Psychology of Debt: 4 Steps to Quit the Credit Card Debt Cycle For Good

In today’s episode, you’ll learn how to break the credit card debt cycle. I've been there myself, spending most of my 20s and early 30s in credit card debt. But now, I want to teach you how to break free from this cycle for good. If you're tired of running a balance on your credit cards and not making the progress you want, this episode is for you. I'll walk you through the mindset issues that keep you stuck in credit card debt and give you a step-by-step process to break the cycle and use credit cards in a way that actually improves your financial situation. Let's get started on your journey to financial freedom.

Key Highlights

[00:00:00] Introduction to debt cycle and personal experience with credit card debt 

[00:01:50] Mindset issues that keep people stuck in credit card debt 

[00:02:04] Believing that you don't make enough money to support the life you want to live

[00:03:29] Thinking that you'll worry about paying off debt later

[00:04:38] Believing that living within your means will make your life miserable

[ 00:06:45] Step-by-step process to break the debt cycle and get out of credit card debt

[00:06:45] Stop using credit cards completely

[00:08:44] Make minimum payments on your credit card until you have $1,000 to $5,000 in an emergency fund

[00:10:12] Create a sustainable debt payoff plan by allocating money for bills and monthly spending, and focusing on paying off the highest interest card first

[00:12:51] Get creative and find ways to make additional debt payments, such as selling unused items or adding extra income streams

Notable Quotes

• You get to decide what is enough for your lifestyle and adjust accordingly. So this thinking that you're not making enough is just simply keeping you on the overspending cycle. 
• The moment the money is in there, your brain just goes to, how should I spend this? And what should I buy? Because you're not used to actually having money. I want you to learn how to have money in your bank account.
• Start looking at some of the benefits that you will truly experience in your life when you learn how to get your debt paid off and begin to live within your means.
• There are so many additional benefits to debt payoff that extends so much further than just a zero credit card balance. It is actually learning how to be the person that you want to be with money, how to make more money and how to use money more intentionally for your life.
• The outcome of [continuously carrying credit card debt] is so much more negative than just learning how to create a life that you live within your means
• Your stress will go down. Your quality of living will go up. You'll begin to trust yourself more.

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Transcript

0:01

Hello and welcome to the Holistic Money Podcast. I'm your host, certified financial planner and money mindset coach, Whitney Morrison. Over the past seven years, I've taken myself from credit card debt and no savings to a seven figure net worth. I did this without a budget or a restrictive money plan, but instead smart, sustainable wealth building strategies combined with changing my relationship with money. In this podcast, you'll learn the ins and outs of my no budget philosophy, practical wealth building strategies, and key mindset shifts to make it happen. There is no shortage of information out there to tell you what to do with money, but teaching you how to think and feel about money, that's my secret sauce. If you've been waiting for a podcast that gives you actionable strategies to not only build wealth, but also feel really good while you're doing it, then you're in the right place. Let's get started. Today's episode is all about how to break the debt cycle. I am intimately familiar with debt. I spent most of my twenties and early thirties in credit card debt. In today's episode, I want to teach you how to start to break this debt cycle. for good. If you are someone who is consistently running a balance on your credit cards, you can't seem to make the progress that you actually want to make. I'm going to help you understand the mindset that's keeping you stuck in credit card debt, as well as the step by step process to break this cycle and use credit cards in a way that actually help your life instead of hurt your financial situation. Let's start by talking about what is the debt cycle and why you are stuck in it. So the debt cycle is when you're consistently using credit cards to support your lifestyle habits And you aren't paying them off every single month So maybe you're someone who really likes the points and you put try to put most of your lifestyle expenses on there And then pay them off every single month, but you're not quite paying them off And you just keep holding a balance on your credit cards, or maybe you're someone who just likes to use your credit cards for those big trips, for travel, or for a big purchase. Regardless, if you are consistently carrying a balance on your credit card, then you are stuck in the credit card cycle, my friend. And it is an expensive cycle to be stuck in. I know from personal experience. So I want to talk with you about the key mindset issues that will keep you stuck In the credit card debt cycle, first and foremost, it is believing number one, that you don't make enough money to support the life that you want to live. That may not be a conscious thought that's going through your head, but I promise you, if you're consistently accumulating credit card debt. You do have thoughts that you're not making enough money. The only thing that actually defines enough is your personal actions and your personal decisions. So what I mean by that is you get to decide what is enough. for your lifestyle and adjust accordingly. So this thinking that you're not making enough is just simply keeping you on the overspending cycle. You reframe your thinking and you start to see how is the amount of money that I am making right now actually enough. For me to live not only my life, but also live a great life that I'm happy and fulfilled in. You're going to have to start to think differently about money and how you're using money and what is most important to you. So first and foremost, you got to stop telling yourself that you don't make enough money and start figuring out how to use the amount of money that you're making now and still make your life great. I want to tell you it is a hundred percent possible. The second mindset barrier that's keeping you stuck in credit card debt is believing that you'll just worry about this later, or that you'll pay off the credit card debt when you start to make more money, or when that vacation is over, or when your friend's wedding is complete and you don't have to spend money anymore. This was a huge deterrent for me to actually make any progress on my credit cards is because I kept telling myself, Look, I'll worry about this later when X, Y, and Z happens. And I just kept kicking my financial goals down the road. One of the things that this can do when you have this mindset is it can keep you from actually looking at your financial decisions. It gives you an excuse to bury your head in the sand, which I did for years. And I had to really learn how to start to look at my numbers so that I could be more intentional in the decisions that I was actually making with my money. And you're going to have to do the same continuously telling yourself that you're worried about this later, or you'll pay it off when you make more money or that thing that you have planned. You'll take care of your money after you get past that is only allowing you to not be really intentional with your money and allowing you to make a bunch of financial decisions and spending decisions that actually aren't in your best interest. the third mindset barrier that's keeping you stuck in credit card debt is believing that if you live within your means, your life is going to suck or that you're going to disappoint someone in your family or someone that you love by starting to tell them, look, I'm not going to spend money that way anymore. This was a huge thing in my life for a long time. I really believe that if I lived within my means that I was going to be miserable and that life wasn't going to be as fun and I wasn't going to have as cool of clothes or get to do the things that I wanted to do. And in turn, I was going to be more depressed or generally less happy. But this could not be further than the truth, the amount of stress that you feel every single month carrying this credit card debt and continuing to overspend and continue to take those trips and vacations that you actually can't pay off on your credit card every month, the outcome of that. That is so much more negative, the credit card debt and the stress that you experience than just learning how to create a life that you live within your means so you actually start making progress towards your financial goals. When you start to have money in your bank account, when you start to have investment accounts that are growing, when you start to experience the freedom and the security of having money, your whole life will begin to change, your stress will go down, your quality of living will go up, you'll begin to trust yourself more. All of those are... Experiences are so much more valuable than a trip to the Bahamas or a new pair of shoes or a really nice car or buying your kid top line birthday presents that you know that they want. Start looking at some of the benefits that you will truly experience in your life when you learn how to get your debt paid off and begin to live within your means. This is going to significantly help you make progress and make decisions because you will see, Oh, this isn't going to feel bad for me. This is actually going to feel really, really good. Now that you understand the thinking that is keeping you stuck in credit card debt, I actually want to give you a step by step process on how to break this cycle and how to get out of credit card debt for good. Step one is to stop using credit cards. I don't care how good the points are, or the miles that you get, or the free hotels, none of that is worth bad financial management and continuously carrying a credit card balance and paying 25 and 30 percent interest on your purchases every single month. One of the things that we want to start to help you do is learn how to live on the current amount of money that you're making without using credit cards to overspend. So this means if you have recurring bills on your credit cards, time to take those babies off time to just pay those directly from your bank account. Go through your computer and delete all of your auto fill for your credit cards. So no longer can you have those one click purchases and very easily buy something with your credit card. Take the credit cards out of your wallet, put them in a cup of water, put them in the freezer so that they're less accessible and less. easy for you to use. The purpose of this is to get credit cards out of your immediate reach, take away the convenience, set up external systems to enforce the internal goal of stop living on credit cards every month. Quick side note here, I do not want you to close your credit cards. And the reason why I don't want you to close your credit cards is because this can negatively impact your credit score. So closing credit cards, especially with high credit card balance, Can increase your credit utilization rate, which in turn will decrease your credit score. So let's not close any credit cards for now. Let's just stop using them every single month to pay for your life. Step number two is to only make minimum payments on your credit card until you have at least one to 5, 000 in an emergency fund built up in a savings account in cash that you can easily access that money in the event that you have a financial emergency. For some of you, this may be a really difficult action to take. And the reason why is because you're very used. It's to living on a low amount of cash and putting most of your income towards your credit card payments. But the issue when you do that is that you're not leaving yourself enough money to actually spend on the things that you need to spend on buying your groceries, your gas, paying your rent, all of your bills. You have to make sure you're leaving yourself enough money to pay for your fixed expenses and those things that you just got to pay for every month and then start to make those minimum payments on your credit card while You're learning how to save while you're learning how to develop a relationship with actually having money in your bank accounts for some of you Having money in your bank accounts actually feels like an issue, right? The moment the money is in there your brain just goes to how should I spend this and what should I buy and what? Should I pay off because you're not used to actually having money I want you to learn how to have money in your bank accounts plus in the event that you have an emergency You have cash that you can use instead of having to revert back to these credit cards. So if you don't already, you want to make those minimum payments on your credit card and build up an emergency fund. If you do already have an emergency fund with at least one to 5, 000 in it, then you can skip this step and go right on to the next step. Step number three is to create a sustainable debt payoff plan. So this does not mean that we are just going to throw a random amount of money towards our credit cards every single month, cross our fingers and hope that we left ourselves enough money for our lifestyle. Because what happens when you do that, like I said, is that you're often Put yourself in a pickle and you have to use your credit cards again because you didn't leave yourself enough money for your life. So instead of building a debt payoff plan where you think about your debt payments first, as it comes to your financial priorities, I want you to start by looking at how much money do I need to make sure that I have for my bills every single month. Remember your bills are your fixed expenses that you have to pay on a monthly basis, no matter what happens. Think your rent, your mortgage, your utilities, your cell phone bill, your internet, your cable, your subscriptions. Those are the things that you automatically pay for no matter what. You got to make sure you have enough cash for those because if you don't, you're going to have late payments or you're going to default on your car loan. And we just can't have that happening. Next thing that you want to do is you want to allocate a specific amount of money for your monthly spending. This is things like grocery, gas, entertainment, going out to eat, spending time with friends, however you like to spend money in your day to day life. You want to make sure that you leave yourself enough money to actually do that for the entire month. Anything above that, above and beyond that is what we can put towards our credit card debt. When it comes to creating a credit card debt payoff plan, I always suggest starting with the highest interest card first. So this is where you want to put the majority of your additional payments and every other card. You can go ahead and just make minimum payments until you get the highest interest debt card paid off first. After that card is paid off, you can apply the entire payment that you were putting towards that high interest card towards your next card plus the minimum payment that you're currently making. This is called the debt snowball method. Some of you may be familiar with this, but this is how you get maximum efficiency with your dollars. So you make sure that you're putting your dollars towards highest interest rate debt first. This saves you the most amount of money in your credit card debt payoff plan. You just continuously move down the line and pay off each card in order of the interest payment. Step four, and the last and final step in breaking your debt cycle, is to start to get creative on how you can make additional debt payments to your credit cards. So I know you've already identified the amount of money that you can put towards your credit cards from your current income, after you've paid your bills and you've given yourself a certain amount of spending money each month. But now I want you to start to get creative on how you can make additional debt payments. With every single big debt obligation that I've had, whether it was my student loans, my credit card debt, my HELOC that I took against my house, I've always managed to gamify my debt. And what gamifying my debt means is that I will look for any opportunity to make a little bit of extra money so that I can make extra debt payments and get out from under my debt as quickly as possible. I look at my debt very often. I don't look at it from the mindset of, Oh, I can't believe I have this debt. It's going to take me forever to pay it off. Because with that mindset, Debt starts to feel very heavy. It starts to feel very hard. Instead, I make sure to look at my debt and think, how can I pay this debt off as quickly as possible? What are some creative things that I can do? I have sold things in my home that I no longer use, and I will put those towards my credit card debt. I've added additional income streams. Like for example, I have Airbnbs. I started selling S'mores and chips and eggs and beers and seltzers and all of that income I have used towards paying off my HELOC debt when I was paying off my student loans, I ended up starting teaching exercise classes at 6am before I went to my job and all the money that I made from my exercise classes, I would put directly towards my student loan debt. So I would just look around to try to find any New ways that I could make money so I could pay off that debt as quickly as possible and for me that felt so Good to gamify my debt and constantly check in and make a little small payments with Amounts of money that I brought in so I could get the debt paid off as quickly as possible because once you do You have accomplished a lot more than just paying off your debt. You have actually learned how to have good financial habits. You've learned how to be consistent with spending your money in a way that actually supports your financial goals and the life that you want to live. There are so many additional benefits to debt payoff that extends so much further than just a zero credit card balance. It is actually learning how to be the person that you want to be with money, how to make more money and how to use money more intentionally for your life. So there are so many benefits to this. All right, y'all. I hope you enjoyed this episode. If you have any questions on paying off your debt, please leave them below. I will get back to you as soon as possible. If you love this episode, you think someone could benefit, send it to them. I love when you share the holistic money love. If you liked this episode, leave me a review. You know, I love hearing from you. All right, y'all have a great week. I'll see you in the next episode. Have you ever built a budget, but within weeks felt exhausted by the spreadsheets, the upkeep, or the restrictive spending categories? If so, you are not alone. Budgeting has never worked for me, so I created a new way, money mapping. Money mapping has all of the things you need to be successful in your wealth building journey. It's simple, organized, and automated, but most importantly, it offers a completely new way to relate to money and manage it in your life. If you're ready to kick off your no budget strategy for building wealth, sign up for my free money map training at www. holistic money. com forward slash money map. Here's to building wealth with ease.