My Spending Has Put Me in Serious Debt. Should I Consolidate?

A woman surrounded by shopping bags and holduing a credit card looks upset.
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Dear Penny,

I’ve realized lately that I’m horrible with money. About two years ago, I opened a new checking account and credit card. I was making a ton of money at the time and let my shopping get out of control. Then my boyfriend and I broke up. My commission wasn't coming in like it had the prior year. But I kept spending, not thinking of the consequences.

I took a loan from my retirement savings to help with moving expenses, but the credit card debt kept racking up. I kept spending, because the limit kept going up and I had no money. It was horrible.

I took out a loan from Upstart and thought my troubles were over. But because I still wasn't making a ton of money and my credit limit kept rising, I kept spending. I had a large sum of money from my grandparents that helped reduce some of the debt, but not a ton.

I'm now living at home and making a lot more than I was last year. I'm curious if I should take out a new personal loan to pay off the debt in one fell swoop. Or should I keep paying down the balance with every paycheck?

I just want to get out of this silly place I put myself in.


Dear J.J.,

That “I can’t stop spending” feeling isn’t just some kind of personal weakness. It’s a widely studied psychological phenomenon.

Behavioral economists have figured out that various forms of payment have different “pain” levels. Pain of payment is worst when you pay with cash, because you can see and feel the bills leaving your wallet and entering someone else’s register. There’s a little bit less pain when you use a debit card and the money leaves your checking account immediately.

But credit? Paying with a credit card is just about painless. Not only are zero dollars leaving your account at the time you acquire an item or service, but you also have the option of putting off that payment for weeks, months, years, forever. Just as much as we love instant gratification, we love procrastinating.  

So when you see a credit limit that you have not maxed out, you see a big green light. Go! Do not slow down. Spend it until it’s gone. The pain hides until it’s time to pay the tab.

You need a big change to get out of the cycle. You need to plot out every dollar of that debt and how you’re going to pay it off. Taking a personal loan to consolidate your credit card debt only works if:

  1. The interest rate is lower than all your other debt.
  2. You take out a loan for the exact amount you need to cover your current debt — and not a penny more.

You need to create a financial no-temptation zone. It’s time to call in an accountability partner. This is someone you trust and can talk to about money — a friend, a colleague, a cousin. Someone who will scold you gently if you get off track and cheer you on when you hit small goals along the path to paying off your debt. They’ll make sure your payoff plans are bold but reasonable. They’ll help shoulder the pain of paying off your debt and remind your brain of the intangible, but important, pleasure of having less debt.

This will take years, and I don’t mean just paying off your debt. I mean rewiring your brain to live within your means. It’s something even the most financially savvy of people struggle to overcome. It’s easier to spend money than ever before, especially money that is not truly yours to spend. Paying it back will feel distinctly un-fun.

But if you can envision a debt-free future and the ease it will bring to your life — your accountability partner should help get you pumped up for this — you’ll start to see those debt payments as steps toward financial freedom.

Have a tricky money question? Write to Dear Penny and you might see your question answered in an upcoming column.

Lisa Rowan is a personal finance expert and senior writer at The Penny Hoarder, and the voice behind Dear Penny.