A Personal Finance Primer: Dealing With Debt

Debt is sneaky. You charge a pair of shoes here, a dinner there, maybe upgrade your car. Next thing you know you are losing sleep wondering how to pay it all off. It doesn’t have to be that way. No matter how deep in debt you are, there are steps you can take to dig yourself out.

Know Where You Are

Many people have no idea how much money they truly owe; add up the figures and face the truth. Include car loans, student debt, medical bills and credit card balances; if you’re a homeowner, exclude your mortgage. Now add up how much you spend each month to service all that debt. When you have that total, consider it in the context of your income. Financial experts often advise keeping your monthly debt payments under 20% of your gross monthly income but many people prefer it closer to 10%. Decide for yourself; basically, if you feel burdened by your debt, you have too much.

Create a New Path

Now that you know where you are, you can choose a different path. Quit using credit cards, pay more than the minimum required each month and reduce your vehicle payment by getting a more budget-friendly model. If a recent financial hardship such as a divorce or job loss has reduced your income and you cannot pay your bills, consider seeking professional financial assistance. Agencies such as Rescue One Financial can help you get back on track and may spare you more extreme options like bankruptcy. Creating a budget will provide you with a clear plan as you move forward.

Keep Moving

It can be difficult to stick to a budget, but writing your goal down will help. Other visual cues are also powerful reminders. Post a chart on your refrigerator so you can see your debt decreasing. Install an online or mobile app that uses colorful visuals to show debt shrinking and wealth growing. Tape a picture of a beach on your bathroom mirror to help you visualize a dream vacation. Stay motivated and stick with it; you can do this!