When you have lived a life with high debt payments there can be a renewed appreciation when you are finally able to pay off the debt and no longer carry that burden. You know the weight of paying $600 a month for a car payment, $400 for student loan debt and another $1,000 in minimum payments on your credit cards. That $2000 could be building your retirement, paying for vacations, but instead it is going to banks and lenders with no end in sight.
You understand the despair that comes from feeling like you will never get out from under this heavy load. Debt is referred to as a “weight” because it depresses you, feels heavy and creates stress. You appreciate the struggle of freeing yourself from this debt.
It does not matter if the debt was negotiated for less than you owed or you paid off every penny plus interest and fees. If you have sacrificed and strategized on how to eliminate debt you can come out of these circumstances having learned some very valuable financial lessons along the way. Sadly too many consumers file bankruptcy, complete debt counseling, consolidation or debt negotiation, only to dig themselves back into a situation of overwhelming debt, because they don’t learn a few simple financial truths.
Learning financial lessons and appreciating the benefits of financial freedom can help you remain debt free and can change the way you look at money, spending and material possessions.
Lesson One: You Learned To Live Below Your Means. When you accumulated debt, you were spending more than you made each month and every month your financial problem got bleaker. Paying down that existing debt required you to live on less than you made so additional money could be put towards paying off the debt. If you had only made minimum payments for somewhere between 20 or 30 years you might never have been able to enjoy a debt free life.
After you sacrificed and scrimped to pay off the debt, you must continue the practice of living on less than you earn and take the opportunity to set aside money for retirement or building your rainy day account. Most who have carried large amounts of debt are behind on retirement savings and have minimum amounts, if any, in an emergency fund.
Lesson Two: You Developed Good Financial Habits Like Budgeting. Once you have finally paid off your credit card debt, you may have the urge to overspend again because you feel free. You may even feel “rich” because you have so much “extra” money that you haven’t had in so long. Though it may feel like you just got a bonus, if you begin overspending again, you will repeat the process you just struggled to get out of.
Maintaining a budget, even after you have paid off your debt, is the best way to remain debt free. Remember a budget is simply the practice of organizing your income in such a way that your most important financial goals are met. This could be buying something you want, saving or taking a vacation.
Lesson Three: You Gained Control Of Overspending By Establishing Priorities. You learned to set financial goals by cutting out all unnecessary spending and making debt elimination your number one priority. This may have resulted in very strict spending requirements to reach this goal. Sometimes when you deprive yourself of something for a long period of time, there is an intense desire to get it back. Like eliminating chocolate from your diet, instead of just cutting back.
If you eliminated all discretionary spending to get your debt under control, your spending may need to be re-prioritized to give yourself some breathing room. The easiest way to do this is to identify what your spending priorities are and then build a budget that works for your family. It may also include adding back a few luxuries you really missed during your spending freeze. Writing down priorities can solidify them and help you build a strategy for achieving additional financial goals. Financial freedom may not be complete when your debt is paid off, though it is a critical step.
Lesson Four: You Put a Little Away For Tomorrow To Prevent New Debt. It is impossible to predict every expense that will arise in your life and building an emergency fund is the answer to this problem. Instead of “charging” unexpected expenses you are now able to pay cash for them with the funds you have set aside. The temptation to charge your way out of problems, however, will still be there. Even if your credit was terrible for many years, as your debt declined, payoffs were made, and on time payments became regular, your credit score improved. This will result in credit card companies, car dealers and other lenders knocking at your door, tempting you to buy the latest and greatest.
Former alcoholics do not frequent bars if they don’t want to drink. If you have struggled with credit card debt in the past, carrying credit cards and adding debt may be more of a temptation than you are able to manage. Know your limits and set boundaries to prevent facing large debt balances again.
Lesson Five: You Learned To Communicate About Financial Matters. Fighting over money may not end with debt elimination if you do not learn to talk about financial matters. The ability to tell loved ones what matters the most to you and learning to create cooperative strategies to accomplish those goals can reduce sporadic and spontaneous spending. When you do not feel like you have control over other aspects of your life, it can be displayed in the form of overspending.
The best way to cope with the emotional side of money is to talk about finances honestly with someone who makes you feel safe. Someone who respects you enough to take it seriously and insightful enough to help you find alternatives that lead to healthier financial patterns.
Paying off debt does not provide a guarantee of financial freedom. If you have not learned these five key lessons you could find yourself back in debt again with the same struggles you just faced. Learning the lessons during the struggles can provide a lifetime of freedom from the heavy burden that debt presents.
Imagine having an extra $2,000 a month to spend on whatever you want. That is $24,000 a year in “found” money that could be yours if you did not carry the debt levels in the above example.
You then have the freedom to live on less, retire sooner, or work fewer hours. You may want to quit the job you hate and work in an area you will enjoy immensely even if it doesn’t pay as much. Maybe you will choose to maintain your income and set more aside for retirement or travel. Whatever your choice, you will have freedoms that are not available when debt becomes your master.