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How to transform your personal debt crisis into an opportunity

How to transform your personal debt crisis into an opportunity

by admin on 16 August 2007

This article is part of the coping with debt series. The objective is to help people reframe their debt problem as an opportunity. The article pitches your debt problem as a turning point in your life – a chance to spiral upwards rather than further downwards. The readers who find themselves in a debt situation are urged to change mindsets, explore new ideas and set new goals.

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Debt Affects People from all walks of life
One of the interesting aspects of being a debt advisor is the insights you get into people and society. One soon discovers that debt problems are not limited to specific backgrounds or professions but affect people of different characters, income groups and education levels, in short, people from all walks of life.

Majority are demoralised
However, I couldn’t help but also notice something else. Many indebted people share a common trait; they have literally come to the end of their tether. Lacking goals and drive, the majority appear overtly demoralized. Whether this demoralization is the result of or, cause of, the debt problem is an interesting question.

Many are Trapped in a Cycle of Defeat
There is, to my mind, no doubt that some debt problems are indeed caused by an inner defeat and demoralization. This inner defeat manifests itself in a person as a paralysis preventing them from taking action to resolve their problems. Such paralysis can, of course, be disastrous when you’ve got a debt problem – as interest and charges continue to build up over time – even while you do nothing about it. It also causes a whole range of personal, work and relationship problems which feed back into the cycle of personal defeat. Clearly the cycle needs to be stopped but with problems gaining momentum what can be done?

The Opportunity Mindset Will help Break the Cycle
Of course you have to begin by accepting that you have a debt problem but you should at the same time refuse to accept defeat. I would suggest that looking at your personal debt crisis as an opportunity is the best way to break the cycle of defeat! Use your debt problem as a springboard to motivate you to fix once and for all many of the other problems that plague your life and have contributed to the current crisis. Did your addiction to luxuries cause your debt problem? Then fix it! Did some personal life crisis such as losing your job or a broken relationship result in a debt problem? Then find a new and better one!

Awaken the Opportunity Mindset by Adopting New Habits
Resolve that not only are you going to solve your debt problem but you are going to kick all the bad habits and worn out ideas that led you down this path. Then replace all those bad habits with good ones and all the worn out ideas with spanking new ones.

It sounds simple doesn’t it? But how do you do it? How do you change those negative and deeply ingrained habits?

How to Build New Habits
The internet and especially blogs offer great free resources for people who are interested in personal development. There are blogs devoted to everything from building wealth to better habits. In a nut shell Mr. Zen Habits suggests that the best way to build a new habit is to focus on one habit only and practise it daily for a period of 30 days. One of the principal ideas in destroying a bad habit according to this article is to compensate for the loss of the benefits that the bad habit gave you.

What new habits to choose
Obviously what new habits you will adopt should be tailored to the specific needs of the individual. However, given that you have a debt profile, we suggest that habits in the following two areas might be most useful for you; Financial Mastery and Personal Organisation.

Financial mastery

Learn How to Budget
Master your finances from the basics up. Start with something simple like learning how to budget. Make an estimation of your monthly expenses and income and then track your actual expenditure and income. Do this rigorously and meticulously tracking expenses each day for a month. You will then have a clear picture to aid you in deciding what cuts to your expenditure you should make.

Adopt the Habit of living within your means
It does require discipline but use your new budget to help you plan living within your means. If you are already living within your means; try to go one better and spend even less than you earn. Only borrow money if you know that it is going to save you money in the long run. Money that is borrowed should be used for non-speculative investment purposes. A good example would be borrowing money on a 0% credit card to pay off debt on an 18% credit card.

Personal Organisation

Adopt the Habit of setting and reviewing goals
Some people who are indebted have a problem with long term planning and goal setting. A useful habit to master is to learn how to set, review and achieve goals. Again there is a ton of information out there on the topic of goal setting but a simplified process would be the following:

1. Set the goal
Toss out some ideas of what you want such as “to earn more” or to “find a more satisfying and better career”. Phrase the goal in more precise language; “In two years time I will earn £70,000 annually working in the corporate insurance market”. Now work back from your goal; Imagine where you would be three months before the goal was fully realised. This is your last milestone – write it down in detail. Now continue working back in steps of three months and recording the milestones on your path to realising your goal.

2. Review the goal
Review your progress towards each milestone retroactively. Reapply step 1 to refine the milestones and goal as necessary.

3. Achieve the goal
Celebrate your achievement! You are more than likely to have achieved the goal if you have applied the above simple process but if you didn’t, don’t despair. Focus on what you learnt from striving towards the goal. Do not backslide into doing nothing – instead redefine the goal or aim for something close to the original goal.

Adopt the Habit of De-cluttering
People who are indebted are often disorganized; some even to the point of not having a clue about how much they owe and how much they spend. One path towards becoming more organized is to master the habit of de-cluttering. This applies not just to filing away all your old statements and important documentation but being ruthless and dumping old magazines and bits of paper. Adopt a minimalist approach to your surroundings, simplifying and getting rid of the many unnecessary objects and items that you are holding on to.

The effect can be profoundly transformational on your personal productivity and organisation.

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