The 10 Most Significant Obstacles Preventing Debt Elimination

Debt continues to be a problem among Americans of all ages and walks of life. In 2017, the total consumer debt among Americans rose 8.8 percent, to $3.827 trillion, setting a new record. The average household has a credit card balance of $15,654, and with total debts (including mortgages) of $131,431. With numbers consistently growing year over year, it’s unlikely that this rising trend will reverse itself anytime soon.

With today’s high demand for education and low-paying entry-level jobs, it’s hard, if not impossible, to avoid accumulating debt in the first place. Once debt has accumulated, most consumers find themselves unable to pay it off. Or, if they can, it’s not in any fast or efficient way. So what is it that’s stopping people from paying off their debts? And what can be done to mitigate or circumvent those obstacles?

These are some of the most significant hurdles to debt elimination:

1. Lack of understanding.

Many consumers lack even a basic understanding of personal finance. This includes why debt is (mostly) bad, how to budget, and how to prepare for their long-term future. In fact, a Gallup poll from 2013 indicates that only one in three Americans prepare a monthly household budget. Because Americans don’t understand the basics of how finance works, they never make a detailed plan to eliminate their debt. To make matters worse, they never make a conscious effort to learn more. It creates a self-perpetuating mental trap that most people never emerge from.

2. Compound interest.

Next, we have the power of compound interest. Most money apps and financial websites offer you a compound interest calculator. This shows you how the value of your investments could grow over time. Interest is added to both the principal and original interest over time, your growth has exponential potential. Unfortunately, that principle also applies to the world of debt. And, the percentages there are usually even higher. For example, if you’re paying 20 percent interest on a $1,000 loan and you don’t make regular payments, by year five, you’ll be owing nearly $2,500. By year 10, you’ll be owing $6,200. This is nearly six times as much as what you initially borrowed.

3. Lack of consistent income.

One of the best ways to conquer your debt is to come up with a consistent monthly plan to cover all your expenses and leave some left over for extra debt payments. However, with a variable or inconsistent income, this is a difficult feat. You’ll have to account for that variability in your model or work to make your income more consistent. Also, there is the fact that you won’t pay off your debts in a straightforward or consistent pattern. This can hurt your morale. You can make things a little easier by forecasting your income as much as possible (using historical data) and keeping your costs as low as possible, but these aren’t perfect solutions.

4. Lack of sufficient income.

Consistency is important, but so is volume. If you have a consistent paycheck coming in, but it’s barely enough to cover your basic living expenses, you won’t have much of an option for your standing debt payments. When you’re fresh out of college, you may not have the skills or experience necessary to demand a higher income. Also, a minimal education means your options may be limited. In these situations, one of your best options is to pick up a side gig. This might be crafting or renting part of your home. It may only bring in a few hundred extra dollars a month. However, that can go a long way in paying down your debts.

5. Unavailable or complex external help.

There aren’t many external options for reducing your debts. Plus, the ones that exist can be complicated to understand. Debt relief, for example, comes in multiple varieties. There are debt consolidation, debt management, and debt settlement. Typically, companies and organizations offer these services to help consumers manage their debt. However, they aren’t available to all consumers. And, if you go with the wrong provider, you could end up paying more in the long run. There are also smaller organizations dedicated to helping people learn personal finance and budgeting skills. Yet, these services aren’t especially well-known or well-advertised.

6. Family demands.

Dealing with debt when you’re living alone is hard enough. When you’re also trying to raise and/or support a family, everything becomes more complicated. If you have children, your expenses will be necessarily higher, without a proportional increase in income. If both you and a spouse work, you’ll need to drum up money for childcare services, which can eat into your net income. On top of that, you’ll need to spend time with your family every day, which can reduce your availability for picking up a side job.

7. Unexpected expenses.

Many consumers end up sidetracked on an otherwise strong path toward debt elimination because they end up facing an unexpected expense. An urgent repair for their car, a leaking roof in their home, or a medical expense of a family member can quickly deplete your emergency budget (assuming you have one), and put you several months behind on your debt payments. The best defense here is to build a bigger emergency fund, since unexpected expenses are an unavoidable reality of life.

8. Lifestyle creep.

Debt can also be hard to get rid of if you’re subject to lifestyle creep, the gradual transition to higher standards of living that most people go through. Over time, the items and services you purchased as luxury items start to be perceived as a baseline necessity, and as your friends and peers start spending more money on a regular basis, you can’t help but try to keep up. This leads to excess spending and harder cost-cutting decisions, which in turn makes it hard to save enough money to eliminate your debt.

9. Self-discipline.

Self-discipline is another problem that makes it harder to pay off debt. If you have $300 leftover in a given month, what seems more appealing—spending that money on a luxury, like a new video game system or a couple nights out on the town, or putting that money toward one of your loans? The luxury option is far more tempting, especially if you have literal cash in your pocket. Gaining control of your finances enough to eliminate your debts entirely takes a tremendous amount of self-discipline, and unfortunately, that characteristic is in short supply.

10. Time and consistency.

As debts grow bigger, they take longer to pay off—especially with compound interest working against you. Accordingly, a one-time commitment to pay off your debts and a one-month surplus of cash isn’t going to be enough to reverse your momentum. Instead, you need to be patient, investing in the same strong strategies month after month until you gradually inch closer to your ultimate goals. The problem here is most people lose interest, lose momentum, or end up deviating from their strategies before they can make a meaningful impact on their standing debts.

Your Biggest Assets

Fortunately, there are a handful of assets that can help you move past almost every obstacle on this list, and make positive progress toward eliminating your debts:

  • Sources and knowledge. Personal finance isn’t super complicated, but it does take time to become acquainted with the fundamentals. Talk to people, read articles online, and attend free classes until you feel more confident about what you’re doing.
  • Long-term thinking. Start making decisions with a long-term focus in mind. Yes, you can spend $15 on an impulse item now, but if you save that money once a week, you’ll have $60 extra at the end of the month to put toward your standing debts.
  • Monthly budgets. Monthly budgets provide you a blueprint of how to most efficiently spend your money. They help you visualize your expenses, cut those expenses down, and stay on the right track for managing and improving your finances. Budgeting is always the first step toward a better financial future.
  • Income optimization. You’ll also need some way to optimize your income, since it’s a major limiting factor in your ability to pay down debt. That means seeking promotions, looking for better opportunities, asking for raises, and possibly doing side jobs.
  • Habit creation and momentum. There aren’t many greater feelings than seeing a $0 balance for one of your loans. Once you achieve this with one loan, even if it’s your smallest, you’ll naturally want to carry that momentum forward. Creating good habits, with small, daily actions, and rewarding yourself as you achieve your goals will help you build and preserve that momentum.

If you’re currently overloaded with debt, take solace knowing that you aren’t alone. Millions of your peers are struggling with the same challenges to debt payment that you are. However, you should also understand that these challenges are either temporary or conquerable; with the right attitude, sufficient commitment, and a few months to a few years, you can take control of your finances, eliminate your debt, and start building toward your ideal future.

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