Debt Escape Plan: How to Free Yourself From Credit Card Balances, Boost Your Credit Score, and Live Debt-Free

Debt Escape Plan: How to Free Yourself From Credit Card Balances, Boost Your Credit Score, and Live Debt-Free

by Beverly Harzog

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Product Details

ISBN-13: 9781601633606
Publisher: Red Wheel/Weiser
Publication date: 02/18/2015
Edition description: First Edition
Pages: 288
Sales rank: 270,089
Product dimensions: 5.20(w) x 8.20(h) x 0.70(d)

About the Author


Beverly Harzog is a nationally recognized credit card expert, author, and consumer advocate. She's appeared on Fox News, CNN Newsource, ABC News Now, and top media markets across the country. She is a frequent guest on syndicated radio shows, and her advice appears regularly in print and on major Websites, including the Wall Street Journal, the New York Times, USA Today, SmartMoney, Money Magazine, U.S. World & News Report, New York Daily News, the Washington Post, MSNMoney.com, CNNMoney.com, and many more.

Beverly runs a popular credit card blog on her Website and has coauthored two books, The Complete Idiot's Guide to Person-to-Person Lending and Simple Numbers, Straight Talk, Big Profits! She lives in Johns Creek, Georgia, with her husband and two children.

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CHAPTER 1

9 Mistakes That Keep You Stuck in Debt

Being in debt is a horrible feeling, isn't it? Anyone who has ever been in debt knows that. I've been there to the tune of $20,000, so I really can empathize. But you know what's even worse than feeling like you're about to go under water? Making mistakes that cause you to sink even lower into the depths of debt hell.

I've actually committed all of the mistakes I'm going to cover here. Yep, all nine! It's not an achievement I'm particularly proud of, but by sharing it with you I'm hoping you'll benefit from my past misery. Some of these mistakes I made just as I was starting to sink into debt. They're what I like to call "gateway mistakes"; once you get comfortable with these mistakes, you're just a few steps away from the bigger mistakes that take you all the way down the rabbit hole.

So, I know firsthand how screwed up things can get. I also know that these nine mistakes kept me in debt far longer than necessary. And that means I paid a whole lot more in interest than I would have if I'd come to my senses sooner. Here's the deal: Face these mistakes head-on so you can nip them in the bud and get on with fixing your life. Of course, if you're afflicted with Mistake #1, I know that this is easier said than done.

Mistake #1: You Have an Acute Case of Head-in-Sand Syndrome

When you're in debt, you kind of wish you could have a do-over with your credit cards. This is especially true if you've taken the time to learn about your finances since you got into debt. If you could climb into a time machine and go back a few years, you definitely would not buy those designer shoes. And you wouldn't even think about getting that awesome flat-screen TV again. In fact, if you could bargain with the shopping gods, you'd never buy anything again, ever!

If you could only erase the damage, you'd be the best cardholder who has ever lived. See, this is the kind of thinking that leads to depression, because you know you can't have a do-over with your credit card debt. And this, my friends, is what makes you vulnerable to head-in-sand syndrome (HISS).

Here are some of the unpleasant side effects of HISS: When you're in the acute stage, you might start making late payments. Or worse, you might even stop paying your bills altogether, as I did. Other side effects include plunging credit scores, mail-induced nausea, and non-existent self-esteem. It's not surprising that some of us start to pretend that the whole debt thing doesn't even exist. I mastered this approach when I was in debt. Fortunately, this syndrome is curable by taking a large dose of reality. I call this "staring down your debt," and I show you exactly how to do just that in Chapter 2.

When I was in debt I had seven credit cards, and they were all maxed out. Every. Single. One. You know what happens when you're in this situation? You get lots and lots of bills in the mail. Yes, I mean snail mail. It was the '80s, and if you could breathe, you could get a credit card. And these were the days before the Internet and digital statements. If you're under the age of 35, this situation is probably difficult to imagine.

My problem wasn't just the amount of debt, though. I had so many high minimum monthly payments, I couldn't pay all of my monthly bills. The electricity, my rent, you name it. Not happening. Fortunately my car was paid for, or I surely would have ended up walking to work. It became overwhelming, and honestly, I wasn't yet ready to face what I'd done. So I made what I considered a logical decision at the time: I stopped going to my mailbox. No mail, no bills, no stress. Problem solved!

I talk about this a bit in my book Confessions of a Credit Junkie, and how I went on like this for weeks. But one day I was ambushed by the postal carrier who could no longer stuff any more mail into my mailbox. He happened to be there when I went home for lunch one day, and he said he thought I'd moved and had neglected to fill out one of those mail-forwarding forms. I fibbed about losing my mailbox key and he promptly handed me all my mail. That day, my lovely imaginary life got a jolt of reality.

Unfortunately, during my break from reality, everything had deteriorated to the point of ugliness. Some of my accounts had gone to collection agencies. My electricity was about to be turned off. Serious stuff was happening because I refused to live in reality. Would you believe I continued on in this semi-comatose state just a bit longer? When you feel like the walls are closing in on you, you cope the best way you can while you try to figure out what to do next. It might look to outsiders like you're making insane decisions. But this is why I never, ever judge the decisions people make when they're in debt. It's kind of like floating in the ocean, hanging onto a life preserver during a big storm. You're just trying to keep your head above water while you wait for things to calm down.

But the only way to keep from drowning is to face reality. Trust me on this. When I finally came to my senses, I had a strangely Zen type of feeling. I think I was relieved that the credit ride was over. Now, I just had to figure out how to take back my life.

Of course, I regretted not having this epiphany sooner. My head-in-sand time made things worse than they already were, which made my credit comeback more difficult. But I still managed to recover from this mistake, and you can, too.

Mistake #2: You Believe You're a Victim

This one is complicated. I want to be sensitive here because there really are unfortunate circumstances, such as a health crisis or sudden unemployment, that make it difficult for people to pay their bills. In these cases, I'm not criticizing you for feeling like you've been dealt a bad hand. But until you can stop identifying yourself as the victim, you won't be able to pay off your debt. You'll be too angry to stay focused, because getting out of debt isn't for the faint of heart; it's hard work, and you have to be all in.

Let's take a look at the two most common complaints I hear from those who get stuck in victim roles. We'll take a look at each scenario and I'll explain what I mean.

"The credit card companies tricked me."

Some personal finance experts will tell you it isn't your fault. You couldn't resist the advertisements. They were too powerful, and you got sucked into buying stuff. Well, I'm not one of those experts. I happen to think that you're smarter than that and not weak-minded enough to get continually sucked into purchases you don't need. Sure, we all indulge in impulse buys now and then, but you can't blame $30,000 of credit card debt on commercials or complicated fine print.

I have a lot of respect for you. I think you're tough and savvy. And I think that deep down inside, you know that. Am I right? So let me give it to you straight: It's your debt and you're responsible for paying it off. It's really that simple. I don't want to hear that you bought into the hype or the advertisements made you do it. It doesn't matter how funny the credit card commercial was; it was still your responsibility to read the fine print. And yes, I agree some of the fine print is deceptive and tricky. But at some point, it was up to you to stop the spending.

Now, there are other circumstances that don't involve impulse buys or being influenced by ads. Let's take a look at these because, really, I understand why these situations would make you feel mad at the world. In fact, you wouldn't be normal if you weren't feeling a little victimized.

"I experienced a crisis."

Losing your job, going through a messy divorce, and being diagnosed with a life-threatening illness all fall into this category. These are situations that often cause a lot of folks to sink into debt. If you're a parent, this is even more complex because you have mouths to feed. You can't decide to eat canned tuna fish (or my personal favorite, peanut butter and jelly sandwiches) for six months while you try to fix your money situation. Kids need a good diet, and they grow quickly. When my kids were young, it seemed like they needed new shoes every three months.

So let me just say that I really do feel badly for you. This is a debt situation that isn't fair. I get that. Maybe you even had an emergency fund, but it wasn't enough to survive the long months without a steady income or out-of-pocket medical expenses you had to cover. But here's the harsh reality: It's still your debt and you have to pay it off. Find a way to recreate yourself as a survivor. You faced tough times and you survived. Now you've got credit card debt, but you'll beat that, too.

If you're in debt due to an illness or a family member's illness, this has become, unfortunately, an all-too-common financial crisis. The number-one cause of bankruptcy in this country is medical debt. You might be in a situation where you have such high medical bills, you see no way out. And if you're way over your head in medical debt, I address this specific situation in Chapter 8.

Mistake #3: You Fail to Identify the Real Problem

This is a common mistake and I know why. It takes a bit of work and soul searching to sort this out. And I'm talking about narrowing down your problem to the exact source. So saying "I spend too much time at the mall" isn't specific enough. If you don't isolate the specific source of your problem, you can't make the necessary adjustments. And even if you manage to get out of debt, you're likely to end up in debt again. I'll cover this in more detail in Chapter 2, but I want you to start giving this some thought now. So let's look at a few of the more common reasons people end up in credit card debt.

Retail therapy

This type of behavior goes by many names: shopaholic, mall rat, or — my personal favorite — credit junkie. The incentive is the same, though. You experienced a disappointment, got upsetting news, broke a nail, rear-ended another car, had a boring afternoon. Just insert the verb/crummy adjective/noun combo that applies to you.

Remember the experiment with Pavlov's dogs? Ivan Pavlov did an experiment that conditioned dogs to salivate when they heard a bell. When they heard the bell, they knew they'd soon be getting meat powder. This is called classical conditioning. I'm not suggesting we're exactly like Pavlov's dogs (although I've been called worse things on the Internet!), but the theory still applies.

This is what happens: A certain trigger in your life compels you to react with your credit card. Then you go shopping and it gives you a psychological boost just when you need it. When I was in debt, I specialized in head-in-sand syndrome and retail therapy. Had a bad day at the office? A new pair of Ralph Lauren jeans sounded about right. Broke up with a boyfriend? The therapy required depended on how much I liked him. If I thought he was The One, designer shoes were sure to kill the pain. Oddly enough, I needed more therapy to recover from the jerks. I once bought a luxurious winter coat after a breakup with a guy I was actually glad to get rid of.

The truth is, we all engage in retail therapy now and then. An Ebates.com survey in 2013 showed that 51.8 percent of Americans shop and spend a little now and then when they need to feel better. Women, at 63 percent, did this quite a bit more than men, at 39 percent. So a little retail therapy on occasion isn't the issue. But if you indulge in retail therapy on a frequent basis, it's really difficult to get out of debt because you're still busy getting into debt. You have to put down the credit cards. You'll need a new way to handle the ups and downs of life.

You know what worked for me? I learned everything I could about personal finance, especially credit. I know that sounds painfully dull, but it was so empowering. And well, I admit that I kind of like feeling powerful. It raised my self-esteem and self-confidence to levels I'd never had before.

Ironically, confidence issues turned out to be my spending catalyst. It wasn't that I needed to shop to forget my bad day at the office. Every day was a bad day at the office. I had a bad day because I wasn't advancing in my career the way I wanted to. The cause? Poor self-confidence. I needed new shoes to regain my confidence. So when I walked into the office the next day, it was a whole new me. And I loved the compliments about how great I looked. But as soon as the newness wore off, I was right back where I started.

When I'm on the radio, I'm often asked if I got credit counseling to overcome my credit junkie tendencies. I never saw a credit counselor about this because once I decided to pay off my debt, I became more self-disciplined. I also didn't know that credit counseling was out there and that it was a good option if I wanted to pursue it.

Just watching my debt total go down generated an adrenaline response that was similar to the rush I once got when I scored a new handbag at the mall. There was a big emotional component to my spending, for sure. I do feel lucky that learning about personal finance boosted my confidence and self-esteem enough to help me control my spending.

If you've tried to stop shopping and you can't, there's no shame in that. We all have something that, at one time, has held us back from getting what we wanted. If you think counseling would help, then don't hesitate to try it. Many counselors will work on a sliding scale and only charge you what you can pay. I realize this is not the best way to immediately pay down debt since it involves spending more money. But we're thinking about long-term solutions here. It always pays off to spend time working on yourself, if that helps you succeed in getting rid of your debt.

Now, if you feel your shopping has approached the level of addiction, I urge you to contact Debtors Anonymous for help. I have contact information for you in Appendix B. Do whatever you need to do to take back your life. It's no one else's business how you going about doing this.

Spending too much time with shopaholic friends

Anytime you're trying to give up something, you likely need to keep away from the thing you're trying to give up. If most of your friends think browsing and shopping at the mall is the way to spend a Saturday, then you need to cut back on the time you spend with them. Now, this assumes that they would pressure you into buying something. But let's be honest: It's hard to pass over a dress that's just the right size and in a color that brings out your eyes unless you're in a good place psychologically.

I know it's difficult to cut back on your time with friends, and they may not understand at first. But I think you need to be honest. I really believe that's the best way to save a friendship. Let them know that you're working on getting out of debt. If you don't want to talk about that, then tell them you're saving money for something you really want. That's true, too. You're saving money to throw at your debt because you want it to go away!

This is a complex problem, and I know you don't want to give up your friends — unless, of course, they are sabotaging your efforts to get out of debt. You know that saying "misery loves company"? Well, that's how we sometimes end up with friends who aren't good for our emotional and financial health. Only you can decide if you need new friends. All I'm saying is that you need to take a look at who you hang out with while you're in the midst of debt reduction.

Mistake #4: You Don't Make Credit Card Debt Your Priority

We've already talked about how quickly the interest can pile up. We'll talk about different approaches to paying off your credit cards later in the book. But the main thing to get into your head right now is that you can't put it off. You can't decide to save for a new car before paying off your credit cards. And definitely don't pay off your mortgage before you pay off credit card debt.

You've probably heard of the concept of good debt vs. bad debt. Good debt is associated with an investment — a mortgage, for example. This assumes you make a good choice and don't overpay for a home. Although it isn't the clear-cut financial win it used to be, most of us still want to own a home. It's a source of pride and often brings a tax deduction. This all assumes you don't get a mortgage you can't really afford, of course.

Student loans are another example of good debt. You're making an investment in your future. A recent Pew Research Center study showed that Millennials aged 25 to 32 who had college degrees earned a median salary of $45,500, whereas high school graduates earned only $28,000 (from "The Rising Cost of Not Going to College," Pew Research Social and Demographic Trends, February 11, 2014, www.pewsocialtrends .org/2014/02/11/the-rising-cost-ofnot-going-to-college/#). That's a big gap. And the unemployment rate for high-school grads was three times higher than it was for those with a college degree. But if you go overboard with student loans, you might not gain the advantage you seek. A good rule of thumb is that your student loans should not exceed the amount you expect to make in your first year of work. Another example is a business loan. It's risky, for sure, but your plan is to use the capital you borrow to create a business that provides a source of income. This is what I mean by good debt. You take a calculated risk when you borrow, but you gain something that could make you better off financially down the road.

(Continues…)


Excerpted from "The Debt Escape Plan"
by .
Copyright © 2015 Beverly Harzog.
Excerpted by permission of Red Wheel/Weiser, LLC.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Table of Contents

Introduction 13

Chapter 1 9 Mistakes That Keep You Stuck in Debt 17

Chapter 2 Look Your Debt in the Eye and Own It 43

Chapter 3 What's Your Money Personality? 65

Chapter 4 Be the Boss of Your Budget 89

Chapter 5 (Almost) Pain-Free Ways to Increase Your Income 111

Chapter 6 Create Your Debt Escape Plan 133

Chapter 7 Staying Motivated When Things Go Wrong 157

Chapter 8 What If You're in a True Debt Disaster? 173

Chapter 9 7 Simple Strategies to Boost Your Credit Score 199

Chapter 10 Debt-Proof Your Future 223

Appendix A Glossary of Key Terms 245

Appendix B Resources 261

Index 271

About the Author 279

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The Debt Escape Plan: How to Free Yourself From Credit Card Balances, Boost Your Credit Score, and Live Debt-Free 5 out of 5 based on 0 ratings. 2 reviews.
ValerieRind More than 1 year ago
An invaluable guide to do it YOUR way! Many people write books and blogs about paying off stupefying amounts of debt. Ms. Harzog herself eradicated $20,000 in credit card debt and then took her experience a big step further: She became a nationally known consumer credit expert who has helped thousands of people learn about personal finance and become debt-free. The author's bestselling book, Confessions of a Credit Junkie, focused on the ins and outs of the mysterious world of credit scores and cards. Her latest, The Debt Escape Plan, takes a more personal approach. She openly discloses her path in and out of the debt dungeon. It's an encouraging book for anyone drowning in their own debt quicksand. Of course there is no quick and easy way out, but you can gain insight into how you got there, what keeps you stuck, how to escape, and how to stay out of debt permanently. But there's so much more! The author offers her version of a "money personality" quiz. She pairs it with another quiz about how you synthesize new information.  Do you learn best if you read or watch a video?  Based on the outcomes, she suggests debt repayment strategies that would be consistent with your attitudes to money and your motivational style. As for the nitty gritty of debt payoff, financial experts strongly advocate one of two methods: The Debt Snowball and the Debt Avalanche.  The first directs you to pay off the debts with the lowest balance first so that you'll get a psychological boost from wiping them out sooner. Advocates of the other approach point out that you'll save money in the long run if you pay the accounts with the highest interest rate first, regardless of the amount due. Ms. Harzog offers a refreshingly unique strategy. It's a combination approach that she dubs the "Debt Blizzard." To get the emotional lift of early accomplishment, you pay off the smallest balance account first. Next, you devote yourself to polishing off the debts with highest interest rates. Even while offering this innovative method, the author doesn't take a rigid stance that it's the only way. Instead, she suggests the payoff strategies that align with your psychology. It's clear that your chances for success are much greater than if you force yourself to take an unnatural approach. This easy-to-read book is full of encouragement, and there's no scolding. Jam-packed with information about many personal finance-related topics, it's a must-read if you're struggling with debt and want a custom tailored payoff plan. You can do it! Disclosure: I received a free copy of this book in exchange for an honest review.
lbeemoneytree More than 1 year ago
Warm, engaging, and to the point. I think Beverly Harzog has written a great "how-to" guide for real people on how to tackle debt, and stay out of it. I always enjoy books written by others who have been there before!