Debt is a frightening topic for many people. It can make you feel overwhelmed, helpless, and even hopeless. But it’s important to remember that you are in control of your financial future. Getting out of debt is possible, and it starts with self-reflection.
A Scarcity Mindset Keeps You In Debt
It’s easy to feel defeated when you’re buried under a mountain of bills and can’t see any way out. In fact, you may even find yourself feeling spiteful about your financial stress.
Some people become obsessed with focusing on the things they can’t have. As a result, they spend more money than they can afford to make themselves feel better. Experts refer to this as emotional spending.
Emotional spending can result when you have a scarcity mindset. A scarcity mindset causes you to hyperfocus on the things you lack rather than what you have.
The first step to getting out of debt is challenging the scarcity mindset. This involves training your brain to focus on gratitude and abundance.
An Abundance Mindset Can Help
Adopting an abundance mindset will rewire your brain to see your limitless potential. In addition, it will help you feel more appreciation for what you already have. Studies suggest mindful gratitude increases feelings of happiness and lowers feelings of stress.
You can build your gratitude practice through gratitude journaling and meditation. For example, you could write down three financial successes at the end of each day. You could also jot down the people and experiences that inspire gratitude. There are many opportunities for joy in our lives that don’t cost money.
Findings from one Northeastern University publication show that gratitude increases self-regulation. In particular, gratitude helps with wise economic decision-making. For example, when you’re thankful, you’re more likely to save money for more significant gains (like paying off debt). You’re also less likely to rationalize spending to self-soothe.
Once you’ve adjusted your outlook, you can start chipping away at your debt.
Best Methods For Getting Out of Debt
The best way to get out of debt is by following a plan. The most effective strategies are realistic, achievable, and easy to stick with over time. Unfortunately, there’s no “one size fits all” plan for getting out of debt – but if you’re willing to put in the work, you’ll find success.
There are two common methods for paying down debt: the snowball method and the avalanche method. With both approaches, you focus on making extra payments for one of your loans while keeping the minimum payments on all other debt. This is crucial to avoid falling further behind in the cycle of debt.
The Snowball Method
The snowball method starts by paying off the smallest debt first. Then, once that’s done, use what you were paying towards that debt and add it to the payment for your next smallest debt. This can give you quick wins and help you get momentum as you work towards getting rid of your debts altogether.
For example, let’s say you have a medical debt of $200, a car loan of $11,000, and a student loan of $50,000. You would focus on paying them off in ascending order.
The Avalanche Method
The avalanche method, also known as the stack method, is very similar to the snowball method. But rather than focusing on the smallest debt first, you focus on the debt with the highest interest rate. This will save you more money in the long run. But, it can also be more challenging if the highest interest loan is also the one with the largest balance.
In the scenario above, you would likely focus on paying off a student loan first. These tend to have high compounding interest rates.
By following any of these methods, you’ll be well on your way to getting out of debt. It may not be easy, but anyone can do it with a little bit of hard work and determination.
Your investment in yourself is the most important investment you’ll ever make. Paying off your debts is a significant first step towards that investment.
