Most people in debt don’t even know how much they owe

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Yesterday, I ran a small survey: How long until you’re out of debt?


Yes, it’s a self-selected audience

I’ve long suspected that most people in debt don’t even know how much they owe. I’m trying to dig up data on this, but from talking to tons of people about this, I feel comfortable saying “most” people in moderate to significant debt have no idea how much they actually owe.

When you internalize this, you start to see why debt is far more emotional than mathematical. This is why throwing a personal-finance book at someone in debt, or showing them some stupid compound-interest calculator, produces virtually no behavioral change.

Because if you’re too afraid to even open the envelopes that will tell you how much your total debt is, “information” is not what you need.

This is also why you see people in debt doing curious behaviors. For example, they’ll buy things with their debit card, instead of their credit card, because (1) they don’t want to tack on additional payments to their already overloaded cards and (2) they don’t trust themselves to pay off their CC debt.

I’m running a small test on my Insider’s List to help people in debt. I’ll let you know how it goes.

For now, understand that if you have a friend or relative in debt, showing them the math of paying off their debt is one of the least persuasive things you can do.

But there are things you can do to help. If you’ve helped a friend/relative with their debt, let us know how you did it — share your story below.

Read more iwillteachyoutoberich posts about debt.

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55 Comments

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  1. I started tallying my net worth at the end of every month because I find it very helpful for tracking. It stops me from obsessively checking Mint.com too and takes about 15 minutes on the first day of the new month to update the spreadsheet.

    As of March 31, we had $13,154.41 in student loan debt (all mine), $452.54 owed on my credit card (paid off at the end of every month, so no interest ever accumulated) and a total household net worth of $16,828.05. No debts beyond the student loans and credit card. Given that my husband and I only entered the workforce after college a year ago, I’m pretty happy.

    • I should add that I do this because I have persistent “We are going to run out of money and end up starving on the streets” fears. Seeing a steady month over month increase in our net worth is reassuring. And, given that I have our finances so automated I never even see 2/3 of our pay, it’s nice to be reminded we do make more than the amount I see in our checking account.

  2. I’ve used Dave Ramsey’s program to get debt-free, except for my house. It was hard work and it’s not fun…but it DID work, lol. I’m new to this site, and I love your writing style and “in your face” tips, so thank you!

  3. I think the first step in helping a friend or relative with their debt is that they need to believe it is a problem that needs to be changed. Offering “advice” to a friend you know has tens of thousands of dollars in debt when he/she hasn’t sought out your help is probably going to fall on deaf ears. Or, worse, come off as shaming.

    If that friend makes comments about being in debt and seems to want to do something about it, I think that just telling your own story about debt and behavioral change is the way to open up the conversation. If the friend asks more, then the door is open to talk to them about cutting out expenses, automating debt payments, etc.

    “For now, understand that if you have a friend or relative in debt, showing them the math of paying off their debt is one of the least persuasive things you can do.”

    Unless they have hit the point of viewing it as a problem in need of a solution. Then, I believe, some math can be quite convincing! When my husband and I realized that we could pay off my $20K student loan in 6 months, we got crazy intense! The math made the goal seem completely within reach if we buckled down and started dumping every extra cent on the debt.

  4. I love seeing stats like this. But I have to disagree with your premise.
    You seem to make an automatic connection that “people who don’t know when they’ll have their debt paid off” = “People who don’t know how much they owe”.

    One does not equal the other. For example, I know exactly how much I owe on credit cards & other debt (thank you Quicken). But because of my household’s fluctuating (commission) income, I don’t know when I will be able to have it all paid off. There are some months we barely have enough to pay all the bills. Then other months we have more than enough, and we take off some big chunks. We’re working on it, but we’ can’t make confident monthly goals for payoff.

    • Agreed, Lynn, the two are not exactly the same. But they are reasonably close.

    • I have no idea when out debt will be paid off because paying off my student loans is just a low priority. At the end of the year, provided the savings account is still above $20k and both Roth IRAs and my 401k have been maxed out, I sweep anything left into a principal payment on my highest interest student loan. I know my loans will take “about 8-10 years” to pay off at our current income level, and I’m not worrying about being more precise.

      But the reality is, you and I are not normal. Nor are most readers of this blog. (Anyone reading a PF blog is part of a very self selected group.) Most people in debt are not approaching it with ANY well considered financial plan, period, and not knowing how much they owe or how long it will take to pay it off is symptomatic of a larger problem.

    • I agree, Lynn. Not just fluctuating income, but the terms of CCs and how they calculate interest. It’s hard to figure out how long it will take, even with fixed payment amounts.

  5. I don’t think they are reasonably close. For example, I have a mortgage that I don’t know when I will get paid off. That’s because I add and subtract to it. I’ll probably never be debt free. Consumer debt I have zero though. But I can easily imagine a person with a bunch of debt that they pay off as they can, so how could they know when they’ll be done?

  6. First of all, thank you. Your book and web site plus Suze Orman’s YF&B book and show have helped me to pay off all CC Debt, save lots on my auto insurance and begin saving for my future and emergency fund.

    You are absolutely right about “throwing a personal-finance book” at a friend in debt is almost useless. I have a friend that is in a ridiculous financial situation: he makes good money and is full of debt. I gave him your book as part of his Christmas gift (believing the style and design is a good suit for him). Of course, he hasn’t read it. I have given up trying to really offer advice. There was one point when my advice was agitating him; but he continued and continues to complain to me about his financial situation. I really do want to help him; but there is nothing I can do until he makes the choice to straighten himself out. It’s sad cause he is such a genuinely good person.

  7. Sometimes it can be frustrating to watch those we love make poor financial choices, but I think the most useful actions you can take are to lead by example, be open, and express that you are there if the person wants your help. Once I developed an interest in personal finance, I worked to get my financial situation in good shape. I have been very open about it with family and those closest to me.

    One of my family members owed money on her credit card, and I explained to her WHY it was so important to get rid of that debt, and how the interest adds up. I wasn’t telling her what to do; I was empowering her with information that she had never stopped to consider. Now, she is debt-free (and I am, too).

  8. Wait that’s not right…that survey says that 66.1% of people listed a specific number of years for when they’ll be out of debt.

    Wouldn’t that mean that most people on your survey do, in fact, know how much debt they’re in?

  9. Dave Ramsey’s way works great for people. Pay off your lowest debts completely first. Repeat until you work your way up to your bigger debts. This is great psychologically because paying off your small debt gives you the confidence/momentum to want to pay off your bigger ones while alleviating you of your smaller payments at the same time.

  10. After my divorce several years ago, I was struggling to make ends meet due to the crushing debt (1.5x my gross income) that my ex, who was an accountant, had run up and dumped on me (my mistake was trusting her to handle ALL financial decisions and then not getting a divorce attorney). At times I had to borrow money from my brother and my mom just to buy groceries. We finally convened a family council and decided to help each other out of debt. Since my credit sucked at the time, we pooled some debts and got low interest balance transfers in whoever had the better credit. At first my payments were smaller which gave me some breathing room, then I increased them as some of the debts that I was paying on alone were paid off. We ran the numbers and by pooling our efforts, we were all able to pay off some rather large debts several YEARS sooner, lowered the amount of interest that we all paid, and raised my credit score by almost 200 points.

    Since my mom is now retired I’m now looking at purchasing a house with her where she’ll have her own space where she’ll be taken care of and be able spend time with her grandkids. We put an offer on a place that is really nice and is very affordable for both of us, but gives us each our own privacy. I know that our scenario is unique because we know that we can trust each other not to bail on our agreements, and we’ve decided that planning now how to take care of my mother, rather than waiting till the last minute and putting her in some expensive nursing home, is a better option for all of us. We’ll also be in a position to help my brother buy a place soon as well.

    Basically we decided that we all needed to pitch in to help put everyone in a more advantageous position. So far so good!

    • Erik, that’s great that your family seems to have successfully circled the wagons. When done correctly family is a great resource for when you’re in trouble.

  11. Ramit – I think those commenting in public generally are the outliers…the good ones – if you will.

    Myself, I had a rough idea of how much debt I owed after adding up all the revolving from my credit report a year ago. I responded to the survey this morning – decided to re-check my credit report (ran in Jan) and was astounded to learn I had barely made a DENT in the principle due to inefficiently paying the loans back.

    Since this morning I have set up an e-bay account to start getting rid of stuff (long time goal of mine) and am looking forward to adjusting to the reality of budgeting ruthlessly on things that do not make or break my life. It’s a sad fact but I think you are 100 percent spot on, most people just don’t want to know how deep they are in. It’s time to get over the indentured student debt servitude and attack the situation dead on. Everyone who already has their ish together doesn’t need the advice your providing.

    And as for paying smaller debts first – I think it depends on how small “small” is and what your interest rates look like. Mathematically, it just doesn’t make sense to do that for me.

    BTW I’m talking a little less than 40k in student loans total. No credit card debt. I’ve been paying close to the min on most of the loans since grad in 08.

  12. I chose not to respond to this survey since I have no interest in help managing my debt–I have debt but it is all student loan debt with payments that are easy to make and interest rates low enough that I have decided against prepayment at this point (also if I go back to school, I can again postpone those payments and I would like to keep that option on the table).

    I probably would have answered this question with “I have no idea.” I might have picked 5+ since I know I won’t pay it off in 5…but I truly don’t know or care. I have seen the date on a form for each loan and I know the principal amounts but I don’t know if I will pay off on the 10yr schedule, postpone for another few years of school, or accelerate payments if the floating rate loans become unfavorable.

    If there were too many people like me in the survey, it would really throw off the results…would it look any different if you controlled for type of debt (or controlled with a question that picked out people with “trouble” paying their debt vs people who have intentional debt)?

  13. Dave Ramsey’s baby steps is the best way to help yourself and others get out of debt and build REAL wealth over time. You have to live on less than you make and stop looking at debt as a privilege or a right and see it for what it is…a product that Americans have been sold and told you cannot live without. I started the process in 2009. Through temporary sacrifice, my wife and I managed to payoff all consumer debt we had ($26,800) within 6 months while increasing our giving and saving. Since freeing up our incomes previously used for debt service, we now have 6 months worth of expenses saved up and have a real emergency fund to cover nearly any disaster that may come up. We do not possess any credit cards nor will we ever again. Mr. Sethi is right, you cannot throw a personal finance book at someone in debt to help them. You have to present them with a new paragdigm contrary to what the popular culture has taught them. Most people fail to realize the psychological and emotional impacts of borrowing money. By the way, I am a loan officer at a community bank who believes this, and I coordinate Dave Ramsey’s Financial Peace University as a service to those seeking such a paradigm shift.

  14. As a divorce attorney, I hear this story a lot – that my client simply has no idea how much debt they have, or the community has. There are many reasons for this, but typically I have found two overriding themes to this particular way of money management: 1. lack of trust in themselves and 2. willfull ignorance. with regard to no 1, it seems that when a person already has lost respect for themselves, they do not want to know yet another aspect of their life that they have either no control over, or over which they realize that they should have more control, but simply don’t. Money management is like a diet, or any other task that we set up, and fail to accomplish – the more you tell yourself “I will succeed” and don’t, the more the self loathing kicks in. Remaining ignorant of yet another stone on the pile is therefore a sort of self-protection. With regard to no. 2, many people do not want to be burdened with the obligation of ensuring timely payments each month, or the responsibility of living within a budget. Some people just don’t get the concept of basic personal accounting; while others find that such responsibility detracts from the life they are entitled to – and cuts in to their “me” time.
    My two cetns’ worth.

  15. It seems like you should include the option of “my debt is paid off.” Without it, the question has a sort of “when did you stop beating your wife” feel to it. It might be part of why so many people skipped the question.

  16. If you are in debt to the point of credit collectors hounding you, great! I’ve been on both sides of the issue. As a professional credit collector, I learned that the expectation of recovering the full amount is not high so they will likely make a deal with you if you work with them along the lines of Ramit’s negotiation strategy. I have helped my nephew pay his debts in this way. He paid only 50% of the debts and saved him almost 1K!

  17. who yells more at their readers Dave Ramsey or Ramit? LOL

  18. Man. I participated in that survey and I cringed when I saw these results plotted on a graph. It’s a tough pill to swallow, but I’m slowly chipping away at it!

  19. Most people fail to realize the psychological and emotional impacts of borrowing money.

  20. Megan: Good for you! Check this out link out for people (maybe you, maybe not…) who need to chip away at their mounting debt and who may lack the needed will power to get there. Using Dave Ramsey’s debt reduction plan is certainly successful, but some tips here may help when you’re feeling too overwhelmed to plan: http://liquid.is/4FBj8

  21. Ramit -
    Interesting ideas, but several problems with your survey. I would bet that many people are paying off their debt in 10 to 30 years (typical for student loan and housing loan plans), and even though it says 5+, I would have answered ‘I don’t know” because I’m trying to pay all of my 30-year loans off in 15 years, so I’m not sure of the date.

    Second, you’re missing boxes for people who have paid off their debts already. Third, your conclusion that “most people don’t know how much debt they have” is a difficult extrapolation. The results of your survey indicate that 66% actually do know when they will pay off their debt. Also, the question you asked is when people will pay off their debt — not how much debt they have — so to say “most people don’t know *how much* debt they have is a rather poor conclusion from the question you asked (which states *when will you pay it off*).

    Typically used to more rigor from your work and posts.

  22. 1) realization / awareness (acceptance)
    2) desire (know that you need to rid off it)
    3) investigation (know the facts, how much, interest rates, what, when, who, etc) 4) visualization and reminders (put it up on your fridge)
    5) learning/education (understand what it takes)
    6) execute (get rid of it)

    a lot of psychology involved for sure – right along your alley Ramit :)

  23. I would definitely have been counted as one of those “i don’t know” group members 2 years ago. Since then, I have really focused on eliminating my debt and have really began to bring it way down.

    I found that it was depressing to look at the bills each month and see it still so high. So I took a psychological approach. First, I looked at the minimum payment for my two credit cards and put that payment on automatic from my bank account. Then each month as I had some extra money, I would just transfer it over to the credit card. some months, i have 5 payments to my CC.
    Then, every 3-4 months, i update a spreadsheet that shows me how much i have as a balance on each CC and also my positive balance in each bank account.

    This way, i actually see a drop in the balance and don’t get as frustrated. From a high in the mid 20k balance, I have brought it down to just under $9,500 currently and the current projection is to have it paid off by next summer.

  24. I agree that it’s a safe bet that many people don’t know how much exactly they owe. I’m one of them. For a a few years I didn’t even know the total exact total of my student loan. I knew the approximate total which was rounded down by 1500 dollars. For the most of the month I avoid looking at my credit card until the time to pay the card. So it’s quite easy to imagine that many people avoid knowing how much money they owe.

    There are the some odd bills that don’t have to be paid right away and hence get put off.

    Lucky I know now, what exactly I do owe. How much interest I will be charged. That’s much better than being in the dark.

    -Z

  25. Ill be out of student loan debt in 8 years or less, depends on whether I up my payments at some point. I have 29 years left on my mortgage though. Im not overly worried about that type of debt at this point since I can be putting extra money to better use in my investment accounts.

  26. @Perfecting Dad,

    It’s possible and easy to predict when you can be debt free. With the amount you have to pay or pay beyond you can figure the amount of time you will be able to pay off debts.

    If you are good with excel or another program like that you can make a prediction of how much you will pay each month to your large debt. and then you will be able to figure out how many years it will take to pay it off. Or hand on paper math in a bound notebook is a old school way to go.

    When you do pay more than your average monthly payment you can figure out how much closer you will be to paying off your debt. One sheet for each large debt then a sheet with all the debts totaled up etc.

    min payment 200/month and debt is 1000 = 5 months to pay off. for example.

    Reading your post again, I think I get the feeling that your debt is so large that you won’t ever pay it off. Do the math, and know exactly when you’ll be done will help me realize my debt, it’s scary to realize and deal with.

  27. My debt reduction began in feb-11 after 18 months of reading IWT among other personal finance books and knowing I should DO SOMETHING.

    Actually it was the realization that I wasn’t earning enough that was the key.

    In the end I used your C-E-O strategy, quit my job, negotiated a higher paid job (over £10,000 extra take home plus benefits) cut bills in half, optimized my spending (used the Dave Ramsey technique on my debt), the automation was the first step, and by far the easiest and smallest push in the right direction for behavioral change (Tim Ferris minimum effective dose).

    Currently I have 2 months of salary left until I am completely clear of all debt. Frankly I feel debt free already. Also this chapter has helped me realize some “earn 1k on the side” goals.

    Thank you Ramit!

  28. I read a book on this topic a while ago. There is a system for paying off your lowest debt first and then using the money that you used to pay the old debt to begin paying the next debt and so on.

    The belief is that you can pay off all of your debt in 5-7 years.

  29. Hi Ramit,

    Your heading and the poll don’t tally. 66% people DO know. 34% DON’T know.

    The top 4 answers combined equal 66%. These are the people that DO know when they will be debt free so therefore they must know how much debt they have and what their repayment schedule is like.

    Only 34% of people said they didn’t know. I can see that “I don’t know” was the most picked answer. This 34% needs to be compared against the sum of the above responses, which is 66%.

    I think an interesting poll would be to ask explicitly “Do you know how much debt you have?” meaning ALL debt, student loans, mortgage – everything.

    Then give the options :-

    A)I’ve never had debt
    B)I had debt but paid it off
    C)I know exactly to the penny how much I owe
    D)I could guess to the nearest $10
    E)I could guess to the nearest $100
    F)I could guess to the nearest $1000
    G)I could guess to the nearest $10,000
    H) I have no idea, it could be 3,4,5,6 or even 7 figures.

    You could even do a follow up poll to the people that respond asking them to check the correct figure and see how right or wrong they were and by how much.

    While not knowing how much debt you have is a bad thing there are also different degrees of “not knowing”. There are those that just close their minds to it totally and then there are those that are paying it off, are aware and in control but couldn’t give you an exact figure.

    Thanks for giving me challenges to think about,

    Helen

  30. Before I can help anyone, I must get myself out of debt. I am aggressively attacking debt. I am 25 and out of school since 2007. Last week I paid off a credit card of $500, this week I am paying off an online credit line of $1000. A month after that I will have my 2nd credit card at $0 and just keep a revolving balance that I can pay off at the end of the month.

    My method may not work for some (I put all bills on the no interest credit card)and use the full remaining balance from my check (after taxes, IRA, rent, etc) to pay down previous balances. The following pay period, I do the exact same thing. At this rate, I mapped out by end of September 2011, I will have paid off my car loan ($5000 @ 60 months) 2 Credit cards ($2200), a credit line ($1000), Perkins Student Loan ($3800). This I mapped out using my current income at my job (which I dislike, but thats another thing) which means in 9 paychecks, I would have rid myself of over $10000 in debt in a little over 4 months.

    The only thing remaining at that point will be my big student loans ($35000) using the same method, I figured I can pay it off entirely in 18 months (at roughly $2k a month). Can I afford $2k a month right now for one loan? No. But I will have some extra money from not paying monthly payments on previous debts, and I will use that money to find my First Profitable Idea/Earn 1K (Ramit) and/or my Muse (Tim Ferriss).

    My question is what if I used my current salary to reduce my debts? $30k/year salary with $45K in debt is a much different lifestyle (miserable ;) than $30k/year salary with $35k in debt. This teaches me 2 things: One, debt isn’t immortal (you will be surprised how many people doubt I will get out of debt) and two, I can do this. The message of this long post is simple. Don’t go to work just for bills/debt/etc, especially if you hate the job. Go with a plan, a goal, a something. A goal changes everything.

    Sorry Ramit, you may have your board back now lol.

  31. Ah, yeah. I’m dead scared of the numbers of how much debt I’ll owe after college. I’m at NYU and it’s about 56k this year (next year it’ll go up by 3.8%) and honestly, it’s money I can’t even comprehend at this point in my life. I’m afraid to run the numbers, but I sorta just guesstimated(lol) and put it at about 150k once I get emancipated from my parents junior year. I’ve had your book since last year, and I’m starting to come to the realization that it is extremely hard to stay on top of those “distant” debts when you have everything all up in your face at the moment. Glad I brought your book to college with me, also glad I took notes on your Earn1k course, because I will definitely be needing to gain some side income that a regular college job can’t provide me with. Wish me luck. I’ll give you a testimonial when things start rolling :)

  32. My system went as follows:

    1. Set an automatic transfer
    2. Chose an amount I was comfortable paying monthly. This is a rigid number; I didn’t pay more, I didn’t pay less.
    3. I shopped around for a lower interest rate. Managed to go from 6% to 2.5% (good old credit union).

    If I don’t add a single extra dime (sometimes I add half of unexpected income), I’ll have it paid off in just under two years. With this system, the loan is practically dead to me. I never miss the money I don’t have and the interest rate is laughably low.

  33. I tried to help my dad lower his debt about 4 years ago. When I graduated from college, I started helping my dad with our family business on the side, and then I realized that my parents was almost half a million in CC debt. It scared the shit out of me. I felt overwhelmed and that was probably around the time when I started reading some personal finance books and blogs, including yours. I probably threw everything but the kitchen sink at it. I was met with a lot of resistance from my dad. He thought it was a crazy idea to save while trying to reduce debt. “But it’s not our money,” he’d argued. I persisted, and I created an Excel chart for him to track where his money went and how much he was saving. Within a few months, he could see a difference– his debt went down significantly because I made him pay more than just the minimum amount due.

    Unfortunately, the emotional stress on me was too much and I eventually quit and moved across several states. I told him to use the system I had set up for him, and he couldn’t do it. He was too dependent on me, and he never wanted to actually look at his finances, which boggled my mind.

    A few months earlier, my dad filed for bankruptcy. Knowing my own track record, where I was able to pay off my student loans and increase my own savings (times 5) over the past 4 years, I think I could have helped in that regard. But the emotional stress was way too much for me to handle, and I needed to know when to quit if the other person refuses to even look at it.

  34. I’ve tried to help my family with debt, does that count?

    For example, I tried to explain to my mom and stepdad that buying a boat just for the tax savings was ridiculously dumb.

    I’ve tried convincing my friends not to blow their entire student loans on a new car while their old one worked just fine.

    My wife and I have talked to my mother in law countless times about credit card debt. She finally did end up paying it off, but I think she’s building it back up again.

    So basically, I learned the hard way that showing someone mathematically the advantages of paying off debt doesn’t work. They either nod and kinda smile or just look at you like you’re speaking a foreign language.

    Sad Christmas.

  35. I have a debt question (and your How to Negotiate Your Debt video is linking to a 404).

    I just got an offer to settle my credit card debt from 7k down to 3.5k. I’ve been unemployed and unable to make payments, though before this I talked them down to set monthly payments and 0% APR. Just last week I got a new, much better paying job that will allow me to start making aggressive inroads on my debt.

    Do I take the debt settlement with a 6 month payment plan, clearing up 3.5k for starting a small business and making myself feel awesome but killing my credit score ? Or do I set up aggressive monthly payments (assuming I can negotiate the 0%APR again) and pay it off in ~1.5 years to get the account to show as Paid In Full on my credit?

    Thanks.

  36. The best advice I got about understanding the amount of debt I have is to use mint.com. It lets you see all your accounts, including debt and assets and gives you a really good financial picture. It also tracks where your money is spent and gives useful tracking graphics.

  37. mohammed rafaqut Link to this comment

    how much i ow

  38. I just helped my buddy come up with a plan to pay off his debt. You hit the nail on the head; his problem was that he was afraid to tally up what he really owed, so instead I helped him work backwards. I asked him to fantasize for a second, “What would it take for you to feel like a rockstar? A fiat and a penthouse suite, or multiple international vacations a year, or taking care of your folks’ so they can retire early?” We took his answer, put a 10 year goal on it, and worked backwards. So, you need to have X amount in 10 years to feel like a rockstar, how can we get there? He was happy to look at his debt then because it felt like a small step on the road to driving a fiat and vacationing in tahiti. Paying off his credit card wasn’t just a “should do” it was a “want to do” because $50 extra on his payment was $50 closer to that rockstar life.

  39. I have no real debt; it’s all part of a consciously delayed repayment plan. I have 40k in savings. I owe 17k in student loans at 1.675% interest rate, which means anticipated inflation over the next 15 years will outpace the interest.

    I pay for nearly all transactions with debit card. Large purchases and all travel are charged to credit for the added benefits. This is because I will actually spend more if I don’t track my spending with debit… doesn’t bother me!

    How did I save 40k? Pretty amazing story actually. I started saving $50/mo, religiously. I had a car payment of $500/mo for 3 years. When the car was paid off, I started saving an extra $500/mo (at some point, I’ll need a replacement, better start preparing). I received 3% pay raises each year, so I actually ended up saving around $900/mo after 3 consecutive years of raises.

    Observe: I didn’t increase my spending — my net take-home increased. Now, food and gas prices have chipped away at some of my net savings, but the number has still grown significantly. I took it one step further. I “stole” another $100/mo from myself. How? I automated 2x $50 transfers from checking to savings each month. It looked like, and felt like, impulse spending. I cut down on my impulse spending by doing so.

    But wait, there’s more! I changed my employer-sponsored health insurance plan from fairly comprehensive, low co-pays for doctors visits to a high deductible plan. My monthly health insurance used to be $300/mo, but now it’s ZERO (employer sponsored). I can still get a physical exam every year FOR FREE (part of a high deductible’s routine preventative care program). As long as I don’t break a leg (something that’s never happened to me), I save $300/mo. Since the annual deductible max is $3k, I risk spending $3k out of pocket for a major accident. If nothing happens for 10 months, I’m saving money. Of course, nothing ever actually happens, we just scare ourselves into thinking we need crazy stupid insurance. My initial $50/mo savings is now $1300/mo. My car is finally paid off, and I haven’t broken any bones. Major savings!

  40. I agree that sharing information on clearing debt is probably not the best solution right away. They have to decide for themselves first that they want to clear their debt. Once that is there, giving them information makes more sense.

  41. So here’s what we did to help, background story:
    Sister got pregnant, steady boyfriend, large dog, very small house (renting) in northern california beach city (expensive). Her job had health insurance but in all likelyhood she was going to get replaced when she took leave (it happens). Credit card debt and car loans.
    Solution: Get out of california, she went to live with boyfriend in the midwest with my mom who offered 1 year of babysitting while they got set up. Once they were their they took a hard look at finances. Did debt consolidation and paid things off. Used COBRA for health insurance. While BF had to take a massive pay cut compared to his hourly wage in CA as a licensed contractor within the end of the year he was effectively making more due to lower cost of living (rent free helped). After one year they could afford their own daycare, after 2 years they were debt free and bought their own house (125k) which would not have happened in CA (no money down, seller paid all costs and inspections). Along the way there were constant “are we doing the right thing” questions. Several of their friends couldn’t believe they packed up and left CA, afterall it’s paradise. The families on both sides have been giving encouragement and helping where they can, but it became much easier to help when they did something so drastic to prove they were serious about becoming independent. Now the plan is to get married this year and possibly add to the family.

  42. For myself, I sat down and wrote all outstanding debts that I have (student loans, credit card bills, personal debt to a friend). Then, I made a graph with one side listing the amounts of debt and the other side showing the months of the year. I color-coded each individual debt and place it on the graph each month, showing how much debt was paid of for that month. Being able to see the dots going down and down has been such an inspiration for me! I am finally on track to get my debt paid off. Thanks for a lot of helpful hints from your website, Ramit!

  43. Shortly before I got married, 10 years ago, we sat down and added up all the cards. In our heads we thought we owed X, but once we did the math we owed 1.5X. It was a bit of a shock. It sobered us up and we cut way way back on spending until the number got back to where we thought we were, then we eased off the austerity measures. Eventually we got it paid off but it took a long, long time. Baby steps.

    But really how we got there in the first place was rounding errors in our heads. Let’s say you go out shopping for the new appartment, and hit 3 stores. $140 + $130 + $125 is not “about $300″. It’s “about $400″.

    Going to debit only made us do the math (or at least watch the available balance more closely).

  44. I’ll be graduating next week and between student loans and medical bills (on my 2 CC’s) I have about $96,000 in debt. I’m absolutely terrified of it but I know to the penny what I owe and have a plan to pay it off. Once I get a job it will be payed off in 2 years.

  45. I know exactly how much debt I have and how well my finances are doing overall. I have a simple spreadsheet with my various accounts on it and I update it once per month. It takes about 15 minutes total I would say and gives me a good insight into how well I’m doing. However, it’s more of an informational tool rather than a decision making tool.

    By the way, I’d be interested to know, out of the people who knew how much debt they had, how many actually knew the various interest rates on it.

  46. You have to live on less than you make and stop looking at debt as a privilege or a right and see it for what it is…a product that Americans have been sold and told you cannot live without. I started the process in 2009. Through temporary sacrifice, my wife and I managed to payoff all consumer debt we had ($26,800) within 6 months while increasing our giving and saving. Since freeing up our incomes previously used for debt service, we now have 6 months worth of expenses saved up and have a real emergency fund to cover nearly any disaster that may come up. We do not possess any credit cards nor will we ever again. You cannot throw a personal finance book at someone in debt to help them. You have to present them with a new paragdigm contrary to what the popular culture has taught them. Most people fail to realize the psychological and emotional impacts of borrowing money. By the way, I am a loan officer at a community bank who believes this, and I coordinate Dave Ramsey’s Financial Peace University as a service to those seeking such a paradigm shift.

  47. I have just under $3,000 in debt right now, I’ll be debt free by the end of May.

    “For now, understand that if you have a friend or relative in debt, showing them the math of paying off their debt is one of the least persuasive things you can do. ”

    (Maybe I shouldn’t contradict you on your own Blogg, but….) I’ve found from experiance that if you show people the math, and then give them a plan that’s not too difficult to follow, they usually follow the plan.

  48. I think CC debt would only accumulate debt we in the real debt

  49. I helped my boyfriend face his money avoidance issue and as a result pay off his debt.

    I literally sat on him one night (so he couldn’t escape) and told him that he never thinks about money unless he has to and that is no way to run his financial life. He didn’t really take it well at first. I pointed out that every time I talked about money that he told me I was ruining the evening. These weren’t conversations about his money either… most of them were related to the fact that I had recently started my first full time job and suddenly had actual money to figure out what to do with. Anyway, he went on to find out how much debt he had ~$10k (he guessed it was approximately $7k), consolidate his debt into a lower interest rate loan, and pay it off. Yay!

    As a nod to your tax return article he knocked the last of his debt out last year using his tax refund! …and he used the leftover money as a down payment for braces. He had been wanting to get his teeth straightened for awhile and didn’t feel like he could do it while still in debt.

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