I Broke the Generational Cycle of Debt — Here’s How I Did It
Just like how recipes can be passed down from generation to generation, so can bad money habits. According to a recent survey of 2,000 U.S. adults conducted by OnePoll for National Debt Relief, 48% of respondents said their financial behaviors are influenced by their parents and 65% of millennials and Gen Zers are worried about baby boomers’ impact on their financial future.
We interviewed Mark Stewart, an in-house certified public accountant (CPA) for Step by Step Business, to understand how he was able to break free from harmful generational patterns and cultivate positive money habits.
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The Debt Cycle
Stewart’s family’s cycle of debt was a recurring pattern of borrowing to cover basic needs and unexpected expenses. “For generations, we relied on credit cards, payday loans and other high-interest loans to make ends meet. This led to a vicious cycle where we were constantly paying off debt but never fully escaping it,” he said.
So, while debt can be a valuable tool when used responsibly, it can also become a devastating cycle where one credit card balance can quickly balloon with high interest and fees. And this was exactly the case with Stewart’s family.
Stewart explained that the interest payments alone consumed a significant portion of their incomes, leaving little room for savings or investments. “The stress of managing debt was a constant presence, affecting our mental health and limiting our financial opportunities,” he shared.
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Building Good Money Habits
While debt isn’t something to be embarrassed about, breaking the debt cycle can help you secure a better financial future. Thankfully, Stewart was eventually able to break his family’s generational debt cycle by confronting his bad money habits and establishing new ones. Here are the steps he took to get to where he is today.
Seeking education. The first step Stewart took to transform his financial situation was seeking education. “I educated myself on personal finance, focusing on budgeting, saving and investing,” he said. If you’re currently caught in a cycle of generational debt like Stewart was, consider checking out online resources provided by the Consumer Financial Protection Bureau (CFPB) to learn about budgeting and managing debt.
Creating a strict budget. “After learning about managing my finances, I then created a strict budget that prioritized essential expenses and cut out unnecessary spending. This included cooking at home instead of eating out and shopping for secondhand items instead of new ones,” Stewart shared.
Building an emergency fund. Besides sticking to a strict budget, Stewart also focused on building an emergency fund to avoid relying on credit during financial crises. He didn’t share exactly how big of a rainy day fund he saved up, but most financial experts recommend saving at least three to six months’ worth of living expenses.
Seeking professional financial advice. Another step Stewart took to get his finances back on track was to seek professional financial advice to help him develop a long-term plan for debt repayment and wealth building. If you also need financial advice but don’t have the budget for it, The Foundation for Financial Planning offers pro-bono financial planning for those in need.
Challenges of Breaking the Generational Debt Cycle
One of the biggest challenges Stewart faced when breaking his family’s generational debt cycle was changing deeply ingrained habits and mindsets about money. “It was difficult to convince my family to stick to the budget and prioritize long-term financial health over short-term gratification. There were also moments of discouragement when unexpected expenses threatened to derail our progress,” he said.
To overcome these challenges, Stewart focused on setting small and achievable goals to build momentum and celebrate each milestone.
How Debt Can Be a Generational Problem
Your habits and mindset surrounding money are heavily influenced by the environment you grew up in. From a young age, you absorb and internalize experiences and messages about money from people around you.
If you were raised in a household where your loved ones were constantly grappling with debt and struggling to make ends meet, you might develop a negative relationship with money. This could then influence the financial decisions you make later in life. Or, if your parents always relied on credit cards to afford their expenses, you may then believe that maxing out your credit card is natural and nothing to worry about.
The Impact of Generational Financial Trauma
According to a 2023 Experian study, 68% of adults in the U.S. said they’ve experienced or were experiencing financial trauma. This trauma made them feel stressed out and caused negative thoughts and anxiety when thinking about money. In other words, the generational financial trauma in your family affects not only your savings but also how you view money and your ability to accumulate wealth.
If you’re currently suffering from financial trauma caused by the generational debt cycle in your household, consider seeking help from a financial therapist who can help you work through your money-related issues by addressing the psychological factors at play.
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This article originally appeared on GOBankingRates.com: I Broke the Generational Cycle of Debt — Here’s How I Did It
