According to statistics released by the Organisation for Economic Cooperation (OECD) in 2015, Australia has the highest level of personal debt in the world. In Australia, high levels of personal debt is a huge cause of depression, suicide, relationship break ups and poor parenting behaviour that in turn is impacting our kids.
So, why do some of us find it so hard to stop going into debt?
Debt is not about what you buy
It’s about the emotion you attach to what you buy. Sometimes, I get this kind of obsessed feeling about an outfit that I just have to have. I feel like I will not have a good time at a particular social outing if I am not wearing that outfit. I tell myself my husband will not find me attractive if I am not wearing that outfit. Clearly, there is something more going on here than simply the piece of cloth I want to drape over my body. I don’t know about you but for me, it is about keeping up with the Joneses and competing against basically every woman in the world.
Whatever it is, I am attaching emotion to the purchase and the debt.
Sometimes, I will buy something on my credit card because I just feel sad and down in the dumps. The purchase helps me feel better, but that ‘high’ feeling is short lived.
Don’t get me wrong there’s nothing wrong with buying myself Mac lipstick or a new outfit to feel good about myself but it is when I buy the lipstick instead of paying off a credit card, or paying an outstanding bill, or buying my kid’s school shoes that there’s a problem.
The bottom line is if I cannot afford it then I am living beyond my means and I am going into debt to soothe an uncomfortable feeling. I am being led by my beliefs and behaviours. Also, just because I can afford the credit card or Afterpay repayments doesn’t mean I can afford the lipstick or dress!
And debt can be addictive.
Yes, debt can be addictive. Why would you buy the outfit, the lipstick when you know you have to buy new school shoes for your child or you know your electricity bill is overdue. What is going on there?
Being approved for a credit card, or a buy now/pay later loan (and they are loans) triggers the same dopamine release (‘the pleasure response’) in your brain as a win on a poker machine. There is the anticipation of the debt and the purchase you are going to make and there is the feeling of a ‘win’ when you are approved for the credit card, loan, credit card increase or buy now/pay later ‘loan’.
Debt is actually about a battle between your left brain, your right brain and your brain’s ‘pleasure centre’ the nucleus accumbens. That is your left hemisphere where logic and rational decisions live and your right hemisphere which is more creative and intuitive. When you purchase something, and more so when you get approved for a loan or buy now/pay later ‘loan’, dopamine floods your nucleus accumbens giving you a great feeling of reward. The feeling lasts for a while and then stops.
Repeated exposure to an addictive substance or behaviour, like buying something using AfterPay or Zippay, will cause our brain to take action to seek out the source of pleasure. Over time the brain develops a tolerance and increased levels of action are needed to get the same ‘hit’. Say hello to the debt spiral…
So, stopping the debt spiral can be very difficult. Just as difficult to stopping a gambling or cocaine addiction. Just as devastating as a gambling or cocaine addiction.
Out of control debt can be a symptom of a money disorder
Going into debt is also about having confidence in the future or fear of the future. When that confidence turns to fear, anxiety is established that in turn can create a money disorder. Yes, there is such a thing as a money disorder. The main money disorders related to debt are:
Financial denial is about money avoidance. In other words you avoid opening bills, you avoid looking at your bank and/or credit card statement, you avoid talking about money with your partner, family and friends, you don’t know your credit score and you don’t know your net worth.
Gambling addictions as well as other addictions are money disorders and almost always result in out of control debt and they are extremely difficult to stop.
Compulsive spending disorders like excessive shopping also results in out of control debt particularly with the advent of buy now/pay later services like AfterPay and Zippay.
Five practical ways to get out of the debt spiral (and shame spiral)
Get help and let go of any shame you feel
I know you may not want to think about what you owe but if you ignore your debt it only gets worse. Know that there are lots of people going through what you are going through. Talk to someone you trust – remember the saying ‘our secrets keep us sick’. There are support groups like Debtors Anonymous or other 12 Step programs if you have any other addictions; make an appointment with a financial counsellor; make use of the tools on ASIC’s website.
Understand what is driving your behaviour
Understand and learn about what behaviours and beliefs are driving your out of control debt.
List your debts and set up a spending plan
List your debts with amount owing, interest rate, who it’s owed to, your account number and their contact details. Then set up a spending plan, become conscious of what you are spending on and why you are spending on it, become conscious of your feelings when you make that purchase.
Pay off debts with the higher interest first
Always pay off your debts with the higher interest rate first – people often pay off the smaller debts first (which does give an immediate sense of accomplish-
ment) but that higher interest rate on that unpaid balance will only make the balance get bigger! Talk about being penny wise and pound foolish!
Use a structured savings plan like super
A savings structure like superannuation is a really good way to set up a disciplined savings plan because you can sacrifice your salary into super and cannot access the money until you meet a ‘condition of release’. You also reduce your taxable income. Also, you are saving into a tax advantaged environment. The disadvantage is if you’re cash poor saving into super will impact your cash flow and you cannot access your money unless a condition of release is met. An alternative is saving into a ‘protected’ bank account. Ask you bank what they offer. You could also set up a combination of a savings and superannuation savings plan.
Some places to find help or more information.
Talking about money can be really hard. If you are feeling overwhelmed, I’ve listed some organisations and websites below that could provide you with further support and information.