To illustrate, John have a $30,000 credit card debt and doesn't really seem to have a problem with it, whereas Jane is freaking out about carrying $3,000 in debt! We all react and behave differently.
Denial is when you have debt but it isn't having an impact on your life. For John, he may earn $250,000, have $50,000 in savings and could if he chose to, pay the debt off. Therefore he lives life not giving the debt a second thought.
This is OK, but being in denial over debt leads to inactivity and potentially wasted money. John may be paying very high interest on the $30,000 and earning very low interest on his $50,000 savings. Being inactive could also be costing him a lot of interest month after month!
In the end, denial is forgetting that things can change at a moments notice due to factors outside of your control. What if you lose your job, or a large unexpected cost came up? This $30,000 debt that wasn't an issue would now be one!
Distraction is when you only sometimes think about debt. Take for example the $3,000 credit card that Jane has. Her card is nearly at its limit and she would like to buy something else. Ideally, she should be thinking "Do I have enough money on my card?"
Having thoughts of debt is good. This shows you are conscious about it and may lead you to be more reactive in taking charge of repaying your debt. Distraction can lead to positive debt changes!
This is when the level of debt is totally overwhelming and you can't see a way out. It is keeping you awake at night!
It will be in your waking and sleeping thoughts, it will make you stressed and possibly grumpy, and it could lead to bad decision making in other areas of your life. We all have varying appetites of debt, and it does not matter what yours is. But, when you are distressed, you need to find solutions and move out of that state!
What are the steps you can take?
Now that you have acknowledged that you would like to be reactive about improving your debt position, what can you do?
Short Term Debt:
This is high-interest debt that has likely been used to buy items. You have many options;
- Consolidate the debt into one easy to manage loan
- Increase the debt repayment to pay it off faster
- Pay it off in full
This is generally lower interest debt that has been used to purchase property - Your mortgage. Many people set their loan on a 30 year term, but you could easily be restructuring the debt to pay more.
- Increase the loan term
- Increase the debt payment
- Decrease the interest rate, but keep your repayment the same as the higher rate
- You most definitely discuss this with a specialist adviser who may be able to help you save thousands in interest!