If you are a yo-yo debtor, know first that you’re not alone. Second, know that there are steps you can take to get off the yo-yo debting cycle forever.....
Over my lifetime, I’ve been both a yo-yo dieter and a yo-yo debtor. In each instance, I can get on aboard, become strict with my food intake or spending, and make amazing progress. And then, inevitably, I fall off the wagon, so to speak, and find the weight creeps back on or the debt slowly accumulates.
Ironically, the characteristics that make it hard to maintain weight loss are also those that make it difficult to maintain financial integrity and not accumulate debt. Suze Orman visited the set of The Biggest Loser and correctly predicted the winner based on the contestants’ credit scores. Those who can manage their weight often are able to manage their money and vice versa.
If you are a yo-yo debtor, know first that you’re not alone. Second, know that there are steps you can take to get off the yo-yo debt cycle forever.
This Is a Long-distance Journey, Not a Sprint
You’ve likely heard over and over again how bad debt is and how you won’t get ahead financially while paying so much of your monthly money in interest. Once you decide you want to be debt-free, you may throw all of the money that you can at your debt to pay it off as quickly as possible. This is akin to a person who wants to lose weight and goes on a crash diet.
The problem with putting all of your money toward debt repayment is that you don’t leave yourself a cushion. If you have a very small emergency fund or no emergency fund because you’re putting all of your money toward your debt, when you need a home or car repair that costs several thousand dollars, you have no alternative but to pay for that repair with new debt.
If you want to get out of debt and never go back in debt, you must build an adequate emergency fund and save for other upcoming expenses that you will have so you’re not left with debt as the only alternative. True, you’ll pay off your debt more slowly, but likely in the future you will be more financially responsible because you’ve learned how to manage your money, just like someone who loses weight slowly is more likely to keep it off because they’ve learned skills for eating in a healthy manner.
Create a Budget
If you have not done so, create a budget. Make sure that you budget at least the minimum payments on your debts, but also consider other expenses that you’ll face over the year. Have categories for clothes, car insurance, home repairs, HOA fees, car repairs, property taxes, homeowners’ insurance, school expenses, etc., and put something in each of those categories each month. You may not want to set aside money in each of the categories because you may feel that you can pay off the debt faster by putting the money toward additional debt payments. However, funding these categories every month will help you stay out of debt when an unexpected or yearly expense pops up.
Surround Yourself with Money-minded Friends
The people you spend the most time with influence you in powerful ways. If they spend excessively, eventually you’ll be conditioned to see this behavior as normal. If all of your friends are also drowning in debt, they likely won’t encourage you to pay off your own debt and be fiscally responsible.
Since you are trying to change your life and avoid the yo-yo debting cycle, surrounding yourself with people who are financially responsible is essential. You may find these people in your family or at work if you’re lucky, but if not, you can find like-minded people in Facebook groups and online forums. Spend time in these types of places to gain encouragement.
Give Up Credit Cards Temporarily
Credit cards make life easy. . .often too easy. You can search the Internet looking for something and buy it with a quick input of your credit card number before your mind even has time to register what you’re doing. You can overspend at the grocery store, the mall, the sports venue.
There’s something to be said for getting in touch with your money. Put the plastic away or cut it up and start using cash, at least temporarily. Using cash forces you to be on a budget. If you bring $100 to the grocery store and you spy a great deal on your favorite coffee, you can stock up, but only up to $100 unlike if you were using a credit card.
After a few months of using cash, you should be much more disciplined in your spending, and you can experiment with slowly using a credit card again. However, the minute you feel yourself overspending with your credit card, put it away and go back to using cash.
Switch to Debit Cards
If you feel you can’t use credit cards in a responsible manner, switch to a debit card instead. A debit card, like cash, forces you to be more accountable with your spending, and many debit cards have most of the perks of credit cards.
Keep Track of Your Progress
If you have a mountain of debt to pay off, you may feel discouraged if you’re paying down the debt slowly so you have money to set aside for other expenses. There are two strategies you can use to keep yourself motivated.
Set a Time Limit to be Out of Debt
Set a reasonable amount of time to be completely out of debt—say three years or five years. Pick an amount of time that makes you stretch a bit. If you have $10,000 a year to use on debt repayment and have $70,000 to pay off, instead of saying you’ll be out of debt in seven years, set your goal as four or five years. Remember, you’ll likely have raises during that time and other windfalls that can help you get out of debt faster.
Keep a Chart of Your Progress
Use a bar graph or a line graph to keep track of your debt repayment month by month. You’ll be excited to see the total amount of debt trending downward. Some people have even gone as far as to place this on their refrigerators so they can see it multiple times a day. Even during the times when you feel like you’re making little progress, you’ll have this visual reminder that you are indeed progressing.
Final Thoughts / Conclusions
Paying off debt isn’t easy, but like losing weight, the best method may be a slow and steady approach. If you pay too quickly and funnel all of your available money to debt repayment, you may find that any little-unexpected expense can propel you back into debt. Or, you may find, like the crash dieter, living a life of strict financial discipline, not allowing yourself spending or blow money is not sustainable for the long haul. If you don’t give yourself a monetary cushion and some freedom in your budget, you may end up a yo yo debtor. Paying the debt down slowly and staying out of debt the rest of your life is much better.
