tend to act on things they believe they can do. The reason why so many individuals feel stuck in their ability to overcome obstacles comes from unrealistic expectations.
In terms of reducing debt, that could manifest in a ridiculous goal like wanting to see a $10,000 balance vanish in a week. But that’s like thinking you’ll go from being scared of swimming to Michael Phelps’ (Olympic swimmer who has won more medals than any other athlete) level of skill with just 4 weeks of practice. Fixed mindsets exist because we look at the end goal, rather than the little steps along the way. To enter the growth mindset, you have to tell yourself that debt is something you CAN escape, providing you’re willing to develop the habits that will get you there.
Growth Mindset Hacks for Debt
- Read success stories – Just when you think you have it at the worse, you can almost always find someone who has or had worst debt than you. There are countless stories where couples have completely paid off six-figure debt totals. Use their stories as inspiration. They too may have had massive debt, not to mention the responsibilities of paying for a home and car, while taking care of their kids. Nothing beats a success story involving real people you can relate to.
- Look at all your options – Bringing your debt down requires strategy. What balances should you clear first? Should you re-negotiate a loan payment? Which expenses should I cut? Dealing with debt turns your analytical brain circuits on, forcing you to find the options that will clear your debt the fastest.
- Identify digestible actions – Any masterpiece, whether it’s a painting, skyscraper or an album, is the product of an artist who completed a series of small actions repeatedly – they didn’t cough it out all at once. That’s how you manage debt as well. Whether it means paying $300 monthly for a balance or checking a finance app after each purchase, identifying small, easy-to-perform actions will help you work towards the big picture, so your goal doesn’t seem unreachable.
Watch Your Circles
The late Jim Rohn, entrepreneur, author and motivational speaker, once said that “you are the average of the five people you spend the most time with.” It’s not an exaggeration. Some people have stronger personalities than others and may naturally resist temptations from their friends. But no one is immune to negativity.
There’s a social psychology concept out there known as the “Herd Mentality” (a.k.a crowd psychology), which says humans, when thrown into groups without a sense of direction, copy each other’s behaviour even if it’s dangerous. It relates to the high school way of thinking, “everyone is doing it”. And that mentality is the reason why so many people have such heavy debt.
Going back to what Rohn said about friends, it’s vital to remember that your closest associates influence your buying habits. This can go both ways. The effect can be negative; friends may dine and drink excessively, and buy expensive game consoles to play online with each other, expecting you to do the same. If you don’t have the fortitude to say no, you can easily find yourself in the red.
The opposite is true as well. When you spend time with friends who encourage you to save money, practice frugal shopping or give you tips on how to invest, their good habits are likely to rub off on you too.
Peer Pressure Hacks
- Spend time with money-savvy friends – If there’s a person in your life who has little debt and plenty of savings, keep them close. Involve them in your shopping. They can point out your spending flaws and suggest alternatives that you or other friends wouldn’t know about.
- Say “no” sometimes – You should never ditch your friends, but you should abandon some of their expectations. So if they beg or try to guilt-trip you into making certain purchases, tell them “no”. By saying no, you’re not rejecting them, but rather, the unnecessary expense.
- Look at your friends’ lifestyle – Your friends may never tell you what’s taking place behind their doors. But signs of trouble or prosperity are sometimes clear. Watch and listen to your friends carefully, especially the ones who are pushy when it comes to buying certain things. If you notice positives or negatives about their lifestyle, then your findings should help you decide whether their peer pressure is worth following or not.
Manage Debt By Unleashing Your Inner Minimalist
Over the years, there has been a trend that emphasizes minimalism. It’s a hit in the design world, and it’s now a thing in music and business. But it’s also a trend in the aspects of finance and lifestyle. Not every movement is worth following, but minimalist living has some important lessons for you to follow.
Think of your finance as a hot air balloon and your expenses as heavy crates that weigh it down. In reality, the weight limit a hot air balloon is roughly 250 kg/430 lbs . So imagine stuffing it with people and a ton of heavy objects – it couldn’t reach it’s intended height. Financial freedom is like a high altitude. The more weight (expenses) you can do away with, the higher your balloon (financial stability) will rise. And that’s where minimalism comes in.
Minimalist living isn’t about sleeping and eating in a tent or the backseat of your car (minimalist living can be expensive if you buy the wrong things). It’s about making the most out of having very little. Additionally, it requires you to remove the things that would have no effect on your life if they were gone – a list that’s actually very long.
Even celebrities and wealthy individuals have embraced the concept of having little, because they recognize there’s less stress and costs when you don’t have as much crap laying around. It doesn’t take scientific formulas to understand that having to pay for less, means more money can go towards your debt. And you don’t have to feel deprived.
Watch, the late comedian George Carlin give a brilliant monologue on the concept of having too much “stuff”. (Warning: Strong Language)
Minimalist finance hacks
- Would you run back for “it” in a fire? - If you had to flee your home because of a fire (hopefully that never happens), can you name one thing that you’d run back in to grab? As long as your family members and pets are okay, you’d probably have no reason to run into the inferno. Using this line of thinking will help you realize that much of what we own are just non-essentials.
- Do you even use “it”? - An even more practical action to take is to look at the products and services you have but aren’t using. This may describe a large number of items in your home, many of which are costing you money just to keep them around. If you can think of some goods right now, consider giving them away or selling them if appropriate.
- Find the cheaper or free version of “it” - Of course, there are the things you need. But are they costing you too much? Look into every aspect of your lifestyle, whether it’s fuel expenses, your cable/internet packages and grocery costs. Could you get everything you need at half the cost, perhaps by switching your choice of brand or retailer? Doing so often makes a big difference.