Living Debt-Free

The No-Shame, No-Blame Guide to Getting Rid of Your Debt

Shannon Lee Simmons

• Publisher: Collins
• Year: 2018
• ISBN:
  9781443457606
• Topic: Persönliche Entwicklung
• Subtopic: Private Finanzen

Get rid of your debt without giving up your life

No one wants to be in debt. But life happens and if you've got debt, life has happened to you. Whether you have a rolling balance of $2, 000 on your credit card or an $80, 000 line of credit you are positive you will carry to your grave, debt can be a huge cause of stress—affecting both your emotional and financial wellness.

After working with thousands of financial planning clients, Shannon Lee Simmons knows that your only way out of the debt cycle is to truly understand all of your spending triggers so you can shut them down for good. In Living Debt-Free, she shows you that it is possible to have a life and pay down debt at the same time. In fact, that's the only way your debt plan will work. You will learn to take control of your finances and pay down your debt in a realistic way that will keep you motivated long enough to see it through to the end. No shame. No blame. No scare tactics.

In Living Debt-Free, Simmons focuses on creating a debt repayment plan that will motivate you for a long time, rather than an unrealistic one that's strictly about paying the least amount of interest charges. (Collective gasp—how dare she!?) Listen, everyone knows that paying interest on debt is bad and to be avoided as much as possible, but human beings are complex. Life is complex. Debt is complex. There cannot be a one-size-fits-all plan, so Living Debt-Free will help you build your plan—the one that will help you finally put the debt behind you, start fresh and feel good about your money again.

Part One

Stop the Debt Loop

Oh, hey, you kept on going and turned the page! You’re ready to make a change. Yay! The reason I’m being such a Pollyanna cheerleader right now is because making change is hard and debt-repayment plans are intimidating, no matter how much debt you’re carrying. You’ve got some work ahead of you—we both know that. You wouldn’t be reading on if you didn’t. I’m going to ask you to do some tough stuff. You’ll have to tally up your debt, deal with your Financial Tripwires and stop using debt as a go-to financial safety net, and that shiz ain’t easy! So I’m going to have your back and be annoyingly happy for you every step of the way.

Part One of the book is how we transform you from a debtor to a saver. We are going to dive deep into the emotional side of your debt—yup, all the feels. Before we can build a plan, you’ve got to unpack your debt, understand why you have it in the first place and learn how to sidestep it in the future. All the strategies and tips in this book are useless until you deal with the emotional stuff, the root causes of your spending behaviour.

Most debt books skip this crucial step. Many of them jump right into the super-exciting math parts (yes, I said “super-exciting math parts”). But there is so much that needs to happen before that in order to make sustainable permanent changes to your finances. Trust me, I’ve seen it so many times. If you don’t change your spending behaviour permanently and if you don’t believe you can truly tackle your debt, you’ll never truly stop what I call the Debt Loop.

First you deal with the emotional side of your debt sh*t, then you do the math. I promise, this is crucial. It’s like having allergies. Instead of just treating the symptoms—coughing, sneezing, itchy eyes—over and over, you have to figure out the root cause of the allergy and avoid it altogether so you can feel good all the time. No more itchy eyes, ever.

Let’s spend some time unpacking how you think and feel about your money. Let’s get you to a place where you understand your Financial Tripwires and find motivation beyond the interest your debt is costing you. This is how to stop the Debt Loop forever. Let’s ensure that this is the last debt book you’ll ever have to read.

Chapter 1

Recognizing the Debt Loop

Ah yes, the Debt Loop. The battleground on which you will throw down your enemy (your debt) and smite it to ruin (sorry, I really like fantasy novels). Regardless of your age, type of debt or income level, your Debt Loop will likely continue until you learn how to stop it—forever. In order to stop the loop, first you have to understand what it is, how it works and how it’s affecting your daily life. Then you’ll stop taking on debt and be in a position to start hammering it down like a boss. This is your first step to living debt-free.

So what is the Debt Loop? I’m glad you asked! The Debt Loop is the annoying thing that keeps you owing money.

The Debt Loop

Life throws you curveballs, or as I call them, Financial Tripwires. Things like a friend’s wedding, summer camp for the kids, unexpected physiotherapy—expensive things that you didn’t plan for financially and that you feel your only option is to pay for with credit. Then you have a new bill to pay: your minimum monthly payment. You have to pay it, whether you like it or not, so now you have less spending money each month but still have to financially survive the same things you did before.

So you make a plan to pay off the debt, but it’s probably not all that realistic. You rely on goals like I won’t spend money on clothes for the next six months or I’ll pack my lunch every day. But then life throws you another Financial Tripwire. You feel like you have to use credit to survive, and then you end up thinking of yourself as a failure, even though you’re not!

This is the Debt Loop. It repeats and repeats until you reach a point I call the F*ck-It Moment. That’s when you’re just so done with feeling broke and like a financial failure that you simply throw in the towel. F*ck it. When you owe $5,000, what’s another $100. Right?

The Debt Loop

Financial Tripwire

Debt Happens

Unrealistic Debt-Repayment Plan

Failure

Shame-and-Blame Mentality

F*ck-It Moment

Each stage builds off the one before. The good news is that each stage of your Debt Loop also offers an opportunity to change your behaviour and stop it from looping. That’s the beauty of it. The Debt Loop is the problem but also the solution.

Financial Tripwires

Financial Tripwires are spending triggers. Whether it’s a weak moment at the sale rack, university tuition for your kids, or a sick parent, life will throw you some financial lemons and opportunities that are ripe for overspending, guaranteed.

There are two types of Financial Tripwires: those you can avoid altogether and those you can’t avoid at all. The Financial Tripwires you can avoid are the ones you have control over personally: routine or emotional Tripwires. We break these down in Chapter 3, but essentially routine Tripwires are spending triggers that happen in specific places or during specific events. They are almost habitual. You make spending decisions every day, and some of them happen without a lot of thought or mindfulness. They are just part of your daily life, your routine. Often those routine spending triggers are what’s causing you to overspend without even realizing it.

Emotional Tripwires are a bit different. These are familiar feelings that make you want to spend more money than you should; they include both positive and negative emotions. Feeling like crap? Treat yo’self. Out celebrating? “Drinks on me!” Emotional Tripwires are spending triggers that are unique to you.

The Financial Tripwires you cannot avoid are usually something I call setbacks. A job loss, a health scare—some sort of emergency where you have to spend the money whether you have it or not. The only way to protect yourself against setbacks like these is to have adequate insurance or Short-Term Savings such as an emergency account. We break down Short-Term Savings in Chapter 6.

Debt Happens

If luck is what happens when preparation meets opportunity, then debt is what happens when lack of preparation meets a Financial Tripwire. I’m sure you’re not stoked when you swipe a credit card or borrow again on a line of credit that you know you can’t pay off. But debt happens because, in the moment, it doesn’t feel like there’s any other choice. That’s how Tripwires work. At the time, that swipe felt like the only way forward.

Once you take on debt, there is immediately less money in your pocket, because now you have to deal with minimum monthly payments, either payments on your existing debt that you’ve increased or payments you’ve taken on for the first time. The worst part is that in order to pay it back, you’ll need to dip further into your spending money so you can not only make the minimum payment but also put money towards the principal. No matter how you look at it, new debt means less money for your daily life. Boo-urns.

This is why debt sucks so much. You still have to financially survive your daily life, but now on less income. In the beginning, the amount of money you had to spend each month in minimum payments was probably nominal. Oh, it’s only fifteen dollars. But that’s exactly what makes it easy to sink slowly into the debt hole.

Every time you overspend, the amount of money you have left over for your daily life is reduced more and more, eventually reaching a point where you’re stuck. There’s no give in your budget anymore. You can’t move, you can’t breathe. Like water slowly filling up a room, it’s not so scary when it’s at your ankles, but without action it will rise up to your chest. That’s when it gets terrifying.

Unrealistic Debt-Repayment Plans

This is usually the point at which people start making unrealistic debt-repayment plans. If you type “how to pay off debt” into a search engine, the first thing that likely autofills in the search bar after your question is “fast.” Fast, fast, fast. How to pay off debt FAST!

I usually hear things like “Shannon, I need to pay everything off in three months.” Or “I hear you, but if I don’t buy anything for a year, I know I can pay off my credit card.” And worse still, “I read about a person who paid off $60,000 in three years. I should be able to do the same!”

Listen, I know you want this debt off your back. You’re tired of feeling frustrated and maybe even scared. You want to feel safe, hopeful and in control as fast as possible. But hold the phone. Slow down. When you get spooked by the amount of debt you’re carrying, panic sets in, and that is the worst possible time to make a debt-repayment plan. Panic breeds failure.

The problem with overly aggressive debt-repayment plans is that the timeline until you are debt-free is often very short (and arbitrary) and requires you to make unrealistic reductions in your spending. They doom you to fail.

Failure Happens

Failure happens because life happens. If you’ve reduced your spending money by so much that you have to be on your best spending behaviour all the time, going without even small pleasures day in and day out, failure is a given. Eventually there will come a Tripwire that forces you to spend more than you’ve allocated and you’ll set the Debt Loop into motion again.

Take, for example, my client Shauna, who in six months wanted to pay off $3,000 in credit card debt with an interest rate of 19 percent. With a salary of $30,000 a year, Shauna made $2,040 a month after tax. Per month, her share of the rent was $800, her phone bill was $80, her transit pass was $110, and the monthly minimum payment on her $3,000 credit card was $90. This left her with $960 for any savings and spending money.

Shauna usually spent around $700 a month for groceries, clothes and the rest of her life. If she wanted to pay down her credit card in six months, it would cost her an extra $478 per month on top of the $90 minimum payment. That meant she would have to reduce her spending money to $482. That just wasn’t enough for her, given the usual cost of her regular life.

She was able to sustain this level of austerity for three months, but then she had a job interview and needed an outfit. She found one that made her feel really confident and comfortable in her own skin; it cost $65. She purchased it with cash but then didn’t have enough for groceries that week. Naturally, she brought out her credit card and swiped. She had failed at her debt-repayment plan.

Of course she failed, but not because she’s bad with money, a shopaholic or out of control. She failed because the plan was not realistic for her life. Not someone else’s—her life. Unrealistic debt-repayment plans and time horizons and spending abstinence lead to failure. I’ve seen it happen time and time and time again.

The Shame-and-Blame Mentality

The Shame-and-Blame Mentality is the headspace you occupy when you feel like a total failure after your debt-repayment plan falls off the rails. You couldn’t pay down your debt or stop using your credit, and you feel like it’s all your fault. “I just feel like such a loser,” Shauna said, “like I didn’t try hard enough.”

Shame and blame perpetuate the fear that you will have debt forever, regardless of what you do to stop it. If you tell yourself that you are “bad with money,” eventually, over time, you’ll start believing it. I think the Shame-and-Blame Mentality is the worst part of the Debt Loop, and I believe it’s the main reason why that Loop persists. Shame and blame are not good motivators; in fact, they breed more debt.

Typically, the Shame-and-Blame Mentality leads you to keep secrets, from yourself and from others....