Debt is insidious

Getting trapped in a debt spiral is easier than you think

I was catching up with a friend last week who has been drowning in debt for decades. In the past couple of years however, he met the love of his life, got engaged, and now finds himself in the bittersweet position of trying to plan a future that’s massively constrained by debt. He’s far from alone. Nearly half of all Americans rely on debt just to get by. 

Debt is insidious

Debt is very easy to get into and even easier to ignore over a long period of time.

Buying an expensive piece of furniture that you just gotta have is painless when it’s presented to you as a mere $89/month. Racking up the balance on your credit card is fun when you’re on vacation, and once you’re back home, the minimum payment is only slightly larger but still manageable. You are left completely numb to the fact that you just spent thousands of dollars you didn’t have to begin with.

On top of that, reckless spending is often rewarded by society. That vacation allowed you to take beautiful photos that got a ton of likes on social media. People congratulate you on the new couch the next time they come over. Debt lays down a firm foundation of denial, convincing you that you can indeed afford a lifestyle that is actually out of reach. 

Rather of hinging a decision on whether you can afford the full price of the purchase, debt powered denial allows you to instead ask how easily you can swing the minimum payment. Operating this way for long enough establishes a new normal. One defined by instant gratification and the steady accumulation of minimum payments that eat an ever bigger slice of your monthly income. This is the trajectory my friend has been on for the last few decades.

Creeping debt is unsustainable

Cracks in the thick layer of denial eventually begin to form. At some point, the minimum payments, quietly ratcheting up and taking up ever more room, eventually start crowding out other things you want. My friend presently has 22 debts whose combined minimum payments take a whopping 60% of his monthly income. They add up to 2.5x his rent. 

This heavy debt load brings its own gravity with it. Because his debt-to-income ratio is so high, his credit score has been sharply eroding, making it much harder to get new debt and perpetuate the cycle. The only debt available to him now comes with brutally high interest rates, which means that the associated minimum payments will no longer be low. Any new debt he takes on will eat a bigger portion of his lunch every month.

Debt wilts under scrutiny

It’s much easier to maintain denial, cracks and all, when it’s yours alone to carry. The moment someone else is in the picture, all the rationalization, optimistic thinking, and willful blindness about spending get exposed for the self-rationalization tactics they are. As time went on and the cracks started forming in his denial, my friend had made several attempts to right his financial ship, but none really took while he was single.

It wasn’t until he met a partner and eventually proposed to her that the stakes became real. He had to come clean about his financial position, and most importantly, share a plan for how they were going to get out of it. It was far from an easy sell, and he’s the first person to admit that he hit the jackpot in finding a partner that truly sees him for who he is, and is willing to work together to dig out of the debt he brought into the relationship. I couldn’t agree more.

It doesn’t have to be this way

His partner is now bringing a level of accountability and teamwork that I believe will be my friend’s salvation. Luckily, if you know where to look, you can get a clear signal telling you if you’re on the same vicious cycle that my friend was on, right now.

Spending 15 minutes to calculate your monthly cash flow (MCF) amounts to checking your most important financial vital sign. If it’s a negative number, it means you’re on the path of denial. 

Your MCF will tell you not only if you’re on a bad trajectory, but also by how much, thereby allowing you to chart a course back to financial health and start playing for keeps. 

The trouble is that the denial often prevents you from realizing where you’re headed until it’s too late. It’s always possible to see things for what they are and course correct early. The first step only takes a few minutes to complete, and is available at any time.