Learn About The Psychology of Debt and Avoid Bankruptcy!
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Learn About The Psychology of Debt and Avoid Bankruptcy! |
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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!
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 only to find that you have only made a small dent in your overall debt. 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.
For example,
$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
3650
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!