When trying to pay off debt, there are a lot of different obstacles that you must overcome. For some people, they are able to look past every roadblock, and focus on the finish line. For others, these things can cause them to get discouraged and give up, resigning themselves to a lifetime of debt!

4 Obstacles When Trying To Pay Off Debt

These things can add years to your financial goals, or even destroy them completely. Find out what they are so you can be better equipped when they show up!

It Takes Sacrifice

This is the most common and most practical reason why it is hard for the average American to pay off debt! We are so used to things being made easy for us – even our so-called struggles are nothing compared to other nations.

We are so used to being able to get what we want, when we want, because of credit! It takes a lot to overturn that mentality and begin to sacrifice. In order to get out of debt, you have to give up certain things. It may be certain expensive forms of entertainment, eating out, vacations, or even selling a few possessions (including your car and/or house)!

If you are not willing to make sacrifices, you could very well be headed for a lifetime of debt! I’ve actually had people tell me that it is impossible to get through life without accumulating, and living with, a lot of debt! But then when I took a look at their finances, I saw plenty of areas where they could save hundreds, and sometimes thousands, each month, if only they were willing to sacrifice.

What they were really saying is that it is impossible to for them to live without debt, because they will borrow to buy everything they desire, when they first desire it, and will never make a sacrifice!

It Could Take Years To Pay Off Debt

When many people look at how long they can pay off debt with their current income, they get discouraged. Not only will they have to make sacrifices, but they may have to do so for what seems like a long time!

It can be very difficult to stay motivated when you see everyone else around you buying what they want, and you have 3 years of sacrifice in front of you! It can become tempting to only pay the minimum balance on all your debt, and use the extra money to fund your indulgences.

The key here is to set up a sound plan, budget fun into your finances, and check your progress often. That is the only way that you will be able to stay on track with your goals!

No Emergency Fund

If you do not have an emergency fund, then you will not be able to deal with any unexpected expenses which may arise. Not having an adequate cushion in your finances will mean that you may need to rely on credit whenever something comes up!

I’ve been in that place before. I placed every extra penny into debt repayment, and didn’t have anything set aside for emergencies. Then I lost my job and was forced to put all of my basic expenses on credit cards. My lack of a “rainy day” fund added thousands of dollars to my total obligations, and made it extremely difficult to pay off debt!

You May Have To Change Your Lifestyle

We already talked about the need to make sacrifices when trying to pay off debt. However, that word can be vague, and can mean different things to different people. No matter how you choose to attack this problem, you will have to make strong changes in the way you live.

The most simplistic reason for getting into debt is spending more than you make. So, at the very least, you will have to make severe cuts in a few budget categories in order to see any real progress. You may have to forgo your cable/satellite television package, sell your car and buy a cheap one with cash, stop dining out completely, and other things that are seen as drastic – such as living with friends or relatives.

Another huge change that you may have to make, is to look for more income. This could mean getting a second full-time or part-time job (maybe even cleaning toilets to get out of debt), taking on a lot of overtime, or looking for a higher paying job altogether. This will mean a huge change in your lifestyle, and many people are not willing to do something that drastic to get out of debt!

No matter what you choose, it will mean a huge adjustment to the way that you’re used to living. This can be a major barrier to paying off your obligations, if you do not have the proper mindset.

photo by Renjith Krishnan

Reader Questions

1. What has been the biggest stumbling block to you paying off your debt?
2. How were you able to overcome it?
3. How often do you do something fun, or celebrate your victories when it comes to your finances?

Friday Finance Round Up is a weekly post that includes interesting articles and blog posts on money found during the week from across the web.

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The Housing Boom and Bust – Challies

Tim Challies provides his usual thorough and helpful book review on The Housing Boom and Bust written by conservative economist Thomas Sowell.  One quote I thought was interesting in here was, “As the government increases its control over the American economy it essentially buy s up the freedom of its people with their own tax dollars.”

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How to Make a Million Dollars While Eating Lunch – Millionaire Mommy Next Door

I don’t know about the million dollars part, but this is a great post showing how simple sacrifices today can yield results tomorrow; i.e. bringing your lunch to work instead of hitting up the local flare every day. 

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Should You Do a Debt Consolidation Loan? – Bible Money Matters

Is consolidation really that magic bullet you’ve been waiting for to get you out of debt?  Peter offers up some great tips to consider before you combine your debts.

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10 Tips to Resolving Medical Billing Errors – One Money Design

Most of us have experienced opening that medical bill only to discover it’s a little higher than you thought it was going to be.  This post offers some good tips on how to go about resolving those discrepancies.

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Back to School: 8 Money Saving Tips for Back to School Shopping – Financial Highway

It’s that time of year again.  School shopping was always a fun way to kick off the new year.  Financial Highway offers some good tips to help keep the costs low.

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As of July 1, 2009, variable rate Stafford and PLUS loans have been reduced to the lowest rates in history! 

There is no better time than right now for student loan debt consolidation!  

Here are some tips to consider if you want to consolidate school debt and are thinking about refinancing your student loans:

Student Loan Debt Consolidation – The Rub!

Here’s the catch – if you have student loan debt that was issued on or after July 1, 1998 and before July 1, 2006 you are in luck!  

Rates have been reduced on student loan debts issued during this time period.  

You can only consolidate your student loans once, so if you consolidated in the past then you are unable to do so again unless you include a new loan that was not consolidated prior. 

If you are still in school you cannot consolidate your current school loan until you graduate.

You can consolidate loans in the grace, deferment or repayment status. 

And lastly, you can’t add private loans into a federal consolidation loan.  

How Low Did Rates Go for Consolidation?

According to the SallieMae website, a variable rate Stafford loan during in-school, grace and deferment periods is 1.88 percent, down from 3.61. 

Rates on variable rate loans in repayment is 2.48 percent, down from 4.21.  Also, new interest rates on PLUS loans is 3.28 percent, down from 5.01. 

The rates on the regular Stafford and PLUS loans are variable, but with this program you can consolidate your school debt into a Direct Consolidation Loan which has a fixed rate for the life of the loan.

Rates are set using a weighted average interest rate of the loans being consolidated, which is then rounded up to the higher one-eighth of one percent but cannot exceed 8.25 percent. 

Sound confusing? 

Try this online calculator to determine what your weighted average interest rate would be should you consolidate your school debt.

These rates are in effect until June 30, 2010 at which time they will reset again.

Why Consider Student Loan Debt Consolidation?

There are several reason why you should consider student loan debt consolidation:

• Fixed Rates – The biggest reason why you would consolidate now is to take advantage of a potentially lower fixed rate set for the life of your loan as opposed to worrying about an ever-changing variable rate.  This could potentially save you hundreds or thousands of dollars in interest over the life of the loan.
• Convenience – Having to make one single payment to one lender will probably reduce your headaches and will be more convenient for you as you try to repay. 
• Lower Payment – If your payments are too much to handle, a student loan debt consolidation with a lower overall monthly payment makes a lot of sense. 
• Flexible Repayment Options – There are four payment plans to choose from and you can change your plan at any time.
• No Fees – Let me repeat that, No Fees!  The best part is that student loan debt consolidation is free.

Where to Go for Help With Student Loan Debt Consolidation

If interested, you need to go through the Federal Direct Consolidation Loan program. 

Check out their website loanconsolidation.ed.gov   and apply here.  

Their FAQ section has a ton of information and answers just about any question you can think of.

The Federal Student Aid website also has a helpful checklist to determine whether and how you should consolidate your student loans.