7 Lies About Debt (& How to Get Out of It for Good)
Melanie Lockert of Dear Debt said it best, “Going into debt seems to be our nation’s past-time.”
According to LendingTree, 42 percent of people with credit card debt say they are in debt just by “making ends meet.” It’s no wonder people have a hard time digging out of debt when at every turn society and commercialism reinforces the idea that you need to pay for things with debt from car repairs to groceries to the latest fall fashions that you can’t live without.
And for those of you who want to be in great control of your spending and get out of the “debt trap” to live your best life, I bet you have heard people coming out of the woodwork saying it can’t be done or even defending consumer debt.
Here are several commonly misunderstood things about debt.
7 Lies About Getting Out of Debt (& What to Do About It!)
1. “Getting out of debt is too hard.”
You can get out of debt! It may not be an easy road, however, you have to understand what the alternatives are. Do you want to be a slave to your bills for the best years of your life? Or do you want to be in control of how you spend your time and earn your money?
This argument is really about how you value your time. Yes, you might have to work super hard now to get out of the debt hole, but hard choices now lead to an easy life later. The math is simple, as there are really three ways to earn more money:
- Cut your expenses
- Increase your income (with a promotion or side gig like Rover, Wag!, Uber, Lyft, Turo, Airbnb, VRBO, Shipt, Amazon, coaching, Real Estate)
- Do both!
2. “Debt is normal,” “Everyone has debt,” or “Debt isn’t that bad.”
While consumer debt may be normalized by society, many people get along just fine paying cash for everything without owing credit card companies anything. Ask anyone who has successfully achieved FIRE (financial independence retire early).
I’m not defending cash. Heck, I put my bills on credit cards and pay them in full every month so I can travel hack. If you are going to use consumer debt, make sure you pay it off in full every month without hesitation.
3. “Credit cards are good for emergency funds.”
It’s way easier to take out lines of credit when you don’t need them. However, relying on credit as an emergency fund or backup plan can take a bad situation and throw gasoline on it (aka high-interest rates and fees), making it much worse.
A better strategy would be to build up three to six months of emergency funds and have it sitting in a liquid account. Personally, I have set aside all of my deductibles (health, life, car, home, etc.), my average annual car repair bill, and 6-plus months of expense reserves at a minimum.
I’ve been in the debt trap… and I never want to go there again!
4. “You can’t maintain a good credit score if you don’t have any debt or credit cards.”
Your credit score is made up of several components, only one of which is the use of revolving credit. This is easily solved by having one credit card where you are using 1 to 30 percent of your available credit every month (you could purchase groceries and gasoline, for instance) and pay it off in full on time.
Counter to this, if you never use your credit score to your advantage, what’s the point?! Here’s an idea, bolster your credit score and put it to good use by refinancing your high-interest debt, such as a home, car, or student loan debt, to lower your bills (watch out for fees). In addition, generate cash flow NOW so you can pay that debt down much quicker! Once your debt is gone, snowball that savings into building assets that generate monthly cash flow for you.
5. “I have a new job/promotion, and I have to look the part.”
Maybe this is new clothes, a new computer, a new car, a new house to keep up with the Jones’. The trap of lifestyle inflation is very real and means you are spending future dollars to purchase a liability today. Which leads to the next lie…
6. “If I live too frugally, I can’t have fun.”
My knee jerk reaction is to say, “JUST STOP IT!” And I’d quickly realize you are going against decades of consumer debt training. Most of us were raised with bad money habits or very limited knowledge of how money actually works.
Here are a few hacks I’ve used to cut down my costs but not my lifestyle:
- Food: Instead of Blue Apron, my hack for great healthy eating is the free app Mealime combined with grocery delivery.
- Gym membership: Instead of expensive gym memberships that I don’t use, my hack for working out is a good pair of running shoes and the FitBod app.
- Clothes: Instead of paying full retail for the latest trends, my hack is shopping gently used on ThredUp or at the local Goodwill (and it benefits the environment, too).
- Electronics: Instead of paying full retail for my Apple products, I’ll shop used on Craigslist, Amazon Warehouse, or Gazelle to not break the bank (after asking myself if I really need it of course).
- Vacations: Instead of paying full airfare and hotel prices, I travel hack with my credit cards, have a Southwest companion pass, and mostly stay at local Airbnbs.
More importantly though, we need to retrain our mindset to link our happiness to experiences not things, the growth we want to have, and how we want to contribute to society—most of which cost nothing (and certainly don’t require debt).
Related: How to Pay Down Bad Debt—Fast!
7. “If I could just get out of debt, my life problems are solved.”
How many stories have you heard where someone wins the lottery, or gets an inheritance and blows it all? Getting out of debt is a wonderful step on your path to financial independence. However, it’s easy to fall back into old habits if you don’t change your money mindset and relationship with debt.
The shift that needs to happen is moving from a “spender” mindset to a “steward” mindset where you are putting your resources like money, to their highest and best use.
The Bottom Line
Getting out of debt (and staying there) is a simple math equation:
Earn more, spend less, save and invest the difference.
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The wild card in this equation is you. Who will you have to become, what lies will you have to stop telling yourself, and what mindset will you have to adopt to get debt-free and live your best life?
You deserve the best life possible!
Have you heard about or tried any other methods of getting and staying out of debt?
Share in a comment below.