Nine out of 10 people with debt make this one mistake that jeopardizes their finances. Here’s how to not be one of them

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If you’re carrying debt, what are you doing to pay it off? If your answer is “nothing” or “making the minimum payment,” then you might not be making much progress. You probably know what you need to be doing. But, like most people, avoidance has become a coping strategy.

It’s a mistake that could be jeopardizing your finances: Nearly nine out of 10 people (86%) said “they’ve stalled on a debt decision (1)” when surveyed by fintech platform Rose Cove. Why? More than one-third (36%) of respondents cite “too many options” as a reason for doing so.

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More than half (57%) of those in debt even admitted to staying on a higher interest rate for four months or more “because comparing felt like too much work” — inaction that has cost them money. Even when a debt decision “felt overwhelming,” 41% did nothing beyond making their minimum payments.

Growing credit card debt

Indeed, 57% of U.S. consumers carry a balance (2) on their credit card, according to a U.S. News survey. In the face of persistent affordability challenges, more than half (56%) say they’re using their credit cards to pay for basic necessities such as gas, groceries, childcare or utilities. And one in three (34%) are using them for emergencies and unexpected expenses.

While carrying credit card balances for these reasons may be a necessary evil, some U.S. consumers also carry balances because they overspend on non-essential items such as shopping and vacations.

Regardless of why people carry a balance, many are finding it hard to pay off by the end of the month. Among those carrying a balance, 22% carry it for six months to a year, one-fifth (19%) carry it for one to two years and another one-fifth (19%) carry it for five years or more.

But it’s possible to move beyond inaction.

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The costs of carrying debt

While carrying debt comes with financial costs, it also comes with psychological and interpersonal costs. For example, financial pressure arising from debt can strain a couples’ relationship, especially when that debt is attributable to one person’s spending — yet still affects both partners.

Psychologically, debt can create feelings of shame, which in turn drives avoidance as a protective response and delays decision-making in dealing with that debt. This can lead to a “shame spiral (3),” according to WealthMind, a site that offers quizzes and tools to help people understand their relationship with money.

Avoidance, such as not looking at statements, can turn into a vicious cycle: debt keeps growing, which in turn increases feelings of shame.

Debt can also cause cognitive overload. “The background processing of financial worry impairs decision-making, reduces working memory capacity, and makes it harder to engage in the kind of long-term thinking that debt repayment requires,” according to WealthMind.

The psychological effects of debt can make it hard to get started on finding solutions. But, oftentimes, when people do start tackling the problem, they’re confronted with too much choice. And that leads to “choice overload (4),” according to Charles R. Chaffin, Ed.D., in an article for Psychology Today.

To manage this, it can help to set parameters around the time, effort and attention you allow yourself to devote to the problem. You can also allow yourself to settle for a solution that is ‘good enough,’ rather than perfect.

Understand your debt

Getting out of debt starts with a full (and honest) inventory of all your debts, detailing the balance owed, the interest rate and the minimum monthly payment required. From there, you’ll need to find money in your budget to start paying down your debt.

A quick daily check-in of your accounts can show you exactly where your money is going. An app like Rocket Money can easily flag recurring subscriptions, upcoming bills and unusual charges by pulling in transactions from all your linked accounts.

This can help you cut unnecessary costs, and then you can manually redirect savings straight into your retirement fund. No spreadsheets, no guesswork, no stress. Small habits like this can make a big difference over time.

Rocket Money’s intuitive app offers a variety of free and premium tools. Free features include subscription tracking, bill reminders and budgeting basics, while premium features — like automated savings, net worth tracking, customizable dashboards and more — make it easier to stay on top of your retirement contributions and overall financial goals.

Seek debt relief

If you owe a substantial amount, you may also want to see if you qualify for a debt relief program to help clear a significant portion of your debt.

With Freedom Debt Relief, you can speak with a certified debt relief consultant for free, who can show you how much you can save by partnering with them.

If you’re eligible, they can negotiate settlements with your creditors until all of your enrolled debt is resolved.

Build an emergency fund

Once you’ve accounted for all of your debts, you can start building an emergency fund, which should eventually be able to cover three to six months of expenses. That means, if an unexpected expense comes up, you can cover it without having to tap your credit cards.

To get the most out of your emergency fund, consider putting the money in a high-yield savings account.

A high-yield account like a Wealthfront Cash Account can be a great place to grow your uninvested cash, offering both competitive interest rates and easy access to your money when you need it.

A Wealthfront Cash Account currently offers a base rate APY of 3.55% through program banks. With a new client boost and direct deposit incentive, referred clients can earn up to a 4.55% APY.

That’s 10 times the national deposit savings rate, according to the FDIC’s September report (5).

With no minimum balances or account fees, as well as 24/7 withdrawals and free domestic wire transfers, your funds remain accessible at all times. Plus, you get access to up to $8M FDIC insurance eligibility through program banks.

Debt repayment methods

Once you have a budget and you’ve built up an emergency fund, you can begin to direct extra money toward your debts. Two common debt repayment methods are the avalanche method and the snowball method.

With the avalanche method, you start by paying off the debt with the highest interest rate first. With the snowball method, you start by paying off the debt with the smallest balance first.

If you’re having trouble getting started, then the snowball method may be a good approach. It’s not necessarily the best method mathematically, but the small win of paying a debt off completely can help you stay motivated, reduce your shame load and help you get out of that “shame spiral.”

Paying off debt isn’t easy. By following a few simple steps, you can stop delaying, overcome the powerful psychological barriers that may be holding you back and start getting a handle on your finances.

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Article Sources

We rely only on vetted sources and credible third-party reporting. For details, see our ethics and guidelines.

Rosecove (1); U.S. News (2); Wealth Mind Tools (3); Psychology Today (4); Federal Deposit Insurance Corporation (5)

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.