The Debt Mindset

Understanding the Debt Mindset can help you break free of the debt cycle. This Mini Workshop is all about being able to identify how our budgets can keep us in debt and how to break free from that limiting mindset.

"You deserve better than chasing your tail in debt."
krystal kleidon

lesson 1

Debt + Budget Mindset

Debt. Most people have it. Most people don’t want to have it. And a lot of people don’t really know how to get rid of it.

So why do we keep pushing ourselves further and further into debt?

I have a theory…

Traditional budgets tell you that you have to pay off all debt, then you can start saving for things like a holiday etc.

I find this SO hard to stick to.

For some people, paying off all of their debt could take years. While there are a small handful who could do this, head down bum up, for the vast majority of people, they find it too restrictive and therefore won’t stick to the budget, end up going back to their old spending habits, and never achieving their goals.

They feel like they can’t stick to a budget in order to get out of debt, so they just keep going with the status quo, and when one debt does end, they replace it with another, because that’s the way they have always done it. This is where the debt mindset sets in.

Rather than restricting yourself so much you cannot possibly stick with your budget, you should give yourself small ‘wins’ along the way, while still making debt pay off a priority. This helps you overcome the ‘I’ll always be in debt’ mindset and allows you to feel like you’re still able to enjoy your money, while paying down your debt still. 

For example, if you’re left with $250 a week to put towards your debt pay down, then you should pay $200 towards it, and put $50 aside for ‘reward’ money. This is designed to reward you for sticking to your budget and to encourage you to keep going. You could use this money for a mini holiday or even a little spending spree for yourself.

The amount you pay off your debt should always be greater than the amount you put towards your reward money, but you can use whatever amount you need in order to help you stick with the budget for the long run. If that means you would up it to $100 of ‘reward’ money and $150 towards debt pay down then that’s up to you.

It simply changes how quickly you achieve your financial goals.

Just like restrictive diets are difficult to stick to, we are all about creating sustainable and achievable budgets that you are excited about and that you can keep using over and over again.

You do not need to pay off all of your debt in order to start living and loving your life. Your first goal may simply to be to not get into anymore debt for 6 months, starting off with simple steps, making sure you meet your repayments and create sustainable habits.

These are your goals and your choice how you pay your debt down.

This Mini Workshop is all about thinking about your approach to debt, how you have used debt in the past, what you feel debt has restricted you from doing, and how motivated you are to getting out of debt.

lesson 2

Which debt to pay off first?

In the Quest to pay down debt and become debt free, the question always comes up ‘which debt should I be focusing on paying off first?’ 

It’s a great question, but doesn’t always have a simple straightforward answer.

There are a few different methods on how to pay off debt, with the ‘debt snowball’ growing in popularity over the last few years. Essentially, it means you choose your smallest debt, pay it off first, then add the payments you were making to that debt to the next smallest debt, pay it off, then add that payment to the next… and so on.

This may work if you have lots of little debts and they can be paid off quickly. But.. what I do is a little different.

Rather than choosing the smallest, I choose the debt that is costing me the most.

Keep in mind, this doesn’t always mean the one with the highest interest rate.

Debt is expensive to have and to keep. Credit cards have yearly fees, loans often have service fees as well as interest and some credit cards even have a payment fee. Yup, that’s right, a fee to actually make a payment off your card!.

So be sure to take some time to work out what each of your debts is actually costing you. It’s up to you what method you use to pay them off, but I always choose the most expensive first.

Once that debt is gone, then you can continue with the ‘snowball’ method whereby you use the payments you were making on Debt 1, to add to the payments you’re making on Debt 2 and pay the debt off faster.

There’s a great calculator tool love to use that shows you how long your debt will take to pay off if you only pay the minimum repayments, as well as the total amount you will have to pay. It also has the option of adding in additional payments and allowing you to see how much money you can save by making the extra payments. It’s really eye opening and you can find it here –

If you’re working towards becoming debt free, it is incredibly important that you don’t continue to put yourself into debt along the way. There’s been a rise in popularity of ‘Pay Day’ loans, which a fast small loans available very quickly and have incredibly high set up fees and interest rates.

You will not be better off using this loan method, ever. They are designed to make money, not to help you.

If you are having trouble making payments, call the companies you owe money to, call your bank, request an extension or a payment plan. Do not get into more debt in attempt to pay off debt.

lesson 3

A note on credit cards

Contrary to popular belief, you don’t have to get rid of your credit card and they are not the crux of all of the world’s financial problems.

I have previously had a credit card that cost me $99 a year, but I had 6 months interest free on purchases over a certain amount. We used this while we were renovating our home so we put all our purchases on the credit card, then when it was full, we paid off the credit card from our savings. The money we had in our savings offset our mortgage interest and we saved well over the $99 credit card fee a year by doing this.

Do be mindful of the total cost of a credit card. Sure you may get rewards points, but how much does it actually cost you to have that card.

Credit Cards are only a problem if you have a problem using them.

This means you have to be honest with yourself. Are you capable of handling a credit card without it causing you more debt? Are you using it as an ‘in case of an emergency’ when really that’s an excuse and the only emergencies it’s been used for are the new boots on sale? (‘Emergency credit cards’ still cost you money each year – you are far better off having an emergency bank account separate to your others).

It’s okay if you’re not. This is all about financial confidence and understanding your own financial strengths and weaknesses. I’m okay with a credit card, my husband is not (hence why it’s in my wallet and not his).

lesson 4

Debt Tracking

As with all things mindset, the very first thing you need to do is make yourself aware of your situation. Find out exactly where you are, so when you decide where you want to go (your goals) you can create a clear path to get there. 

Use the debt tracking sheets in the Finance Planner linked below to help you determine where you are with your debts right now.