When I say my biggest debt mistakes, I believe most people will instantly assume I’m talking about what I feel I did “wrong” to get into debt.
Not all debt is a mistake. While I believe in avoiding consumer or lifestyle debt, not all debt is represents doing something “wrong”. Many people fall into debt for school, medical bills, or massive lifestyle changes they did not see coming such as job loss or death. Personally, if I did not have my debt I wouldn’t have my career because I used my loans to go to school (Blame from your soul, not just your head).
My biggest debt mistakes:
So what mistakes AM I talking about? Mindset mistakes: assumptions that I made about finances or debt that have gotten me in trouble.
1. Thinking it’ll be a sprint, when it’s really a marathon
A large theme of my blog is getting to know yourself, particularly when it comes to finances. One truth I absolutely know about myself: patience is not my strong suit.
[I swear I can hear my dad laughing hysterically at that. I’m better than I used to be!!]
When I got serious about my finances, I wanted my debt gone NOW. Or even better: yesterday. I put myself on a very restrictive lifestyle that I could not have maintained (Pay down debt quickly). Once I realized that my debt would take years to pay off I did two things:
- Made a new plan
If you have student debt like me, it took years to build. It will likely take years to pay off. You need to learn to pay off debt and still have a life, because this might be a long road!
[Side note- I’d still love to win the lottery instead of learning patience. There’s a reason I’m a sprinter and not a distance runner.]
2. Thinking my debt determined my self worth
Repeat after me:
I’ve openly talked about the strong stigma I’ve felt having debt when so many of my friends don’t. It felt like there was something wrong with me. I thought no one would want to marry me, or even be friends with me.
“But what will people think?”. The sentence that haunts so many people, myself included.
It took me awhile to accept that my life situation was simply different than theirs, and that that’s ok! I’m working on it now, and that’s what counts. Publicly discussing my debt has been one of the best things I’ve done, because I’m no longer hiding. It’s my financial truth, so may as well be honest about it! If you want to read more about the stigma I felt, and how I’ve accepted it, read these:
3. Believing I could think my way out of it
I’m a Type A planner; I LOVE making lists. However, with debt it is mostly action that counts, not just planning. I read the best personal finance books, so I was armed with tons of knowledge about money. I would constantly come up with ways that I could improve my finances, but I did not initially follow through on any of them. After you create a budget that actually works, you need to do the more crucial part: Stick to your budget! That’s when my net worth really began to change.
Complaining does not get anything done. Sure, debt sucks. I wish I did not have any. No one is paying you to complain though, and it certainly won’t change your finances. If you don’t like having debt, take one step today that will change your situation. Then repeat it tomorrow. You’ll be amazed how much you can change your life in one year once you ACTUALLY start.
4. Thinking that small amounts of money don’t matter
If you’ve read my bio, you know I graduated with about $100,000 in debt. With that many zeroes, it was hard to feel like “small” spending/saving could make a difference.
A massive mental shift happened when I decided to break my debt into smaller chunks.
Like I explain in that article, I may not be able to make a decision that will make me 100k richer, but I can damn well make $50 decisions.
Viewing “small” sums of money as important is crucial when you’re paying off debt. Those chunks add up rapidly, and will ultimately be the pillar of your finances. Don’t believe me?
Let’s assume you have $50,000 in debt, at 6% interest. (I used my favourite debt calculator at whatsthecost for calculations).
In scenario 1, you’re putting $1000 a month on that debt. It will take you 58 months to pay it off, and will cost you $7359 in interest.
In scenario 2, you’ve read the debt chunk article and decide to add 2 debt chunks to your monthly payment (I use $50 as my debt chunks). This means you’re paying $1100 towards debt each month. You’ll be able to pay off your debt in 52 months, and it will cost $6556 in interest.
Are you telling me becoming debt free 6 months sooner and saving over $800 in interest isn’t significant? (If so, please send me that money and I’ll use it for my debt, because I definitely think it is!!)
If you have credit card debt (or something with a higher interest rate) the effect will be even more extreme.
What are your biggest debt mistakes?
That’s my list; the things that I know now that seem so simple I really just want to face palm my younger self for not knowing. Have you had an perspective shifts while on your money journey? I’d love to hear them in the comments below!
For a list of all posts I’ve written, click here