Two Cents Tuesday - Do this BEFORE you pay off debt

Do you find yourself getting into debt, working hard to pay it off (finally!) and then...getting into more debt? Does that credit card bill never seem to move that much, no matter what you do? 

In debt. Boo.

Debt free. Yay!

Debt, again. Boooooooo.

If this cycle sounds familiar, you're not alone. This is such a common situation that I coined a phrase to describe it - binge debting.

Binge debting is common, difficult to break out of, and psychologically and motivationally very demeaning. It can make you feel hopeless, dumb, and ashamed. 

There is, however, a cure.

Just like with binge dieting, binge debting's more well-known cousin, the solution lies in fixing the underlying issues.

The underlying issues that lead to binge debting? Lack of cushion (savings), and lack of planning (a budget).

[Check out the video below to see all I have to say about this!]

Here's my not-so-secret formula for stopping binge-debting once and for all:

  1. Stop the bleeding

  2. Save up an emergency fund

OK, but what does that mean and how do you do it?

Stop the bleeding

This is about stopping new debt. Stop using credit cards (even if you pay them off every month - you're probably living on the credit card float). Get clear on your budget (I have a workshop for that). Make a list of all the "unexpected" things that have happened in the last few months, and look at your calendar to see what's coming down the road. Most things aren't really that unexpected - just unplanned for. Put money away for those things - they'll be the reason you pull out the credit cards again otherwise. Is your car due for new brakes? Got a vacation planned? Is summer camp all paid up?

Save up an emergency fund

The name "emergency fund" sometimes throws people for a loop. Think of this as your "no new debt" fund. If you're in a situation where you'd have to pull out a credit card - because you can't delay or otherwise move money around in your budget - this is the money you reach for. Its purpose right now is to keep you from going into new debt while you find your footing. If you're thinking, "well, my house didn't burn down, so it's not an emergency" - reframe this as an "urgency fund". Use it when something important breaks. A car, a pipe, a bone. $1000 is a good number to start with. Put it in a separate bank.

Wanna know more? Check out the video for all the details. Next week, we'll be talking about what to do when you are ready to start paying off debt (and how to do it the smart way).