Debt – How You Got Into it and How You Can Get Out of It

If you’re in debt, I’m here to throw you a lifeline.

I’m about to show you why you’re in debt – and how you can start getting free.

And there’s nothing for sale here – other than some hope.

So how did this “Plague of Debt” begin – and how did you get ensnared in it?

The causes are:

  • credit cards
  • the dehumanizing of banks
  • the ruthlessness of advertising
  • the lack of any counter-balancing forces

Let’s look at each cause – and then we’ll examine how you can “stop the bleeding” and start getting out of debt.

Credit cards are an obvious cause and they are highly visible so they can be easily blamed as the demon. Studies have shown that people spend 25% more using credit cards than using cash. Why? The reason is that using cash forces people to connect the dots between the amount of money in the wallet versus the amount of money needed for the purchase. Unfortunately, the beauty of credit cards is also its curse.

Credit cards decouple you from the strong connection which there should be between how much money you have available and how much money you need for a specific purchase. Once decoupled, the excesses flow effortlessly. Even if people attempt to be responsible, they cannot. Why? Because a typical credit card user cannot keep in mind exactly how much has been spent; such work needs to be done on paper or on computer. Keeping track in the mind is doomed. Also, even if perfect track is kept, such tracking assumes that everything will go as planned. So, when any ‘emergency’ occurs, there is a sudden ‘unexpected’ problem.

Now let’s look at banks. It used to be, decades ago, that a bank was a friendly loans officer who actually knew the borrower and indeed usually knew the borrower’s whole family and all the stories of that family. The loans officer cared. The loans officer was a member of the community who knew the borrower outside of the banking interaction. Today, such a caring connection is gone. A borrower is a number. A loans officer has quotas and rules. Indeed, ATM machines these days can actually process mortgage applications. With the caring guidance of a money-wise banking mentor absent, dire financial consequences ensue both to unaware borrowers and imprudent banks.

Next on our list: advertising. Advertising has become insidious, ruthless and ever-present. With data mining as an entire industry these days and with advertising hiding behind such new-age masquerades as “buzz marketing” and “social networking”, people have less and less ability to protect themselves against advertising. People now are bombarded with the lure of lots of bright shiny objects and are falling to such advertising attacks. If an advertising campaign does not lure enough people, it is scrapped. If an advertising campaign does work, it is NOT reused. Rather, it is “split-tested” meaning that it is reused partially and changed partially. Then the two slightly different ads are compared. If the slightly different ad works better, then the process continues, making the ads cleverer and cleverer and more and more irresistible.

Finally, and perhaps most importantly, there are no counter-balancing forces. There are no huge advertising campaigns encouraging prudence in spending. There are no giant media blitzes promoting wise savings. There is no funding for marketing extravaganzas to sell carrots – but there is lots of money to sell sugar-filled drinks, fried foods, expensive do-dads, name-brand this-and-that’s, etc. With billions cleverly spent to woo you to spend on what you may well not need and cannot afford and nothing spent on the other side, it is no surprise that you overspend and arrive into debt.

So what’s the cure for debt?

How do you get out of debt?

I intend to be writing more about this in the coming days, because I feel it is an epidemic and someone needs to do something to stop this tragedy now.

I can tell you this much: the answer is not in some “big government” solution or more regulation. The solution is much more personal, and it starts with harnessing your own Inner Consumer.

Before you can do that, you have to pass through several levels of awareness about your debt. More about that next time. For now, I’d love it if you would share your thoughts – and maybe your questions – about debt and how to get rid of it once and for all. Please share in the comment section below.

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35 Responses to “Debt – How You Got Into it and How You Can Get Out of It”

  1. This article rings SO TRUE, it really makes a lot of sense, I hadn’t thought of how these things are & how they affect people. My credit card has been my main issue as I virtually ‘lived-off-it’ while bringing up my sons (esp. during their teenage yrs). Although I do keep a fairly strict account of the spending and payments these days, it still does seem that I’m ‘just getting by’. I look forward to viewing your next article on this subject.

  2. Raymond, I need everything you are telling us! I will soak it all up like a sponge and come out a winner.

  3. last week our class held a similar discussion about this topic and you point out something we haven’t covered yet, thanks.

    - Laura

  4. mm. attractive text!

  5. This is such a great resource that you are providing and you give it away for free. I enjoy seeing websites that understand the value of providing a prime resource for free. I truly loved reading your post. Thanks!

  6. As usual Raymond, you have, and give, good insight.

    I found many years ago, thanks to a great advisor at that time, that as you say, “Pay yourself first” in very important. I probably didn’t think so at the time, but have understood it as I aged.

    Even though I wasn’t sure, I started to commit just 1% of my income into an account, and then ‘forgot’ about it. I was not making big money and one dollar of a hundred earned didn’t seem like a big deal. At the time it was like 70 cents a week!

    After a year, I had maybe $35 in the bank. Big deal! But the habit had been formed and I decided to make it 2%.

    Over time it became 3%, 4%, 5%, 6%, and 7%. Somewhere about here I came to a realization of what was actually happening and I had enough to buy into my first RRSP.

    I try to advise and mentor my juniors to ‘pay yourself first.’ This had been a great key for me. And when you see a reserve, your mental attitude changes for the good.

    I also advise greatly against consumer debt (not so much so against investment debt), but that’s a story for another time.

    Raymond, thanks for your mentoring, knowledge, and advise.

  7. I find the use of a Prepaid “Credit Card” one way to control spending. You can’t spend it if it’s not there. You can use them almost anywhere a credit card can be used including online.

  8. The “Hollywood” version of how life is supposed to look seems to be another culprit in the debt problem. Young people think that they have to have high-end everything today. And then there is the high cost of emergencies, not to mention a tax structure that keeps the lower income population poor. It seems like you need a massive surge of energy to break through the debt oppression.

  9. Thanks Raymond, as always very helpful, practical guidance.
    I have found this works – Always pay yourself first consistently no matter how small, start eliminating one debt at a time, starting with the smallest figure, and spend less than your income.

  10. I wanna get out of debt before i retire.

  11. Your points are completely valid, however, the value to be derived from this information is simply to be aware of it, not to use it as an excuse. Saying “It’s the fault of the advertisers, credit cards, and banks” may make people feel better, but it doesn’t help until one takes ownership of his or her own lack of self-control when it comes to spending what one doesn’t have.

  12. Great article! Debt is always blamed on the individual, and those of us with debt are lugging around huge guilt issues. Of course we need to take responsibility for our personal finances, but your article puts this into a larger context and has changed my perspective on the situation. No longer feel that it’s just me, but am part of a social issue. Looking forward to your next post. Thank you

  13. One of the reason that people get into debt is because they want everything fast,they are looking for quick money and not prepare to work for it so they end up in spending money in credit card in courses but no action. When no action is taken , there is no income and just expenses on credit card. Every teacher is saying action is necessary but many people are still doing the same thing. They just need to sit back and think more and do something to get result.
    Think…… and Grow Rich…

  14. Hey Raymond – thanks for this – so vital.

    I found that the biggest mistake I made was conning myself into seeing a credit card as ‘backup money’, but the stress was doubled when I ran out of real cash and maxxed the credit card.

    I found that the simple act of removing the credit card from my wallet was both empowering, and scary. Sure enough, within a week, my car broke down and when I reached for the credit card to pay for repairs, it wasn’t there. I was both relieved and stressed.

    This one incident made me realise how easy it was to pay big bills on credit, but paying with cash made me ‘connect the dots’ as you mention. I’m grateful to be able to say that I passed this test from the universe without resorting to credit.

    Knowledge is power, and I look forward to more from your next article.

    Thank you!

  15. Am 100% ready, yes this cancer need to be killed in me as soon as possible to prevent further damage.

  16. Debt is simple to not get into. But you have to practice denial more than anything else. It is a matter of focus.

  17. Hey Raymond,
    What a timely topic. After recently realizing how much *interest* I had accumulated on my cc debt this year, I’m totally committed to erasing my load of debt! Interestingly enough, money has been tight, which was the excuse that I had used to keep pulling the cc out, so I’d “have enough cash.” Such an illusion! Now that I’m living my life on a cash basis, it seems like I have more than ever!
    Keep writing,
    C

  18. Raymond, you are so correct – financial responsibility and success do start with an awareness and knowledge of how to harness one’s own inner consumer. I look forward to future posts. This is certainly a subject that affects many of us.

  19. I believe we need to start becoming solvent by finding as many ways as possible to spend less on the little things that seemingly won’t make a lot of difference as God can reward faithfulness. When the debt is so huge and there seems to be no solutions we need to remember that “My God will meet all your needs according to his glorious riches in Christ Jesus” Phillippians 4:19
    Also “Seek first the Kingdom of God and his righteiousness and all these things shall be added unto you: Matthew 6:33

  20. Raymond, thanks. But hurry and write the next blog posts. We need solutions. Marilyn thanks for outlining how easy it is to get into deadly debt. Yuri, get a debit card. Chop up the credit card. We’ve switched and it’s a great feeling when paying something on line or wherever to know you’re paying with “real” money.
    My husband teaches kids – Raymond do you have a course already invented to help teach kids these things before they’re drowning in debt?

    And Raymond, what’s the bigger hope picture to cure the infection?

    Without it costing more of the life blood of those infected?
    Is there a cure without it plunging the infected further down the spiral of death/whoops, debt?

  21. So True. The only way to really make it personal is to track expenses on paper (or by using a portable electronic device) and to carry it with you at all times. Every time you do an expenditure, record it at that moment, and then keep and file the receipt.

  22. I agree with Rodney. Let’s start with preschool all the way to grad school. It’s our future!

  23. I’m always fascinated with what you have to say about debt, planning, prosperity, etc. I find your solutions very practical and down to earth. Thanks Raymond.

  24. You make some very good points. However, most experts are ignoring the increase in “survival debt”–the credit card debt that comes when people use plastic to pay for necessities due to job loss or reductions in pay. When I work with people, most really want to live within their means…but what happens when you suddenly have no means? Even the frugal cannot live on savings forever in a dismal job market. Just a thought to add to the mix.

  25. One reason I’m in debt is attending seminars and then buying courses that promise to teach you “to become rich”. When attending these seminars, they give you a special for that day only.

    Some courses I have bought have been scams.

    In 2008 I attended a seminar and the presenter was selling an internet product and promised to come to my city in 2009 for a free “three day course” to learn how to use it. You could learn the course online as well but I bought the course as I learn better in a group setting where I can ask questions.

    The presenter reneged on his promise to come in 2009 and they are not coming in 2010. I just received an e-mail saying they won’t be doing any more free 3 day courses after August 2010 and I don’t have the vacation time to go and would have to travel to the US and spend travel and hotel time.

    I was at a seminar this year and the same presenter was presenting a new internet product he launched. My friend bought it and had 3 days to return it. After doing due diligence and research he found out that there would be extra fees aside from the expensive product itself and there would be yearly expensive renewal fees. This WAS NOT MENTIONED IN THE PRESENTATION. He cancelled within the 3 day time limit.

    I know education is important but BUYER BEWARE!! and do a BBB search or another search of the vendor.

  26. If the awareness grows Can we develop self-control in the use of credit cards or what to do because sometimes I need to buy books from USA via Internet and I can´t use cash just credit cards so I need to have al least one credit card?

    I agree with the marketing plague but I think that we need more awareness and how can we develop self-control to avoid this kind of inevitable plague?

  27. I am very debt averse as I grew up in a home where money was tight. I do fall for some of the advertisements and go shopping but then I get what I call purse string paralysis and more often than not I walk away. It has paid me handsomely and I’m not in debt.

  28. Hey Mick (second post)
    The Glowfactor session we did seems to be working. Not only have u stopped smoking but now u got Raymond for the money side. Strange how this works.Through following Raymonds excellent Monthly Mentor I get my Glowfactor formula together, you become a client, and from there you find Raymonds money advice. This stuff definately rocks.
    Thanks Guys

  29. Amen to all of these. Each one is challenging no matter how old you are. Looking forward to finding answers for getting out of debt, gracefully.

  30. You hit it right on the nail. Bad debt is much more than spend what you don’t have and not being responsible. It’s much more deeper then that. I am a assistant organizer for a women money managing group for the past year and I have a lot people joining the group but not coming to the meetings. I think it’s because of their embarrassment about their debt. The reason I am organizing the group is because I know it’s not about money, and I know when you have more than one person working with you, who was in same situation or in the same situation as yourself to help overcome your debt;your bound to succeed and then you can take it to another level. I believe that helping others is helping yourselves.

    Thank you Raymond and stay blessed.

  31. At first its an easy convenience, then it becomes psychologically okay to not pay it all off every month, then it becomes okay to spend more and more, and then you are over your head. Its the idea of slipping a little at a time before you realize how far down the debt ladder you have fallen.

  32. So true. High school kids and college/higher education students should be made aware of this as well. So there Raymond, that’s an idea for you. It won’t hurt to spread the word to those who will be embarking on the job market in the near future. I am doing the same.

  33. Raymond, you are so right! The worst part is when emergencies are the main expenditure – you can’t plan for them, always, and sometimes the only way to handle the situation is to charge it.

    I was careful, then the car needed to be repaired, my property taxes came due during a slow work month, doctor bills outside of my monthly bills, roof leaks, etc. it just snowballed over several years.

    Then, the recession hit and I lost my job! Now, I’m not sure which is worse, not being able to pay my debt or knowing if I got a job tomorrow, I’ll be spending years paying off the interest and late fees.

    Even the banks are guilty of not handling their finances responsibly!!

    We need advertising about responsible spending! And, at an equal rate as the irresponsible spending ads. We also need jobs. ;)

    Looking for to your other posts.

  34. Am I just making excuses if I use a debit card?

  35. Great. I’m ready!