09/10/2013 09:17 am ET Updated Nov 10, 2013

Why Your Own Denial Is Ruining You Financially

"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 car 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 What a Soldier of Finance Is

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.

That's the inspiration behind my book, Soldier of Finance, where I encourage people to Take Charge of Their Money and Invest in Their Future.

Getting the knowledge you need is the first step, but then you have to take action. If you struggle taking action on your own, you need to find a trusted partner -- a "battle buddy" -- that will hold you accountable throughout. This person is your lifeline and should be trusted with all your dark secrets. They also should be afraid to call you out when you need it.

It's time to get out of denial. It's time to take action.