subject: Recovering From A Spending Addiction [print this page] An individuals attitude toward spending is probably as responsible as any other factor when that individual gets into an untenable debt situation; and adjusting that attitude is probably as important as any other factor when getting out of debt. At a certain point, we all have to face our debts, a process that could mean personal austerity or debt consolidation. But as much as the financial situation needs to be fixed, the psychological situation has to be addressed first.
Not everybody gets into debt because of reckless spending. For many people, something happens that causes a financial hurdle that they simply cant recover from. For example, an unexpected illness can bring with it all sorts of medical bills. It can also make it impossible for a person to work, causing a temporary (or long-term) reduction in income.
And although political pundits have made a big deal recently about the extensions of unemployment benefits, collecting unemployment after being laid off hardly puts you in the lap of luxury. The unemployment checks only amount to about 60% of what your paychecks used to be; and if anybody had to suddenly take a 40% cut in their pay they would probably have to cut back a whole lot very quickly.
But while the original cause might be out of our hands, the way we deal with that is squarely in our hands. If we live below our means initially, and if were proactive about responding quickly to a setback by adjusting our lifestyle, we can weather the storm. If an individual is laid off, for example, and she cuts her monthly expenses by 40% right away, she wont end up buried in debt.
But most of us dont live within our means, let alone beneath them. (Just look at the debt position of the average American household for proof of that.) And most people dont respond to adversity by immediately changing their spending habits. When the average person is laid off, he is more likely to split the difference - cutting 20% from his monthly expenses and putting 20% on credit - than he is to practice real austerity. Instead of planning for the worst, we tend to hope for the best.
Theres nothing wrong with hoping for the best. Its actually good advice for life. We live with a certain amount of uncertainty in every area of our lives - professional, romantic, spiritual - and hoping for the best allows us to take the hundred little risks we have to take every day in order to live a rich and rewarding life. We wouldnt get very far if we refused to start a race unless we could see the finish line.
But hoping for the best isnt good financial advice. The world of finance is very black and white: either youre paying your bills, or youre not. And after a person has gone a few months putting part of their monthly expenses on a credit card, they will probably find themselves in a position they wont be able to recover from. Even if they erase the debt they have now, they wont improve their condition unless they change their habits as well.
This is why many organizations that handle debt consolidation also offer debt counseling for their clients. If youve gotten into an untenable position by constantly punting a certain percentage of your expenses down the road, you should probably start with counseling to figure out the psychological issue before even handling the financial problem.
