New Year’s Resolution: Personal Debt Reduction

 DH = Dear Husband
            There is something about the week between Christmas and New Year’s that leads many of us reflect upon our lives and resolve to make changes.  No matter how old I get, no matter how many New Year’s resolutions I’ve broken in the past, I find myself at this time of year on the precipice of a new beginning wanting to make things better.
            If one of the changes you’d like to make in your life is to reduce your personal debt, I encourage you to go for it.  When DH and I resolved to begin our journey out of debt, it was not at New Year’s but in May 2012.  Our start date was June 1, and if you can be motivated by other people’s experiences, then be motivated by ours.  So far, we have exceeded our goals.  In our first six months of debt reduction, we lowered our total debt (including mortgage) by over 10%.  At the end of November, we dug up numbers to compare our debt reduction in the six months prior to June 2012 with the six months after.  Income was identical.  Expenses were the same.  But our debt reduction increased by 640%.
            “How?” you might ask.  I certainly have.  The best answer I can come up with is that when you go at something with focused intention, when you reject complacency, when you fight against obstacles from the outside and sabotage from within, powerful change happens.
            Does everyone who resolves to lose debt succeed?  I’m sure the answer is “No”.  Gym memberships increase sharply each January as a result of people’s New Year’s resolutions for physical fitness.  By the end of February each year, most of these resolutions have fallen flat and the gym is less busy.  Resolutions do not have a great track record.  But we all know a few people who have done it.  They lost 70 pounds and kept it off.  They quit smoking.  They paid off the mortgage. 

Maslow’s Hierarchy of Needs ǁ Prudence’s Hierarchy of Personal Debt Reduction

I remember studying Maslow’s hierarchy of needs both in secondary school and in university.  As a high school teacher, I’ve even taught it to the next generation.  Maslow’s theory was that in order for people to reach their full potential, they had to have their needs met.  Basic needs had to be addressed before higher order needs could effectively be satisfied.  According to Maslow, a person would live a successful, fulfilled life to the extent that all needs were taken care of, from survival needs to needs for self-expression.  Usually presented in the form of a pyramid, Maslow’s hierarchy of needs looks like the diagram above.
In reflecting upon the success we have had so far in our journey out of debt, I have come to believe that DH and I have a few things acting in our favour.  I have put together a hierarchy like Maslow’s to help explain why we are succeeding.  I’ll call it Prudence’s Hierarchy of Preconditions for Successful Debt Reduction.  (I know that’s a mouthful.)
First Precondition
Maslow:  Food, water, shelter, air. 
According to Maslow, you can’t lead a fulfilled life if your survival needs aren’t met.
Prudence:  Pointed discomfort with personal debt.
According to Prudence, you won’t succeed at reducing your personal debt unless you feel a distinct discomfort with your debt load.  For years, DH and I lived with our debts in perfect comfort.  We could make the minimum payments and then some.  We had good incomes, good prospects, and we “deserved” what we were buying.  Then DH became a casualty of the hi-tech bust and our income decreased by over 50%.  The financial distress that we endured for over six years predisposed us to become very uncomfortable with our debts.
For some people, it’s a job loss.  For others, it’s a marriage break up.  And then there are those who don’t require their own personal experience of financial distress to feel discomfort with debt.  They’ve witnessed the hardships of their parents or friends.  Or they’re simply wise.  Are you decidedly uncomfortable with your debt load?  If so, you’re a good candidate for a New Year’s resolution to reduce your personal debt.
Second Precondition
Maslow:  Safety, steady income, insurance in the case of misfortune.
            According to Maslow, you can’t lead a fulfilled life unless you have basic security.
Prudence:  Stable, improving or innovative means of income.
            According to Prudence, you will have difficulty in reducing your personal debt if your income isn’t reliably steady or improving.  It’s not impossible though.  Some people sell their cars and even their homes to make it happen.  They simplify their lifestyles and take on part time jobs delivering pizza or cleaning office buildings.  There is room for gumption here.
            DH and I are very fortunate when it comes to this precondition.  After years of unemployment and underemployment, DH bought a franchise business (yes – more debt).  He’s in his fourth year of operation now, and it’s going very well.  His income has so far been stable, and there is every reason to believe that it will increase.  I taught summer school for the first time in fifteen years last July.  We sold some household items.  We stopped hiring cleaners.  I didn’t accompany DH on a business trip and we didn’t go away for our anniversary.  So with some stability, some innovation, and some lifestyle simplification, our income precondition is met.
            Do you have a stable or improving income?  Or if not, is there a part-time job you can take on?  Or big ticket items that you can sell?  Is there a significant way in which you can simplify your lifestyle?  If so, you’re a good candidate for a New Year’s resolution to reduce your personal debt.  
Third Precondition
Maslow:  Belonging, love, family.
            According to Maslow, you can’t lead a fulfilled life without the love of family.
Prudence:  Team support.
            According to Prudence, you will have a hard time reducing debt if you don’t have support from others.  If you’re married, you and your spouse must be unified in this effort.  If you have children, try to win their support – or at least acceptance (but don’t capitulate under their pressure if they don’t like the changes that come with debt reduction).  Whether you’re single or married, seek out friends who will encourage you and keep you accountable.  Find trustworthy allies with whom you can share your numbers, discuss the obstacles that confront you, and confess the ways in which you sabotage your own efforts.
            For years, DH and I experienced crazy amounts of marital strain as a direct result of financial stresses.  Last spring, when a friend of mine gave us the audio and print versions of Dave Ramsey’s book The Total Money Makeover, things changed completely.  DH and I became equally determined to get out of debt and we have been on the same page with regards to financial matters ever since.  While our children have not been entirely thrilled with our mission, they have at least come to accept it.  And we have shared our efforts with a few allies who have proven to be supportive and encouraging.  This blog is very important to me in terms of keeping me accountable and on track.
            Are you and your spouse on the same page financially?  Is this a goal you can take on together?  If you are single, do you have friends or family with whom you can share your numbers?   Will you seek out the support of people who are wise with money or who, like you, are trying to become that way?  If so, you’re a good candidate for a New Year’s resolution to reduce your personal debt.
Fourth Precondition
Maslow:  Self-worth, accomplishment.
            According to Maslow, you can’t lead a fulfilled life unless you develop the self-respect that comes from achievement in something significant to you.
Prudence:  Recognize your own power.
            According to Prudence, you will not succeed at reducing your personal debt unless you truly believe that you have the power to do so.  For years, our debt was just part of the scenery.  It was an inevitability.  Like the force of gravity and the changing of the seasons, it was something over which we had no control.  After we read Ramsey’s book though, we saw debt as something to conquer.  And after applying a simple strategy – start with your smallest debt – we developed confidence that we could do it.  In our first six months, we eliminated our two smallest debts.  We encountered significant obstacles along the way, but we won.  DH and I have very high confidence that we will be completely debt free in about five years.
            Think of your smallest debt.  I encourage you, at the very least, to resolve to pay it off.  When you do so, whether it takes a few months or over a year, I believe that you will recognize your power to tackle all of your debts.  If you have this confidence now – or if you give yourself the chance to develop it – you’re a good candidate for a New Year’s resolution to reduce your personal debt.
Fifth Precondition
Maslow:  Self-actualization.
            According to Maslow, you can’t lead a fulfilled life unless you have a complete knowledge of yourself and the freedom of self-expression.
Prudence:  Inspiring vision of life after debt.
            According to Prudence, you will have a difficult time finding it within yourself to reduce your debt if you don’t have a vision, to spur you on, of a better life without debt.  Ramsey wisely includes a vision of debt freedom at the beginning of his book, The Total Money Makeover.  As I listened, in the car on my way to work last spring, to his analogy of a tough bike ride up a steep hill (representing debt reduction), cresting the summit, and then embracing the exhilaration of the effortless ride down the slope on the other side, I was surprised at the tears streaming down my face.  DH and I don’t have a well-defined vision of life after debt, but we have the makings of one in this bike ride analogy.  We have vague hopes of travel and significant giving and generous provision for our children and material purchases.   But more than anything, we are inspired by the prize of freedom from the heavy weight of debt.  Already we can feel the relative lightness of having dropped 10% of our debt load. 
            Can you imagine life without debt?  Does an inspiring vision form?  If so, then you’re a good candidate for a New Year’s resolution to reduce your personal debt.
             I expect the gym to be full next week, but I’m sure it will settle down again by March.  Some of the newbies will stick around though.  And they will reach their goal of physical fitness.  If you feel burdened by the weight of your debts, consider a New Year’s resolution of financial fitness.  60% of Canadians retire in debt.  Canadians’ average debt to income ratio has risen to a record level of 164%.  DH and I were right in with the debt trend at this time last year, but now we’re bucking that trend, and our numbers signal real change.  Make 2013 your year to begin, and join us in a journey out of debt.

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I would love to hear what you have to say. Feel free to share your thoughts, offer advice, disagree, or ask questions. (Disrespectful comments will be deleted.)

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  1. Dear Prudence (couldn’t resist),

    Thanks for posting – my husband and I have been very inspired by your blog and look forward to following in 2013.

    I’m wondering though…why did you put discomfort as a precondition #1 over income (which sits at #2)? My first instinct would be that the very basic line for repayment is some kind of cash flow.

    I’d love to hear more.

    Best of luck this year!


    1. Good question, Leah. My first instinct was the same, and when you look at it in a completely rational light, it truly isn’t possible to get out of debt, no matter what your level of discomfort with it, without an income that exceeds basic expenses. But debt in our society today is not a rational thing, and getting out of debt requires much more than rationality.
      I believe that there are people who are uncomfortable with their debt but who don’t have the income to do anything about it. I’ll call such a person Debtor A. I believe there are many, many more people, however, who don’t have a discomfort with their debt but who do have the income to chip away at it. I’ll call such a person Debtor B. My bet is that Debtor A has a better chance at succeeding in debt reduction than Debtor B. Income and expenses are to some extent fluid over time, so if things ease up for Debtor A – if a better paying job comes along or expenses decrease – he/she will be predisposed to begin hacking away at debt as soon as possible. Debtor B, on the other hand, no matter what his/her income, no matter what his/her mathematical, rational potential to reduce debt, has no motivation and will continue to live “comfortably” with debt.
      So that’s why I ended up putting discomfort with debt as the first precondition and income as the second. Thanks again for your challenging question!

  2. I have been following you since the beginning and I have to tell you what and inspiration you have been to me. This December I planned on cashing my “Bond” and spending the money on nice “sparkly things” but instead my “little Prudence” on my shoulder whispered “put the money on your credit card” and you know I actually listened and I feel really good that I was able to pay down $1000 on my credit card; something I never would have done before. Thanks for honestly sharing your struggle with debt and spurring me on to do the same. Thanks Prudence!!

  3. Dear Prudence:
    First, thank you for sharing Maslow’s hierarchy of needs. I am 50 years old, and don’t recall having heard or seen this before (My 19 year old just told me he has known it for years!). Then, thank you sharing how you are viewing this in relation to your journey to be debt free and how we can look as through a mirror at our own financial situation and relationship through the important points you raise. Thank you for encouraging us to be debt free. My husband and I have worked our way out of debt, and it is a wonderful feeling. After reading this weeks blog, it reminds me to go and pay off my smallest debts right away. Thank you for your message and excellent blog.

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