To reduce and eliminate consumer debt, you have to think in terms of multiples of threes:  Plan to earn three times as much money as you have been over-spending by; plan to reduce your expenses by three times the amount you have been over-spending by; and plan to have it take three times as long to eliminate the debt as it took to accumulate it.  If this seems like a daunting, impossible task, then you need some new strategies, because when you try to sacrifice for too long, you will eventually set yourself up for failure.

How do you move beyond the debt? You need to set a goal, discover the reason for moving beyond the debt, and determine what the rewards along the way will be

So much of personal finance discussions are focused around making money and accumulating a large sum for a distant date many call retirement. Along the way, and after this magical date, there is also this focus on making sure there is enough money and that you don’t run out. This accumulation model combined with ‘funnel’ thinking is the perspective that creates the added stress when making any sort of financial decision. There is always this thought process that says something to the effect of ‘will I have enough?’

The secret, of course, is to shift the perspective sideways so the focus is more horizontal. On a day-to-day basis, there are some very practical things you can do to help change your perspective to one of possibilities rather than fear of not having enough. Like what you ask? Quite simply by recognizing that whenever you shift your view, you also shift your perspective.
This means that if you are currently sitting while you are reading this message, if you shift your view to read it from a standing up position, then recognize the power this action has on how you see the information. Whenever you change the temperature, your location, your body language of any sort, you are also shifting your perspective. And, recognizing the impact this has on your energy levels at the time will also help you reinforce the importance of seeing all things from a different perspective – including financial decisions. When you are looking at your finances from a vertical perspective all the time you are inadvertently adding stress to your situation that can be minimized with a simple shift in how you look at things.

You know, money stress is such a funny thing. The only time we hear about it or think about it is in severe circumstances like when someone is getting a divorce, or married or in the case of death. For some reason, it seems socially acceptable to talk about it then. But otherwise, very few people want to admit that they have questions or issues. It’s such a taboo subject – very few people even want to admit that they want to learn. No wonder we have difficulties with financial education.

What is the answer? Well, I think we have at least part of the answer – providing information that is about wealth building on a day-to-day basis by teaching people how to spend money to get wealthy.
In case you haven’t caught on yet – I am not a fan of cutting back spending. There are two sides to the equation – spending and earning – it’s irresponsible to say ‘live within your means – spend less than you make’ without also looking at the other side which is ‘earn more than you spend’. Creating wealth and the infamous ‘quick fix’ seems to be generally accepted, but anything to do with learning day-to-day money or how to handle money stress is very much off limits in the water cooler conversations that happen thousands of times a day.

There are a few (well maybe more than a few) commonly accepted personal financial management concepts that actually help fuel money stress, rather than minimize it. Budget is one of those concepts. If your concept of budget is something that you use to determine how much of the money you have goes to what purposes, then you are trying to put your money in a box. When you do this, you automatically adopt a very restricted attitude about what you can and cannot do with your money. This will in turn reinforce scarcity and lack because every time you are spending money, you will be evaluating the decision against whether you have enough available in the budget to buy the thing you want to buy. This might sound prudent, and obviously a balanced budget is prudent, and not spending money you do not have in the budget is also good financial management. The problem is created when you make your analysis based on running out of money in that budget category.

This is also the reason why the accumulation model of retirement actually creates the fear of running out of money. If you have an attitude of ‘I might run out’ because you essentially are looking at your money as though it is a funnel running out the bottom, you will make your decisions from the perspective of ‘will I have enough and I better add more to the top so I don’t run out’. With the conventional concept of budget, every time you spend money, you are evaluating your decision based on the ‘will I have enough’ model, and therefore constantly reinforcing fear and scarcity. Instead, you need to adopt the attitude of ‘earn more than you spend’ rather than spend less than you earn and you will be reinforcing a world of possibilities and confidence in your ability for your financial decisions to meet your needs.

Having access to credit is a powerful wealth-building tool. Getting out of debt is not a goal you want to make because when you focus on what you don’t want, you are reinforcing the negative. If you focus on cutting back and sacrificing, you are missing the opportunities that come from having access to credit. Most times, the reason for thinking that getting out of debt is the solution is because reducing payments will provide more opportunity for current cash flow. The increased cash flow will come from eliminating the debt payments as well as the interest expense on the debt. In theory, this makes sense. However, it completely misses most of the benefits you get from the credit. Outstanding debt is a great indicator of the true cost of your desired lifestyle. If you focus on eliminating debt so you have more money to spend on your lifestyle, you miss the fact that you have already been living a lifestyle that is more expensive than you have income to pay for. If you also take the stance that you are going to pay off outstanding debt and pay off the loan or credit cards so you don’t rack up the debt again, then you have essentially told yourself that you don’t trust your ability to make good financial decisions, that you don’t deserve the lifestyle you want and that the discipline you just demonstrated in paying off the debt isn’t worth anything because you won’t be able to use that same approach to expand your finances. Finally, if you pay off your debt and close out your accounts, you can also be negatively impacting your credit score. So all around what seemed like a good idea is in fact one of the worst financial strategies you could have.

What is the focus for debt then? Learning to manage credit to maximize the benefit it has in being able to help you create wealth is your overall goal. The focus, when it comes to debt and credit, is the same as it is with all of your finances: how can you use your income and resources today to create income so you can live the life you want to live today as well as in the future. Your focus with debt is to create income, and when you have enough income to live the way you want to live, the credit and debt will take care of itself.

Debt is neither good nor bad – it just is. You just have to realize the benefits you have received as a result of having access to the credit. But, having said that, rather than considering whether you should pay off or reduce debt, you can also consider whether rearranging it might be more effective. For example, if you currently have a loan on a car, which is depreciating the asset with perhaps little or no tax savings on the interest you are paying on the loan (check with your accountant about details for your personal situation), you will do so better long term to rearrange your debt to invest in assets that will increase in value, provide regular income, and enable the interest on the loan to be tax deductible. When you look at the whole picture, you are looking at using available cash to increase your income; looking for ways to maximize tax deductions and credits; and looking to use existing income to maximize your whole financial picture. This is also one reason why the question above, whether it’s better to lease or borrow to finance a car, is not a simple stand-alone answer.

How would you decide if this is possible? In order to make decisions, you need to have a complete picture of all your assets and liabilities including the following details, which you can then work with a financial professional to arrange efficiently for your unique set of circumstances and goals: amount of debt, amount of credit available, payment amounts, payment dates, pre-payment penalties (if any), investments, other assets, and current and future cash flow requirements.

Not all debt is bad. When you distinguish between credit used to fund the purchase of something that will increase your wealth and debit created for disposable items, you are empowering yourself to make informed financial decisions.

Why is referring to credit use as “bad” keeping you locked in debt? Judgments like this will translate back to yourself and you will end up feeling like you are a bad person with no discipline or self-control. This sort of language and self-talk will end up creating a self-fulfilling prophecy – unless you can learn to turn your view around and use the debt as an opportunity to reflect on past expenditures you have made. Things to consider are: Why was the expenditure made? How much was spent? Over what time period were the expenditures made? What can you do about it? And, at the same time, always show gratitude for all the enjoyment you have received from the items and experiences that were purchased on credit and have created the debt. Look for ways to turn the debt into credit that will up your financial position.