It’s easy to think about debt as a sort of deal-with-it-later type of problem. Or you may think of it as simply being a product of economic forces beyond our control.  But what if the way you think about debt is actually part of the problem?  Not only are there myriad fallacies out there about debt, its effects, and how one can escape it, but overspending can be caused by off-base priorities, unreal expectations, and the way you value different forms of payment.  What’s more, when it comes to paying down debt and altering spending habits, at least half the battle is mental.  With that being said, here are five tips for dealing with debt by tackling the mental side of this problem.

Evaluate what’s “necessary”

The biggest issue that many people face in trying to curb overspending is forgoing certain luxuries that have grown to be thought of as necessities.  The bottom line is that not everything we buy is needed, and when faced with a choice between stress, costly interest, credit score damage, even a lawsuit and giving up a few luxuries, scaling back is certainly the way to go.  You should therefore first rank your expenses in order of importance and then start adding them up starting with the most integral until the sum reaches your monthly income.  Anything below this threshold should be cut.

Stick to your budget

Step 1 already involves writing down your budget, which can be very helpful in eventual follow-through because things just seem more real when actually written out.  People can easily justify overspending though, which means you might need some additional discipline.  Simply depositing your paycheck into your checking account and only making purchases with your debit card is a good option because if you end up having to use your credit card, you’ll know you’ve spent too much.  This will get you in the habit of only spending what you have so that when you ultimately switch to the optimum strategy of using a rewards credit card for everyday expenses, you won’t have anything to worry about.

Segment expenses

If, for whatever reason, you have decided to use a credit card instead of a debit card, separating your debt from your everyday expenses will help you more easily evaluate and manage your spending habits.  When you designate one credit card as being only for everyday expenses, you know that its balance should be paid in full every month.  If ever finance charges find their way onto this card’s statement, you’ll know you’re spending beyond your means and need to adjust.  You’ll also be able to garner the best possible rewards since you won’t have to worry about this card’s interest rates.  Designating another card as being for debt will allow you to focus on finding the 0% credit card with the longest introductory term.

Understand that not all debt is equal

In addition to addressing the problem of overleveraging (i.e. spending more than you bring in), it’s important to pay down what you already owe.  Too often, people with more than one credit card balance or debts with multiple lenders make equal monthly payments to each of their obligations.  This approach will cost you in interest charges.  You see, your debts likely have different interest rates and you should strive to pay down those with the highest rates fastest.  That means making minimum payments on all but your most costly debt until it is paid off in full and then applying this strategy to the rest of what you owe until you’re debt free.  It’s important to note that if you have multiple balances on the same credit card, only the amount of your monthly payment that is above the minimum will be applied to the balance with the highest interest rate.

Be aware of a “play money” mentality

People often spend more with plastic (e.g. credit cards, prepaid debit cards, gift cards) than they would ordinarily because handing over a card is easier to swallow mentally than handing over cold, hard cash.  While certainly more abstract, money spent with a card is no different than physical currency, and you should strive to treat it as such.

Unfortunately, it seems that credit card debt is on the rise.  U.S. consumers added nearly $17 billion in credit card debt during the third quarter of 2011 alone, which is 154 percent more than they racked up during Q3 2010 and 58 percent more relative to the same time in 2009.  This merely underscores the need to take the above steps so that we can avoid a double-dip recession.

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