How to Know When Debt is Unmanageable

Extract and video from Ann Wilson How to Know When Debt is Unmanageable

Consumer debt has become so normalised into our society that for many, NOT having consumer debt seemed an impossibility and outright freaky.

Before we go any further I want to say “living consumer debt free” is not only possible, it is my greatest hope and wish for you. 

Living free of consumer debt should be one of your wealthy life goals. 

I’m not talking about eliminating expansion borrowing or even neutral debt – only consumer debt.

To understand the difference ready this article “Not All Debt Is Bad”

Back to consumer debt…

This video unpacks what consumer debt is, the warning signs that you have too much and what to do about it.

Watch the video now

One of the things the Covid Crisis and its economic fallout is revealing is just how vulnerable having consumer debt makes people.

Consumer debt makes people debt slaves.

Who are the biggest debt slaves?

There are many ways to measure household indebtedness and debt burdens.

Comparing total household debt to the overall size of the economy as measured by GDP is one of the measures.

And per this household-debt-to-GDP measure, this is the line-up of the most indebted people in the world by country.

Taking poll position and coming in #1 in the biggest debt slaves as % of GDP competition is Switzerland!

Closely followed by Australia and Denmark all with an astounding household debt to GDP % OVER 100%!

Despite missing the podium and coming in at #4 and #5, Norway and Canada also manage to have percentages exceeding 100%.

Comparing Household Debt to Income is another measure and perhaps this is a more pertinent measure of debt slavery.

These revealing numbers are truly terrifying…

How do you know when household debt is too much? 

The simple answer is, any consumer debt is too much. 

I know this might sound evangelical and even just weird in this day and age when consumer debt has become so normalised – as you can see by the debt slavery hit parade. 

It’s as though the aim of the money game has become… 

…“how fast can you get rid of the money that you’ve got?”

Better still…

…”how fast can you get rid of money that you don’t even have?”

You might be reading this and going.. “Chill Ann, I’ve got it under control.” 

Let’s see if you do (and based on the household debt to income percentages most people don’t – just saying)  …

If you’re spending more than 15% of your monthly income on clearing the minimum repayment on debts, not including your mortgage, …

… you are already in over your head and you have to make a change in your money flow pattern.

How do you Break a Debt Habit and Set Yourself Free?

STEP 1: Acknowledge that having consumer debt is not a healthy way of living. 

You must acknowledge you have debt and that having debt is a problem. If you stay in denial, you can never move forward.

STEP 2: Know that you cannot get out of debt with more debt. 

You’ve got to put down the shovel and stop digging. 

Just like you can’t drink your way out of a drinking problem, you can’t debt your way out of a debt problem.

This includes the temptation of “new easy repayments… debt consolidation plans. 

To be clear, debt consolidation has a role to play in breaking free from debt slavery, but it is not the first step. 

Debt consolidation can be very dangerous because just rejigging the sinking ship does not deal with underlying behavioural and mindset issues that created the debt in the first place.

STEP 3: Let people know you are breaking free from debt. 

Be loud and proud.

You are claiming back your freedom, it’s something you should be proud about.

Let go of any shame you may feel about having debt, because shame is one of the things that keeps people deep, deep, deep in debt. Shame and guilt around money stuff is the poison that prevents many people reaching out for support, getting help when they could actually quickly turn something around and gets them into real trouble. 

IMPORTANT: If you’re struggling to make your repayments, you must contact the people you owe. Let them know your position so you can start making debt arrangements.

STEP 4: Take stock of your debt. 

There are five key things that you must know about each debt you have in order to break free from it. 

Read this article 5 Things You Must Know About Your debt to get the details of these 5 points.

STEP 5: Put a structured break free plan in place.

It’s really important that you have a structured plan to break free from your debt, with very clear steps, organised in such a way that you focus on the priority debt and use behavioural science to help you succeed.

With your break free plan designed, you automate the plan.

STEP 6: Focus on your FREEDOM.

With a structured break free plan in place and on autopilot, you must turn your attention to your freedom.

Time travel to your near future and focus on what being free of this debt enables you to do…

The new choices you’re going to be able to make…

Move your attention to building real sustainable wealth by investing and building up your assets.

With the structured automated break free plan in place, see how you can get extra money to throw at your debt.

Liberate yourself!

The whole aim of the break free game is to get rid of debt as fast as possible.

Use this Time & Interest Payoff Calculator to get motivated.

Use this cool tool to calculate how long it will take to pay off each debt you have, if you make only the minimum payment month-after-month; and how much money that debt will cost you interest. PLUS, how much you will save in money and time by increasing your payments; and how much time and money you will save by reducing the interest rate you pay.

If you only pay the minimum repayment required by law and you set that in place every month, and that’s all you pay off on your credit cards, your overdraft etc…

… it will take you between 17 and 22 years to pay off that debt based on the average APR, the interest rates that are currently being charged on credit cards to repay that debt. 

And you’ll pay five to seven times more than the original sum borrowed. 

When you think about that holiday, or whatever else felt easy to put on a credit card …

If you knew you’d be paying for it seven times over, would you have bought it?

If you knew you would still be paying for it in 22 years time, would you use that credit facility? 

I don’t think so. 

STEP 7: Track your great escape progress

The most important thing is to track your progress and celebrate every little bit of debt that you clear from your life. 

It’s much easier to break free from debt when you put a plan in place, focus on your freedom, and choose you first.