Reducing debt and freeing your life is more than a matter of having more money. Paying your way down to debt free is far more psychological than people realize. Understanding this concept is simple when you recognize this one fact: you probably feel guilty, and you shouldn't. Most people who have too much debt feel remorse. It is important not to waste emotional energy. It is essential to turn your mind to positive, rewarding ways to manage and reduce your debt. Here are a few ideas to help you change your mindset and regain control.
You are not a bad person because you have too much debt. As noted above, people spend far too much time beating themselves up for getting into a bad situation. The first rule is, "what's done is done." Your debt will not just go away because you feel bad about it. Nor are you somehow less than someone else because you might have to deal with bankruptcy (see below). Forget about this feeling bad nonsense and move forward.
Any contribution to reducing your debt, however small, is worth making. People making minimum payments on credit cards are repeatedly told what a bad idea that is. That may be true, but if you had more money we wouldn't be looking at this issue. There is an opportunity to take back a little control. You will be very surprised to see how much better you feel making more than a minimum payment on your cards, even if it is only one dollar you might have spend on McDonald's coffee. Take that cup of coffee you can make at home for less, and pay that one dollar extra.
The point is, change your attitude. You cannot feel good about this situation until you take a positive benefit from changing matters. The $1 per month extra on your cards is designed to give you a positive feeling about reducing debt. Take that and apply it to more significant opportunities. If you get a $20 give, consider putting $5 of it toward debt pay down. Don't be unrealistic - if you get some money in, you're going to want to enjoy it. But spending it (in cash) on things you might otherwise put on a credit card, and then paying a small amount on the card, is a double savings.
Most of the traditional wisdom is right. It is commonly understood that paying down principal, attacking higher interest rate debt first, not replacing unsecured debt with secured debt, and avoiding incurring more debt are important steps. Just because these ideas are not new and are fairly obvious doesn't mean they are not excellent ideas. Follow them as best you can.
Cash flow, cash flow, cash flow. Did you know that one of the commonest ways to value a business is not by its equity, but rather cash flow? Perhaps you have heard that in the valley of the poor, cash is king. For those struggling with debt, cash is the most precious asset. Use it wisely. At all costs, do not use up cash only to put more on your credit card. In other words, in spite of everything else in this article and common wisdom, make minimum payments if you must to avoid increasing the overall balance.
Refinance if you can. If you have an opportunity to replace high interest rate debt with lower interest rate debt, you would be foolish not to make the change. That may extend the term of repayment, but increasing cash flow very likely will make it worthwhile.
Do not be afraid of the more negative alternatives. Do not be afraid of options such as bankruptcy if you have exhausted all other options. Do not, of course, put yourself in the hands of one of these ridiculous debt consolidation or reduction scams. Never undertake debt restructuring, mortgage modification, or anything like that unless you have the benefit of knowledgeable advice from a completely neutral source. "Completely neutral" means that whomever you consult, be it a lawyer, banker, or financial advisor, will not see one single, solitary benefit from your decision. That includes any referral fee or benefit that this advisor might reap.
Bankruptcy has changed. There is absolutely no shortage of articles out there, including some very good ones from neutral sources, on the subject of bankruptcy. What you need to know for purposes of this article is that bankruptcy is no longer the badge of shame that some might have taken it for in the past. Indeed, the changes in the law since 2005 have made it pretty difficult to get a complete benefit from the bankruptcy courts. You must be either very, very limited in your means, or willing to work your butt off for your creditors, to qualify for substantial relief. If you go through bankruptcy, it's because you couldn't do anything else, and you are doing the best you can.
To summarize: it's all about giving yourself a break. Obviously, you need to do your best to spend less, pay down debt, and even if possible save a little. Attitude, however, separates those who succeed from those who do not. Two people with the same debt and income profile can achieve very different results. The difference is willingly embracing changed behaviors.