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Trapped in a Debt Hole

The Debt Hole

I’m taking a personal liberty and coining my own phrase here. You know the expression “in the hole” people often use to talk about large amounts of debt? Well, I’m going to derive a new label with it: debt hole. It probably already exists, I didn’t try to look it up, so just give me this. In this post, I want to talk about how debt can accumulate and make a person feel like they’ll never climb out of their debt hole.

I want to acknowledge that some debt is completely unavoidable; I classify that as emergency-based debt. This is like medical debt or unexpected unemployment where people take on debt to get by. Don’t feel upset or ashamed of yourself for having this kind of debt. Insurance is supposed to help with a lot of these scenarios but if you live in America, like me, you know insurance feels like another scam you sink money into.

With all that in mind… let’s talk about debt holes.

Acknowledge and Assess

If your debt hole is not because of an emergency, then you need to take responsibility for your mismanagement. Step one in solving a problem is first admitting you have a problem. I’m not saying you intentionally went into a debt hole, but it happened somehow. And because your debt is your responsibility, your debt hole is your own fault. It’s a harsh reality so rip that band aid off, accept it, and move on to figure out how it happened so you can fix it.

Step two is to assess how your debt got to this point. Something as simple as mismanaging credit cards can spiral you into debt. Maybe you took out a few loans you weren’t sure you could afford to buy some things or fund a vacation. Figuring out your personal patterns and understanding how you got into this debt hole is crucial to avoiding debt holes in the future.

Step three is to understand why the debt hole feels never ending. Theoretically if you’re paying back your debts, your balances should come down. If your debt feels like it’s staying the same or getting larger there are a few things you can ask yourself to understand your debt situation.

  • Am I accumulating debt passively? A lot of people experience this on larger loans and credit cards, where your payments only take care of the interest and not the principal balance.

  • Am I overspending on credit cards? If you make credit card purchases you know you couldn’t afford with cash, you’re probably overspending.

  • When I have extra money am I willing to jump into more debt for large purchases? I’m guilty of this. When I got a raise, I took on more debt, because I could, just to get a pool.

  • How much have I financed in the last 3-5 years? Take a minute to look at how much debt you’ve amassed in the past few years, this should be eye opening.

Understanding how got into this debt hole can help you recognize your personal patterns and behaviors that got you this deep. Working to change those patterns is a crucial first step in tackling your debt hole.

Evaluate Your Hole!

Once you have an understanding of how your debt hole came to be, you need to figure out how to get out of the hole. There are a few ways to tackle this part, so I’ll give you some starting points that hopefully get you in the right direction.

  • Which debt is causing the greatest burden? Sometimes our debt holes are debilitating because certain debt feels unmanageable. Do you have a huge loan that has a high monthly payment amount? Is it the quantity of loans that is overwhelming? Understanding where the strain is coming from will help you properly prioritize your debt payments.

  • Which of your debts have lower interest and can be “ignored” until debt is under control? A lot of people may refer to this thought process as the debt avalanche. I could explain it but there are a lot of resources online that give great detail. For the simplicity of this blog, I’d recommend a quick Google search.

  • Can I consolidate my debt? What is the benefit of consolidating if I do? Debt consolidation can accomplish a few things. If the quantity of the debt is overwhelming, minimizing it into one manageable debt can help. If your debts have different due debts and amounts that can be stressful to manage. Consolidation can minimize the effort to pay off debt and, in some instances, lower your overall interest rates!

  • Can I stop financing and operate in a “holding” period until I can get my debt under control? The best thing you can do for your debt hole is to stop adding more debt, if possible. My advice is to operate with your paychecks and start managing your debt before acquiring more.

Set Goals & Plan your Solution

Conquering your hole will only happen if you set actual goals and build a viable debt payoff plan. Here are some ideas to help you get started.

  • Decide the order of which debts you are going to payoff first

  • Set deadlines for when you want debts paid off and when you want to be debt free

  • Use a budget to see if your debt payoff plan is doable and affordable

  • Decide if you need to sacrifice certain wants to put more money toward your debts

  • Prepare your household for any changes in the budget or finances

  • Seek external support as needed (debt relief programs, collection settlements, etc.)

Execute your Plan

All this work would be for nothing if you don’t actually do the thing. So do the thing. Follow through on your plan. The best advice I can give is while you’re doing it, check back in on your progress to make sure your debt plan is working. If you’ve paid off some debts it may also be a good time to re-evaluate your budget and overall plan to see if you can ease up on debt payments. Or if you’re like me, go harder and get rid of all that debt once and for all!

Tracking your progress to your goals can be an excellent confidence booster. It will also help keep you honest. Some of us are our own worst enemies. Having a plan and goals allows us to acknowledge where we’re hurting ourselves because we have something to measure to.

These debt hole methods have helped me tremendously! I’m currently in a student loan debt hole, and I’ve been in other debt holes before this too. Following these steps has helped me manage my debt and not feel as stressed or overwhelmed.

Author’s note: This is a not-blog blog. There will be no long-winded introductions, no weird backstories from childhood memories, and absolutely no pointless paragraphs of text about things you’d rather have a “skip to the important stuff” button to bypass.

I hope my posts are helpful. I try to break these things down in a way that is easy to read and understand. I appreciate any feedback on how to improve, so feel free to leave a comment below. If you are simply enjoying the content, I’d love to hear about that as well!

Disclosure: I am not a licensed financial advisor. I have an accounting degree and am a business major with a certification in finance, but I am not a legal expert. These posts come from my personal experience, learning through trial and error, working in the banking industry for nearly a decade, and seeing the fruitfulness of this advice in my own life.

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