It’s Friday evening, and your friends are posting selfies while blowing off some steam during another big night on the town. And here you are at home, phone in hand, scrolling through all the fun everyone else is having. How on earth are you supposed to live life to the fullest while low-key always stressing over how to manage debt and pay for the rising cost of living?
So begins another showdown in your brain—do I go out and spend who knows how much on drinks, Ubers, and late-night snacks? Or do I stay in, save money, and risk the worst case of FOMO in human history?
The real reason you’re feeling FOMO
Fear of Missing Out (FOMO) isn’t just an acronym that lives on social media. It’s a real-life phenomenon studied by psychologists that describes the anxiety of not being part of a shared rewarding experience. So why does it happen every time you try to go on a major budget and get some things paid off?
I hate to sound like my parents, but it’s that dang social media. One 2013 study analyzed FOMO in 150,000 British participants, and surprise, surprise—guess which stimulus is most highly correlated with causing FOMO? It’s not your low mood after a hard work week (try a warm bubble bath and lots of sleep for that one), and it’s not even a genuine desire to socialize. Instead, participants were most likely to report feeling FOMO after interacting with Facebook.
One of the reasons humans have managed to survive and thrive for so long is because of our advanced social structures, so our brains are designed to respond to social stimuli. That’s why we love social media so much in the first place!
But social media plays a weird trick on our brain—it makes us forget that our time and resources aren’t infinite because we constantly see so many options for spending them all at once. So simply identifying the cognitive trigger behind your desire to spend now and worry about managing debt later is hugely empowering. That knowledge comes in handy when making little tweaks that help you reach your financial wellness goals while also fulfilling your fun needs bar (where are my other Sims players at?)
You can teach yourself how to manage debt and live life to the fullest at the same time
No—I’m not going to tell you to forsake social media and spend the next ten years in solitude paying off loans and credit cards while your friends enjoy bottomless mimosas without you. In fact, that’s the opposite of what you should do.
One of the biggest reasons budgeting and debt management plans go belly-up is that we leave little room for enjoyment. So let me let you in on a financial wellness hack—make room for balance, and you’ll set yourself up for success.
You deserve to have fun and be financially healthy. So here are four fantastic debt-management methods that offer you a chance to do both.
How to manage debt: 4 proven methods
This might be a throwback for some, so bear with me here, but did you ever play Super Mario 64? There’s one level that represents this method so perfectly that I can’t resist drawing a comparison.
Mario has to get one half of a snowman down a mountainside to reunite with its missing snowman head. As the snowball rolls down the mountain, it gains speed and grows in size. By the time it reaches the bottom of the hill, it’s powerful enough to become a whole snowman once again, and Mario claims a golden star.
The snowball method of paying off debt might not get you a gold star, but just like my Super Mario 64 skills, it’s proven to be incredibly effective.
You start by making the minimum payments on each of your debts. Then, you create a small amount of momentum by budgeting a bit more to pay off the smallest debt a little bit faster. Once that one is paid off, you tack that on the minimum payment of the next smallest debt.
As you chip away at each monthly debt payment, you wind up with more money available to pay off the next debt, creating a “snowball” effect. The best part is that it builds so that you can slowly budget larger payments for more substantial debts over time.
Sure, you might have to Netflix and chill once in a while to make it work. But if you put your phone on Do Not Disturb when you get home from work and practice being in the moment, you can stave off the FOMO for a while.
Sticking with the theme of snowy wonderlands, the avalanche method is an accelerated debt repayment method. It’s similar to the snowball method in that you budget a bit extra to pay off one account at a time. However, with the avalanche method, you intentionally choose the account with the highest interest rate first.
This debt will have the largest “avalanche” of interest, so knocking it out as quickly as possible is a real power move. As with the snowball method, you should continue to make minimum payments on all your other debts as you do.
Once you pay off the debt with the highest interest rate, you move on to the debt with the next highest interest rate. By following this strategy, you can effectively reduce your overall debt burden and save a whole bunch of extra money on interest in the long run.
Can you still sing your heart out at karaoke every Thursday? Of course—who doesn’t want to hear you sing Mr. Brightside for the five hundredth time? Just be sure to set a reasonable going-out budget that supports your big goal for financial wellness. You got this!
Debt consolidation is an excellent option when you’re feeling stretched thinner than a piece of beef carpaccio. With this method, you’ll work with a lender to pay off multiple debts at once.
Debt consolidation can help you get a lower interest rate, saving you more money over time. It can also make your monthly payments more manageable, as you will only have to make one payment each month instead of multiple payments.
There are a few different debt consolidation methods, including:
- Credit card balance transfer
- Debt consolidation loan
- Debt management programs
That means you’ll actually have a little extra at the end of the month to hit up Taco Tuesday with the crew guilt-free. I’ll have one marg on the rocks with salt and a side of extra, extra guac with my tacos, please.
Debt settlement is a negotiation with your creditors to pay off your debt for less than the total amount owed. It can be an effective debt management strategy, but it’s essential to understand how it works before you begin.
First, you’ll need to contact your creditors and let them know you’re interested in debt settlement. Then, you’ll negotiate a settlement amount with each creditor. Once you’ve reached an agreement, you’ll need to make a lump sum payment to the creditor to settle the debt.
However, it’s important to remember that debt settlement is not a quick or easy fix. Along with bankruptcy, you should consider debt resettlement a last resort. Remember, this isn’t free money—be sure to research the tax implications of debt resettlement before you decide to go this route.
There is also the possibility that debt settlement can have a negative impact on your credit score. Strong credit scores reward those who pay the agreed upon amount on time. When your lender closes the account after modifying your contract, it lowers your credit score. Debt settlement has more of a negative impact if your credit score is higher, but lower credit scores won’t see as much of an impact.
But debt settlement sure can help if you’re in a real pinch (hey, no judgment here—I’ve been there plenty of times!)
It can be tough to get out of debt while still finding ways to feel fulfilled, but trust and believe that you can do it. If you’re deep in debt, consider working with a credit counselor to devise a personalized approach. Here at Julep, we offer personalized programs to help you learn how to pay off your debt, budget, and feel better overall about your financial journey.
Whichever route you choose, don’t give up – with hard work and determination, you can become debt-free.
We know that debt can take over your relationship with money and hang like a wet blanket over your mental well-being. That’s why we’ve created an app that uses psychology to help you improve your relationship with money, hone your financial habits, and reach financial freedom. Learn more about Julep today.
Julep is not a financial institution, financial advisor, or credit repair company, and does not provide credit repair services of any kind. The information provided is for general educational and reference purposes only. The information is not intended to provide legal, tax, or financial advice. We do not propose any guarantee that the information provided will repair or improve your financial profile. Consult the services of a competent licensed professional when You need financial assistance.