The 4 Habits You Need to Change to Get Out of Debt

Woman descending on escalator with shopping bags that are adding to her debt

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Got debt? The total household debt increased by $155 billion (1.1%) to $14.30 trillion in the first quarter of 2020, according to the Federal Reserve Bank of New York's Center for Microeconomic Data. Those obligations come in the form of mortgage debt (which rose by $156 billion in the first quarter to $9.71 trillion), a $39 billion decline in credit card balances, a $15 billion increase in auto loans, and a $27 billion increase in student loans.

If this is a situation you’ve tried to personally correct only to fail before, don’t rely on hope. The very first thing you need to do is change your habit of paying bills as they come to one where you make payments automatically, explains Sarah Newcomb, a behavioral economist at Morningstar. “The less you have to think about it, the better,” she says.

But that is just the first step in ensuring your success. Here are the other habits you need to break and replace to start your journey toward financial freedom.

Avoiding Plans for the Future

Newcomb has found that one of the major factors that drive high debt-to-income ratios is impatience, which can lead to paying interest on your purchases. “The reality is that the more impatient you are, the higher the price you will pay for everything,” she says. In her research, she asks people about their financial behaviors when it comes to things like cash management, keeping a budget, tracking spending, credit management, saving, and spending less than they earn. What she’s found is that when she asks those same people how far into the future they tend to think or plan, there’s a statistically significant correlation: Those who are more future-oriented are better at managing their money. That finding crosses many demographic boundaries including age, income, and education, she says. ​

Change It

Ask yourself what you want your money to do for you this year, in five years and in 10. The key is making it specific—for example, instead of thinking “retirement,” think about the specific trips you’d like to take or the particular house you’d like to live in.

Bargain-Hunting for Sport

It’s easy to feel like you’re saving money when you buy something on sale, especially when the original price or percentage off is constantly trumpeted at you. But if you weren’t already planning to buy that item, you’re not saving anything.

And the bigger problem is this: “People spend more money when they go bargain hunting,” says consumer psychologist Kit Yarrow, who has researched the phenomenon. “What people become addicted to is the thrill of what they think is winning, what they think is saving, what they think is being good with their money,” says Yarrow.

Change It

Before shopping, wait until you need something specific. Better yet, don’t buy anything that isn’t on a premade list. Yarrow also suggests unsubscribing from daily deal and retailer emails, since they constantly force you to see bargains, which can take a considerable amount of willpower to resist. ( is a good tool for cleaning up your inbox and unsubscribing from things like this.)

Thinking You Have No Power

Which of these two statements do you agree with the most?

  • “I create my own financial destiny.”
  • “My finances are largely controlled by outside forces.”

Newcomb’s research suggests people who believe the former—regardless of income, education, age, and other factors—are better managers of their cash, credit, and savings. “You’re not going to change your behavior until you change your thinking,” she says. That isn’t easy, but it’s not impossible.

Change It

Repetition is key. Come up with a mantra, like, “My money, my choices,” or “When I own my money, I own my life.” Then tell it to yourself every morning as you look in the mirror. “When we think about why we get into debt, often it’s not simply survival-related—often it’s feelings-related, and a simple way to feel better is to get in touch with the power that you have in your financial life.”

Aiming for Instant Gratification

It’s so easy to spend money in the age of swiping, and mobile payment technology like ApplePay and Android Pay has only made it simpler. That’s a problem because it’s eliminated the gap between when you decide to buy something and when you pay for it. That time is important—and, as Yarrow points out, it really doesn’t take that much of it. “If people would just devote an extra five minutes before making that purchase, I promise you they would save money,” he says. So take that extra five minutes, or 24 hours, or two days.

Change It

Leave the item in your cart, or on your mind, and see if you still want it after your allotted window has passed. Don’t memorize credit card numbers or allow websites to save them for you. And when you do decide to buy something, focus on the pain of loss in addition to the joy of gain. Even better, when you make a purchase, get into the habit of converting the cost into the hours of work it takes you to earn the money.