Bankruptcy: The Psychology of Debt, Avoid Going Deeper Into Debt!
The unvarnished truth is that many Canadians spend and continue to spend well beyond their means, in essence mortgaging their futures for the temporary convenience of the present. Simply put, as the world economic crisis continues to intensify, these same individuals find themselves in an increasingly precarious financial predicament brought on by years of unchecked consumptive habits.
What do you mean by debt psychology?
When you are in debt and you can see no easy way out people who are highest at risk of going bankrupt increase their odds of doing so by overspending. Many people when faced with a heavy debt load go into a state of denial or apathy and they start making poor buying decisions. Instead of tightening their belts and sticking to a budget to see their way clear of their debt they do the opposite, and spend more money!
Psychology of Debt?
We have recently seen that the psychology of money and it's mental, and very real, implication in our daily lives. In light of the recession and economic woes many are facing, I'd like to take that one step further and talk about the psychology of money problems.
Often times a person affected by the physiology of overspending start looking for that emotional high and begins engaging in thrill seeking behaviour like overspending, buying big ticket items etc. Basically, doing something that feels good in the moment but has harmful repercussions later.
Of course it tends to be a fact of life that emotions get tangled up in money. Look no further than recent recession/stock market news: in spite of the fact that most people KNEW there was a down turn in the economy, the stock market still plunged on the news of the recession.
Obviously honesty to ones self is important, and it's VERY important to be honest and not let the stresses, problems and temptations get in the way of finding your way out of debt! Learning how to work through your compulsions to buy, or learning to simply not take your credit cards shopping with you can go a long way solving your debt problems.
Do not fool yourself, paying your debt off is difficult!
It is difficult to keep your spending in check when day after day, week after week and month after month you put all of your available income on your debts only to look at your statement and find that you have made a small dent in your overall debt load. Many people do not have a realistic understanding on how long it takes to pay back the money they owe and when they try hard for a couple of months to get caught up they discover just how difficult this task is. If you owe $10,000 in consumer debt and you earn $5000 a month you cannot expect to have your debt paid off in a couple of months. On the surface it seems possible but in reality you have expenses that you have to pay off each month that erode the amount of money you can put on your debt.
$1,200 a month for rent/mortgage
$200 a month for electricity and heat
$200 for other utilities such as water, cable, and garbage pickup
$100 a month for house insurance
$100 a month for car insurance
$50 a month for car maintenance
$300 a month car payment
$500 a month for food
$200 a month for entertainment
$100 a month for clothing
$500 a month for school books, cloths, and extracurricular needs of your children
$200 safety net for unexpected problems
Now after you take income tax off your pay you are left with only a few hundred dollars to actually put on your debt. Even if you decide to remove your entertainment budget you will still take a long time to pay off your debts.
Another problem crops up when the debt is coming under control. The temptation is to treat yourself to something nice and totally unnecessary as a reward even though you cannot afford it yet. After months of being tight with spending and paying debts, the person will then revert back to their old poor spending habits and put themselves back into the same problem or worse!
To help prevent these psychological issues from arising, you must budget yourself some spending money. Ensure that you do not take too much money but also give yourself enough that you can see that occasional movie or go out for dinner once in a while. Once you have determined your spending money you must now stick to your debt repayment plan! Giving yourself some money will alleviate that depressed feeling people get when they are spending all of their money on debt without treating themselves!