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“Oh, we don't have that much debt. Our house is paid off. We don't have that many consumer loans.”

These famous last words were uttered by a couple who had come to me for help with retirement planning. They were about 10 years out from retirement, and although their savings weren't as robust as they could have been, their mortgage was paid off and they claimed to have little debt. They were in a good place for retirement.

Or were they?

What They Really Owed

I asked them to tell me exactly how much debt they had, and they told me about their two car loans totaling $15,000. I asked about credit card debt, and they shifted uncomfortably in their seats—they had some, but they didn't know off the tops of their heads how much.

I was still feeling pretty good about their prospects when I asked them to go home and make up a list of all their debts. The results were alarming:

In addition to the $15,000 in car loans, they were also carrying a camper loan for just under $10,000, and over $25,000 in credit card debt, for a total of about $50,000 in consumer debt. The worst part was that several of their credit cards were department store cards, and they were paying 18 to 19 percent interest.

So much for “not much debt.”

While I've often counseled clients who are in denial about the state of their finances, this couple had their heads buried more deeply in the sand than most. But lying to yourself—and your financial adviser!—about your level of debt or other financial woes is remarkably common.

The Truth About Lying to Yourself

According to psychologists, denial is a means of protecting yourself against truths that are too difficult to face. And whether or not we like to admit it, we're all in denial about something.

One of the easiest ways of lying to yourself is to simply be inattentive. If you do not pay attention to anything other than the minimum payment on your credit card bills, you can easily fool yourself into thinking that you have “not much debt.” It's the same way you can lie to yourself about the 25 pounds you've gained by simply not stepping on the scale. Making sure you keep away from the information that could pop your denial bubble will keep you cluelessly heading toward the poorhouse (or the XXXL tees).

Facing the Truth

My clients must have known that they were in trouble, even if they were in denial. That's why they called me. My assignment for them to tally up each and every debt and take a look at how much they were spending in interest was the type of external crisis that psychologists claim is the only way to end a cycle of denial. I find it telling that they needed a third party—me—to tell them to look at what they must have already known subconsciously.

Their distress at facing the true scope of their debt was incredibly painful—but it was also cathartic. Once they were forced to stop lying to themselves and each other, they were able to actually chart a path forward out of their debt. Denial may be a method of coping with unpalatable truths, but many people in denial may still find themselves feeling anxious and concerned because they know the truth on some level.

Dealing With Denial

It's very easy to rationalize and ignore the things we don't want to face, particularly things like credit card debt. We can ignore our account statements, set up automatic minimum payments, and even just let the mail pile up and pretend we don't see that the Visa bill has arrived. There are plenty of ways to avoid thinking about the ugly truth behind our debt. And if we don't know the exact numbers we're dealing with, we can tell ourselves that “we don't have that much debt.”

That's why the only way to combat denial is with knowledge. Getting all of your information out in the open will force you to face the truth, which means you will have to make the changes necessary to improve.

If there is anything you have been avoiding looking at—whether it's your credit card bill or the number on your scale —take the time to sit down with the information and make a plan for how to deal with it. Pop that bubble of denial so that you can actually start moving your life forward.

As painful as the debt realization was for my clients, they are very glad that they had it.

More about...Debt, Budgeting, Psychology

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Sophie
Sophie
7 years ago

What really scares me is that to some people, $50,000 debt really isn’t that big a deal.

Personally I find that regularly reviewing my financial situation not only helps me avoid denial, but it also provides me with motivation to keep improving.

Marc
Marc
7 years ago
Reply to  Sophie

It depends, to someone making 500k a year, 50k isn’t that much debt. To someone making 20k that’s a monsterous amount of debt.

Jane
Jane
7 years ago
Reply to  Marc

(Just to play the devil’s advocate here, even though I do understand your point) But if you make $500,000 a year, why do you have $50,000 in debt? Cars? Save up and pay in cash or accelerate payments ASAP.

I understand short term debt or investment debt (real estate or whatever), but if you are routinely carrying that type of consumer debt and you make that much money, I think it’s probably time to sit down with an old fashioned calculator and figure out how to fix it.

Megan
Megan
7 years ago
Reply to  Sophie

I agree, Sophie. I had a friend who racked up cc debt in college and law school. Her mentality was “I’m graduating with more than $100K in student loans; what’s $10K in credit card debt?”

My takeaway lesson from that was once you become immune to debt, you’re in for a world of hurt.

TB at BlueCollarWorkman
TB at BlueCollarWorkman
7 years ago

My wife and I don’t do automatic payments for ANYTHING for this very reason. We always want to know, and make sure we know for sure what exactly is happening with our bills and mortgage each and every month.

We may be in denial about some things, but with money, we cant’ afford to lie to ourselves!

Sam
Sam
7 years ago

I remember, with chills, when Mr. Sam and I had our debt show down shortly after we got married. We did just this, listed each unsecured debt, the interest rate for each and the minimum payment. We had more than $55,500 (more than half of it was Mr. Sam’s student loan from his MBA). Once you face the music and have that information all pulled together, the next step is to figure out your debt snowball and start paying it off. We had 5 of our 6 debts paid off in just over six months and the rest of our… Read more »

EMH
EMH
7 years ago

I think sites like Mint help eliminate denial. I can watch my net worth increase/decrease and I see where all my money is going with the budget tools. That site has definitely made me more aware of my spending habits.

D
D
7 years ago
Reply to  EMH

Mint.com is great. I am forced to look at my debt and my spending habits every day. I also see the money that I am saving from month to month. I now think about every cent that I spend — not obsessively, but enough to make a difference.

Mike @Personal Finance Beat
Mike @Personal Finance Beat
7 years ago
Reply to  EMH

I’m a big fan of Mint too. Being able to get a quick snapshot of your assets vs debt can be a great motivator.

In a way the software also forces you to log-on every day to make sure it is categorizing your expenses properly, and this makes you aware of each and everything you are spending your money on.

jxm
jxm
7 years ago

The issue that I see within my circle is that they do not own up to their debts. They’ve been spending on credit for so long that they have no idea what the value of the dollar is because they never see it. It’s swipe, swipe, swipe because it seems to always work. My partner’s sister, for example, can’t grasp that credit does not mean free money. She’s maxed out her own credit cards and now that she can’t get another on her own, she opens up cards in her children’s names essentially screwing their futures in the process. Her… Read more »

jxm
jxm
7 years ago
Reply to  jxm

[update] We finally got her to agree to speak with us regarding her finances. She said that she was too ashamed to ask for help. I told her that it’s not going to get any better so there’s no better time to start than now. She’s not going to like it. There are a lot of bad money habits to be broken and I told her that it’s not an overnight change – it will take years to undo what damage she has done to her finances. I’m not holding my breath, but I’m willing to help guide her as… Read more »

Ryan
Ryan
7 years ago
Reply to  jxm

If she doesn’t realize this already, she should know that opening credit cards in her kids’ names is identity theft, and if her kids decide they don’t want their credit ruined because their mom couldn’t handle her money, she can get in a lot of trouble if they report her.

Denise D.
Denise D.
7 years ago

I have to admit that my husband and I went through a period where we were in denial. We looked at all of our debts separately, but once we added that number up, we found we had almost $38K in debt–most of it student loans. Because we had less debt than our peers, carried no balance on our credit cards, and had an emergency fund, we thought we were in better shape. We started our Total Money Makeover last year, paid for hubby’s last semester of classes in cash, and are well on our way with our debt snowball. We’ve… Read more »

Phoebe @ http://allyouneedisenough.blogspot.com/
Phoebe @ http://allyouneedisenough.blogspot.com/
7 years ago

I can completely relate to this. I felt like my credit card debt just snuck up on me. I had been lying to myself, saying that I had a commission check coming and could cover a purchase. But that problem was that I was spending that commission check (which wasn’t gauranteed) many times over. Once I faced my debt I was shocked to see I had over $13,000 in CC debt and $65K in total. I love the advice given in this article because so many people are in this same boat. I did own up to my debt (which… Read more »

nick
nick
7 years ago

I myself am still digging myself out of one of these holes. luckily i am only 22 and the amount of debt was only a couple thousand dollars instead of $50,000. That i could not and will never have to imagine, thankfully.

jim
jim
7 years ago
Reply to  nick

Nick, I’ve got a kid your age and the thing that scares me about your comment is that you say you “ONLY” have a couple thousand dollars of debt. Relatively speaking, “only” is an appropriate word to use. However, if you get yourself into the mindset that there are other people out there that are way worse off than me – you’re heading down the wrong track. Please, throw everything you can at that “only” couple thousand of dollars debt and do whatever it takes to stay the heck out of debt for the rest of your life. I wish… Read more »

Jonathan
Jonathan
7 years ago

We’ve got about $10k remaining in student loan debt, a $10k loan from a family member, and around $250k in debt on 3 rental houses. I could pay off the first two today if I had any inclination, but the terms are so good that I’ll hold onto them as long as possible. Further, I can’t wait to sign up for more mortgage debt whenever we find our next investment! Not that the debt is the end, obviously, but it’s a means to a much wealthier end. I have no problem with car loans (especially these days with low rates),… Read more »

Jane
Jane
7 years ago
Reply to  Jonathan

“I could pay off the first two today if I had any inclination, but the terms are so good that I’ll hold onto them as long as possible.”

I don’t know the situation here, but I would suggest that you double check whether the family member is okay with you not paying off the loan. I personally would be annoyed if I knew a family member could pay off a loan and wasn’t. That would definitely put a strain on our relationship.

Jonathan
Jonathan
7 years ago
Reply to  Jane

Thank you, that is a good point. I do not believe any tension would arise over this (I won’t go into details), but it is worth keeping in mind. I believe the loan is “callable” meaning the holder could request it paid in full within 30 days. Yes, we have written and signed terms for our inter-family loans 🙂

Wm
Wm
7 years ago

Really great post! It’s absolutely true – facing the truth is very hard. Ignorance IS bliss. But, ignoring the problems only means you are digging even deeper holes. I think being aware of the status quo is the first step. Constantly assessing our current situation and being mindful of where we are right now and where we are headed if we follow the same path will knock some much needed sense into our heads. Once we know the difficult situation we are in, it becomes easier to take action to cross the barriers and move into a prosperous zone. Obviously,… Read more »

Lynn
Lynn
7 years ago

Great advice! My husband and I graduated from law school in 2009 with nearly 200k in student loans and credit card debt. Hard to admit in writing, but couldn’t agree more than getting past denial is the real first step of the snowball. Now we have a giant Excel spreadsheet of every debt we owe, min due, interest, and the payoff plan we’ve chosen (10 years, 30 years, graduated, etc). We are snowballing now, with consumer debt set to be paid off this year. Question – when’s the right time to start saving for a home? We don’t want to… Read more »

jim
jim
7 years ago
Reply to  Lynn

Lynn, I am a huge fan of Dave Ramsey, but I must admit that we bought our first home (for $80,000 back in 1987 – a VA repo) when we still had a ton of student debt (undergrad and grad AND a little kid). According to Dave Ramsey that would be a horrible mistake, but for us, it just wasn’t. We were young, naive, srong and determined and we busted our butts to make it work – and it did work out. So, my suggestion to you is – listen to the advice out there and then make the decision… Read more »

Edward
Edward
7 years ago

“Denial”, “head buried more deeply in the sand”, “lying to yourself”… Hmmm… This sound familiar.

Jeff, can you do us all a favour and please talk with Honey Smith?

Lisa
Lisa
7 years ago
Reply to  Edward

I’m not sure why everyone has it in for Honey. Frankly, she’s paid off some of her debt, is taking control of her finances, and is trying to make her life better. Wish you would all get off her back. Constructive comments are one thing, but there is nothing to gain with mean comments.

Peach
Peach
7 years ago
Reply to  Lisa

Well said, Lisa.

Anne
Anne
7 years ago

True ignorance might be bliss, but denial can’t really achieve a blissful state (unless it’s very, very deep and on the verge of a derangement). As Jeff suggests, denial implies a subconcious knowledge. In my earlier years, I was the queen of burying my head in the sand in regards to debt (and a number of other things). But the longer I avoided looking at the bills and/or dealing with things, the louder my subconcious would become. Eventually, I would find myself waking in the middle of the night with dread in the pit of my stomach and the stone… Read more »

BC
BC
7 years ago

In our case DH and I always knew how much debt we had the problem was that we were comfortable with it. First we were comfortable with it because it was difficult to do anything about it (lived in a very expensive city, had a child, was in grad school…). Then after our situation changed (moved to cheaper area, got jobs, childcare was less expensive…) we remained comfortable carrying the debt. The light bulb went off when we decided that we couldn’t tolerate living with it anymore and got very serious about eliminating it. Something that has been important to… Read more »

Adrian
Adrian
7 years ago

I went over to the site and poked around. It seemed mildly interesting, but I didn’t see that it was offering anything out of the ordinary that I wasn’t already doing on my own to pay off my debts. Then when I saw that they want me to link up my bank and credit card accounts to help me “track my progress”, I made an immediate U-turn and got the heck out of Dodge. I don’t know these people, and I have no idea what they plan to do with my most personal and potentially damaging information. I don’t think… Read more »

Peach
Peach
7 years ago
Reply to  Adrian

If you’re referring to Mint, I had a similar reaction. All my instincts were telling me not to do it. Quicken is working fine for me, and there’s no need to import my personal info.

jeff Rose
jeff Rose
7 years ago
Reply to  Adrian

@ Adrian Thanks for coming over and checking out what the Debt Movement was all about. Just to be clear, it’s not a requirement to use ReadyForZero to track your debts. I merely partnered with them because 1. They have an awesomely free tool that has already helped people pay off $30 million of debt 2. They have some pretty slick designers that helped me build out the site. If you, or anyone, is interested in joining the Debt Movement, you can provide my team a manual amount of the debt you’ve paid off and will get it added to… Read more »

Mario
Mario
7 years ago

This was my problem and part of how I find myself nearly half a million dollars in debt. I was piling on the debt for responsible reasons — acquiring rental property, getting a Masters degree, accepting public service jobs — that I barely saw it coming. Thankfully, I now have a job and more importantly, am working on a plan, to start managing the debt. When I clicked on this post, I had hoped there was something to actually “join” — something like a support group perhaps. I’m looking to blog about the steps I take to dig myself out… Read more »

jeff Rose
jeff Rose
7 years ago
Reply to  Mario

@ Mario

We currently do have a free forum where you can share your story and get support from other Debt Movement community members.

We’ll also be having some financial experts answering questions in these forums as well as participating in Google Hangouts.

Mario
Mario
7 years ago
Reply to  jeff Rose

Sounds great. I’ll check it out. Thanks!

jim
jim
7 years ago
Reply to  Mario

Mario, I am very interested in seeing how you got into that much debt and what your game plan is to get out. Spouse and I are not in that kind of debt, unless you want to look at our “goals” as a debt-reduction plan. We want to pay off our mortgage and fully fund our retirement, which is going to take at least another 1/2 million dollars. If you want someone to bounce ideas off of, in exchange for your ideas on how we’re doing, email me at [email protected] No blame games allowed – just constructive suggestions and encouragement.… Read more »

Mario
Mario
7 years ago
Reply to  Mario

Absolutely. Let me get some thoughts in order and I’ll contact you. Over $300k of that debt is in two mortgages (for which I still have and rent the properties). It’s the other $150k or so of unsecured debt (mostly student loans) that I’m more worried about… As for the plan to get out of it, I’m still working on it, but will send you some ideas.

jim
jim
7 years ago
Reply to  Mario

Mario- hello????? I’m still waiting on your ideas. Lets get this thing rolling. I’ll start. Spouse and I are in our mid 50’s. We’ve gotten all our kids thru undergrad debt-free – yay (and, yes, we are counting our blessings). This came long after we had paid off our own undergrad/grad school loans – ugh! Wish like hell the internet had existed when we were going to school. We currently don’t have any outstanding debt (except our mortgage and our need to fully fund our retirement – which is a good 1/2 million dollars). We are going to get our… Read more »

Mario
Mario
7 years ago
Reply to  jim

Sorry for the slow response. I should start by breaking it down: just over $300,000 secured debt (two mortgages) and over $150,000 in unsecured debt. I picked up the two rental properties in the middle of both a prior career and the real estate bubble. After buying them I switched to (a different, less well-paying, longer-hour) public service job sector and went back to school, racking up $120,000 in student loans and using credit cards as a stopgap both to keep up with mortgage payments and for living expenses. Now 32 and done with school, I have a job that… Read more »

jim
jim
7 years ago

K – come hell or high water, Mario and I are going to give each other helpful suggestions and a kick in the pants when necessary as we both help each other save/reduce $500,000 just as quickly as we can humanly make it happen. Wish us luck. This is going to be an adventure. To Jeff, the OP, thanks much for the article. Altho spouse and I are not in “debt” per se, we need to save at least $500,000 to pay off our mortgage and fully fund our retirement. I don’t see our situation as much different from Mario’s… Read more »

Meghan
Meghan
7 years ago

To the person waiting to buy a house because of student loan debt: I have a ton of student loan debt and am in the Public Service Student Loan Forgiveness program. Ramsey suggests using the program but saving money on the side in case the government changes its mind about the forgiveness. That’s my plan. Meanwhile I bought a house. You have to pay rent or a mortgage. If they’re close to the same and you can deal with the occasional expenses that come with owning a house instead of renting one, then this is the interest rate to buy… Read more »

Bill Inlow
Bill Inlow
7 years ago

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