Blog | Entrepreneurship, Personal Finance

How Women Can Break the Cycle of Debt

It’s time to change your mindset about money

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If you’re like me, you love to splurge and spoil yourself occasionally. There’s something invigorating about a spa day or a night out with the ladies for a nice dinner and a couple glasses of wine. Perhaps you like to take a fun trip here or there to just get away, or buy a new outfit that makes you feel beautiful and special.

It’s human nature to treat yourself, and we ladies have mastered the craft.

But for a lot of women, treating yourself can become an undisciplined — and financially dangerous — habit. If this sounds familiar, it’s time to change your mindset and break the cycle of debt.

What debt looked like five years ago

In 2015, from across the pond, the English paper The Telegraph reported that there’s an alarming trend of women becoming more likely than men to go bankrupt.

As they report, “Last year, 22.2 in every 10,000 adult women in England and Wales applied for either bankruptcy or another insolvency status, down from 26.8 in the prior year. Meanwhile, the number of male applications fell from 33.3 to 21.2.”

Telegraph columnist, Kara Gammell, commenting on the study, wrote about her (and her friend’s) experiences in splurging as a big component of women’s struggle with debt:

“We’ve all been there at some point. Whether it’s another red bill landing on your doormat, a credit card balance that never seems to shrink, or simply not quite having enough cash to get you to through to payday. For a growing number of women, the last decade has been spent living in their overdraft. We long to be savers, but manage to justify sneaky purchases to ourselves - and for many the concept of money management involves rummaging behind the sofa for a bit of spare change.”

The cycle of debt continues to plague women today

I like to look at trends over time, so I wanted to circle back on this topic now that it’s been five years to see if women have improved their financial situations. Did we break the cycle of debt? What do you think the numbers show today? Sadly, there’s still a wide gap in debt levels between men and women. But why?

  • One category in particular, student loan debt, has women at an increased disadvantage over men with student loan debt: it takes women longer to pay off their debt because of the gender pay gap. So not only do we get unfairly shorted in our paychecks, but we also get saddled with debt longer as a result. Shockingly, women hold two-thirds of student debt.

  • Credit cards are another obvious problem. More than one-quarter (26%) of female cardholders say they are “not at all” confident about their ability to pay off their bills in full — only 14% of men had the same concerns. And again, the gender pay gap is a contributor to this scenario, considering the median annual income for women is 80% of men’s earnings.

  • Finally, single moms often face increased financial hardships. Did you know that 37% of families led by single mothers nationwide live in poverty? And 90% of welfare recipients are single mothers. I wasn’t able to find stats on their debt levels, but it stands to reason these women have some amount of debt to their names — or at the very least, they live paycheck to paycheck, on the brink of debt if they receive an unexpected medical bill or need a home repair.

While it doesn’t look like these three factors will change anytime in the near future, that doesn’t mean they are an excuse to just live your life riddled with debt, either. A lack of financial education and poor spending habits makes it even harder for women to break the cycle of debt.

Change your mindset: Get a side hustle

I have sympathy for young women who are in debt. After all, at one point in our life, Robert and I were over $1 million in debt. It can feel crushing, and it can be easy to give up and just keep spending. But trust me, that’s not the answer.

Robert and I knew we had to get financially smart. Rather than settle on simply taking jobs we didn’t want and hoping to get out from our mountain of debt through employment, we got creative and hustled (in a good way!) to find new ways of earning money. We taught classes, consulted, and invested. We worked a lot, we learned a lot, and we also paid off a lot. Those years were formative in allowing us to become financially free just over a decade later.

This is why I was so encouraged to read an article in Quartz called “Your Salary Shouldn’t Be Your Only Source of Income,” in which author Jane Barratt writes:

“Millions of words are written everyday about personal finance. Most of these are sensible, but lack the psychological and behavioral aspects that help people break bad financial habits. In the meantime, the advertising world bombards you with great ways to separate you from your money, by blurring the line between ‘need’ and ‘want.’

For women, the impact of this double bind is most pronounced. While women are said to drive the majority of consumer spending in the United States, they also feel less confident about their retirement than men.

The key to breaking that cycle is to abandon the old advice of ‘spend less, and save more.’ To really make money for the future, women have to make a concerted effort to reprogram themselves from a consumption lifestyle to an active investment mindset. In other words, make hustling your default and risk your friend.”

Amen and amen!

Barratt goes on to say: “You can earn more money by spending less. But you should also ask for that raise—and get a side hustle. It’s extra income, but more than that, it extends your marketability by demonstrating initiative and ensuring you have skills outside of your day job.

Whether it’s learning to code and helping small businesses with their digital presence, or starting your own small business on the side, everyone needs multiple ways to earn money. The days of companies taking care of you are long gone.”

This is what we’ve been teaching at Rich Dad and Rich Woman for years. There are two ways of breaking the cycle of debt: by cutting back or by scaling up. The choice is yours, but now is the time to change your mindset and start a new path.

Not sure where to being looking for a side hustle? I’ve put together 5 side hustle ideas for you to consider — and they can all be done in your spare time, so they won’t affect your day job. Of course, my favorite suggestion in here is becoming a real estate investor. Afterall, that’s how Robert and I were able to find financial freedom. But there are plenty of options available to you (even beyond the five I listed here), so don’t limit yourself. Part of changing your mindset is thinking outside the box.

Break the cycle of debt today

At the end of the day, the best way women will grow and be empowered is to 1) learn how to create more money so that treating yourself makes financial sense and 2) rely less on the very power structures that have sold them short.

If you want to break the cycle of debt and money problems in your life, now is the time to invest in your financial education, get your side hustle going, and generate the life you want to live—rather than relying on the credit card companies to help you do so. And if you’re currently facing credit card debt, but don’t know how to get out from under it, follow my guide on how to get out of credit card debt in 8 steps. The moment you decide to change your mindset, you’ll be focused on a brighter future.

Original publish date: August 27, 2015

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