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How to Stay Debt Free — Changing Your Mindset After Consolidating Your Debt

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Consolidating your debt can save you a lot of money — but only if you approach it the right way. 

One of the biggest mistakes people make when consolidating is thinking of it as a solution, rather than the first step in reframing the way they think about their finances. For that reason, it’s common for people to slip even further into debt after they consolidate.

Fortunately, that trend is mostly due to quirks of human behavior that you can outsmart. By understanding your own psychology, you can sidestep your own impulses and use consolidation as a tool to break free of the debt cycle.

How Debt Consolidation Works — And Where You Can Go Wrong

Debt consolidation usually involves moving everything you owe onto a single, lower-interest rate credit card, or taking out a personal loan to pay off all your debts at once.

Either way, consolidation gives you some breathing room. That’s exactly why it can be dangerous, says Doug Bellfy, an accredited financial counselor and certified financial planner at Synergy Financial Planning. In fact, debt consolidation — and the lower monthly payment it often leaves you with — can lull you into a false sense of resolution.

That’s why some people fall back into overspending habits shortly after consolidating their debt, Bellfy says. 

“Before you move forward, you need to really understand the root cause of your debt,” he explains. Only then can you fix the underlying problem.  

Read more: What is Debt Consolidation and Should I Consolidate My Personal Debt?

Case Study: Coming Back from Serious Debt 

In college, Dominique Broadway (now the CEO of Finances De•mys•ti•fied) was the most financial-savvy person she knew. She bought her first house by age 22. By 25, she had $50,000 in the bank and was driving a BMW to and from her job as a wealth management advisor. But when she left her budding career to start her own business, she suddenly found herself unable to pay the bills.

“As an entrepreneur, you tell yourself, ‘It’s okay to let this payment slide — I’ll double up on payments next month.’ But that doesn’t always happen,” she says. Before long, her car was repossessed, and her house went into foreclosure. That’s when she realized something needed to change.

“The first thing I did was accept the fact that I needed to do something to improve my situation,” she says. “That alone was a huge mental shift.”

One of the next things Broadway did was perhaps one of the toughest: She opened up to her family about her financial troubles.

Most people feel shame or embarrassment around debt, but as with all difficult things in life, finances are easier to tackle with an emotional support system, Broadway says.

“In the beginning, I knew what I needed to do, but I was too scared to take that first step alone,” she said. “I needed someone to hold my hand and help me get started.” 

With advice and moral support from her mom and grandfather, Broadway started calling her creditors to negotiate deals on the bills that had gone to collections. She also started doing contract work on the side to cover the costs of starting her new business. 

In Broadway’s case, the root cause of her debt was her all-in attitude toward entrepreneurship. It was that mindset that had drained her savings account. For her, the answer was finding balance. 

Regardless of the causes of your debt, there are things you can do to reign in your habits while you pay it off.  

Budgeting For the New You

After you’ve made the decision to consolidate your debt, Broadway recommends sitting down and looking at every dollar that came in or out over the past few months. Then, figure out what expenses you can reduce. 

Pricey car insurance? Shop for a better rate. Cable bill? Consider cutting the cord.

Broadway also took a hard look at her personal behavior patterns. Instead of grocery shopping hungry, she started using Instacart to order food online and avoid impulse purchases. 

“Find out what your spending triggers are, and do what you can to avoid them,” she says. 

After you’ve figured out what expenses you can trim, you’ll have a better idea of how much you can afford to pay toward your debt each month.

“You should make sure the payment hurts just a little bit,” Bellfy says. “If you pick a debt consolidation plan that spreads your payments out over 15 years, you might only be paying a few hundred dollars a month, and your debt won’t be as noticeable.” That’s when people get a little too relaxed and start racking up debts again, he says. 

Read more: Budgeting for Short-Term and Long-Term Goals

Staying Motivated to Stay Debt Free

No matter what changes you make to your life, the most important thing is to stay vigilant about your new habits. Human beings are wired to seek out immediate joy, and it can be easy to lose focus on an abstract goal like paying off debt.

Bellfy recommends coming up with a tangible goal for yourself. Maybe it’s a tropical vacation you’ve always wanted to take.

“Figure out how much it’s going to cost, and commit to getting out of debt so you can start saving up for that vacation,” Bellfy says. “Print out some pictures of that beach and plaster them all over your house as a reminder.” 

Meanwhile, stay patient with the process — and with yourself.

“Remember that it takes time to get into debt, and it takes time to get out,” Broadway says. “So don’t beat yourself up too bad.” A couple thousand dollars of credit card debt might be the result of years of bad decision-making, and it might take a few years of good decision-making to dig yourself out. That’s normal, she says.

The important thing is to keep trying. Remember that living with debt is living with a burden of extra stress, which can take a toll on your health. Debt also keeps you from planning for your future. 

“Debt is nothing more than paying for something you spent in the past,” Bellfy says. “And I like to look forward.”

Disclaimer: The opinions expressed by the interview subjects are not necessarily those of Earnest. 

Conquer your student debt. Refinance now.

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Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.