No More Denial: Coming to Terms With Being in Debt

Debt happens. For better or worse, it has become an undeniable part of modern American life. It can be unintended debt, such as medical expenses, which a recent study by the Kaiser Family Foundation and New York Times found affected nearly one in four adults ages 18-64 in the United States. Or it can be intentional debt, the kind many of us go into voluntarily in order to buy a home or car or pay for higher education.

The latest numbers (as of this writing) from the Center for Microeconomic Data indicate that household debt in the U.S. achieved a new peak the first quarter of 2017, reaching the $12.73 trillion mark. As more and more Americans borrow money to fund their way of life, it’s clear that developing a sound strategy for meeting our financial obligations is becoming a necessity.

But before taking steps to better manage your debt, you must first acknowledge it’s something that actually needs managing. This is where the Kübler-Ross model, which deals with the five stages of grief (denial, anger, bargaining, depression, and acceptance) can be helpful—particularly in working through the first stage: denial. For it is denial that keeps many people struggling with debt from ever taking the necessary steps to actually do something about it.

Distinguishing Denial

How do you know if you’re actually in debt denial? If you’re hiding your debt level from loved ones, your spending continues to outstrip your means, you’re losing sleep worrying about what you owe—all the while trying to convince yourself everything is under control and things will take care of themselves—you’re likely hiding from the reality of your financial situation behind a wall of denial.

Denial Defends but Demotivates

Initially denying your debt situation actually makes sense because it serves as a defense/coping mechanism to protect you from being overwhelmed by it. As an online Mayo Clinic article on denial explains:

"If you’re in denial, you’re trying to protect yourself by refusing to accept the truth about something that’s happening in your life. In some cases, initial short-term denial can be a good thing, giving you time to adjust to a painful or stressful issue."

But there’s a downside to denial as well. If you wallow in it for too long, it can prevent you from taking the required action to improve or even fix your situation. By refusing to acknowledge you have too much debt, you may be able to convince (a.k.a. fool) yourself that it’s perfectly fine to keep on spending, borrowing, and financing purchases with credit cards and/or loans instead of paying down balances—the very behavior that likely contributed to your current financial situation in the first place.

Just the same way a morbidly obese person in denial about their weight might question the accuracy of the numbers on the scale, you may try to convince yourself you couldn’t possibly owe as much as you do. But numbers don’t lie, and the sooner you stop trying to convince yourself you don’t have a debt problem, the sooner you can take action to do something about it.

Acceptance Leads to Action

We skipped a few stages of Dr. Kübler-Ross’ model to get to acceptance, but that’s because all other stages lead there, which is where action can take root. Accepting your situation does not mean you’re happy with how everything went down or that you’re okay with having so much debt. Rather, it means you’ve surrendered to your financial situation, and now you’re ready to tackle it head on.

Deciding to take action is a step in the right direction, but taking the wrong action could actually be worse than doing nothing. For example, taking out a high-interest, short-term loan to pay down debt could end up putting you deeper in debt. Or, if it’s a car-title loan, it may even result in losing your transportation to and from work. But there are a few steps you can take that have proven track records in helping people just like you better manage their debt.

1. Accurately Assess Your Situation
You can’t fix something unless you have a clear idea of what needs fixing. So sit down, list your creditors, and write down an accurate accounting of how much you owe each one. Also figure out how much income you’re bringing in each month, how much you’re spending on other necessities, and how much you can afford to cut from other areas to apply toward paying off your debt. In other words, make a budget and stick to it.

2. Change Contributing Behavior
You already changed your behavior by ending your denial and acknowledging you have a debt problem, so doing the same for behaviors that got you there in the first place is the logical next step. If shopping for items you can’t afford and putting them on your credit card gives you an endorphin rush, consider a financially—and physically—healthier option like exercise. If paying bills late has added unnecessary late fees to ever-growing balances, think about setting up auto-payment options or devising a system of reminders to make sure your payments are received on time.

3. Prioritize Your Debts
If you’ve got $10,000 worth of student loan debt that you’re paying 4% interest on, and the same balance on a credit card that’s charging 20% interest, you’ll save a substantial amount of money by paying down the latter first. By going through your debts, comparing the interest rates, and concentrating on paying down higher-interest balances, you should also make a bigger dent in your debt quicker.

4. Go for Lower Rates
Some credit card companies may lower your APR (annual percentage rate) if you give them a call and explain your situation—especially if you’ve been a good customer over the years. And you have absolutely nothing to lose by asking; worst-case scenario they say no, and you’re no worse off. You may also be able to do a balance transfer from a higher-interest credit card to a lower-interest card. 

If student loans make up a big chunk of your debt, you may be able to consolidate your loans at a lower interest rate or even apply for an income-driven repayment plan.

5. Increase Your Income
Cutting spending is not the only way to get more money to pay down debt; bringing in more income accomplishes the same thing. Of course, doing both is the most effective plan of all.

While earning extra money working overtime or taking on part-time work are straightforward options, there are also less-obvious ways to bring in additional income, such as turning a hobby into a source of income.

6. Seek Credit Counseling
You don’t have to do everything on your own. In working with a reputable credit counseling agency, they’ll help you develop a budget and work with lenders to try and get fees waived and interest rates reduced.

If your debt is severe enough, they can even help you enroll in a debt management plan (DMP), a systematic program for paying off your debt in three to five years. But “reputable” is the key word when it comes to credit counseling organizations, so be sure to consider these FTC guidelines and questions during the selection process.

Make a Move

In today’s debt-heavy society, properly managing your debt is a major component of maintaining and improving your financial situation. Along with the above-listed suggestions, you might also consider the following:

• Make a concrete plan for staying on top of your credit card payments.

• Become familiar with the facts and myths of improving your credit score.

• Develop and implement strategies for achieving your financial goals.

Before you can take any action to improve your debt situation, however, you must first come to terms with the fact you actually have one. For, as Mark Twain so eloquently put it so many years ago:

"Denial ain’t just a river in Egypt."