Managing Your Debt is Easier Than You Think
If you ask the average American what they worry about the most in life, in terms of finances, most likely you will hear them lament about the vast amount of debt they hold in the form student loans, car loans, credit cards, and other investments. While there are certainly some Americans who are fortunate enough to benefit from a debt-free life, the reality is that debt remains one of the largest and significant problems facing the population.
It is said that over eight in ten Americans are up to their necks in debt, thus begging the question, how did this come to be? Well, because of a combination of frivolous spending since the 1980s and the rising costs of education and real estate prices the average American has incurred quite a bit of financial difficulties throughout the years.
America Has a Debt Problem: While almost everyone would agree that debt management is imperative to living a stress-free and financially stable life, this message doesn’t appear to resonate as much as it should. The average American household currently holds around $90,000 of debt! This is an incredible amount of money to owe, potentially hampering a person’s ability to live a comfortable life.
While factors like the real estate market and the cost of education are completely out of our control, we still have the ability to limit the amount of money that we borrow. So no, you aren’t subjugated to a life of servitude for big banks, working to pay off your debt by the ripe age of 80 years old. There are ways that we can circumvent and overcome the many financial obstacles that exist in this fragile economy.
Here are a variety of tips and bits of information that can help you manage your financial situation.
You Probably Aren't Budgeting: This first tip is so obvious that it pains me to write it, but for goodness sake learn to budget! I think all of us, at one point in high school, learned the basic concepts of budgeting so why not apply this knowledge? Sometimes it helps to make a list of your fixed expenses (i.e. mortgage, insurance payments) and your variable living expenses (i.e. groceries, clothing, and any other accessory spending).
This allows you to garner a better picture of your financial capabilities. It allows you to prioritize the most important payments and places the management of debt at the forefront. In my own personal experience, I have seen people rush to the store to buy new clothes after receiving their bi-weekly check while totally neglecting the fact that they could’ve dedicated that money to more expedient causes like their outstanding credit card balance…
By prioritizing your spending, you can be sure that you will never miss a payment again and that you will slowly but surely eliminate any forms of debt that you hold. The key is to remain consistent and to not fall behind in payments. This is all assuming that you have the ability to make the payments, however. In life, we often encounter difficulties and sometimes lose our jobs or face unexpected emergencies making it nearly impossible for us to make payments on time.
Budgeting and Still Having Problems? Usually, these plans are straightforward in that they reduce the amount of money that you are required to pay each month. Often times they will automatically withdraw a set amount of money from your account. Obviously, you need to ensure that you have the necessary money set aside for this automatic payment or your credit score will continue to take a huge hit from any additional missed payments.
Debt Management and Debt Consolidation: If your situation is dire, then there is also a slew of other options such as debt consolidation, settlements, and declaring bankruptcy. Obviously these three are the more extreme options available, but unfortunately, sometimes we are forced to utilize what is around us. Just be sure that you exhaust all other potential means of paying off your debt before you even contemplate enrolling in one of these programs!
Debt consolidation, for example, combines all of your preexisting loans into one large loan with payments that are spread out over time. The advantage to this type of plan is that the interest rates are much lower than other types of loans. In addition, this plan has no effect on your credit score so long as you make payments on time. However, there are some stipulations. The biggest one is that often times you must use your house as collateral, meaning that if you fail to make necessary payments your house can be foreclosed.
Debt Settlement: With debt settlement programs, the potential for disaster is amplified. You would be putting yourself at a great risk for damaging your credit and possibly ending up in even more debt than before. It works like this, you contact a debt settlement company and tell them that you are unable to pay your debt. They work out a deal with you, but they insist that you do not pay off any amount of preexisting debt. This is to make your situation appear to be “desperate” so that creditors will be willing to work out a deal with you. You then will need to send money to the settlement company that will eventually be used as a lump sum to pay off your reduced debt amount. Studies have shown that 80 percent of these settlements are unsuccessful and that your credit score generally falls anywhere from 65 to 125 points.
Going For Broke: Lastly, you could also file for bankruptcy. but this will likely kill your credit score and financial potential for years to come. While I won’t discuss in-depth the types of bankruptcies available, there are many different ways to approach it. The most important takeaway is that bankruptcy will affect your prospects for obtaining insurance, jobs, and a future home. It basically advertises that “I am unreliable and reckless with how I manage my money.” Not only that, but your assets could potentially be liquidated as well.
For a person in debt who makes a steady income, the way to manage the debt is relatively simple. There are no tricks or gimmicks. Simply put, develop responsible spending habits and create a budget plan. Ensure that you prioritize the most important expenses like car and house payments rather than using your money for buying a 500-dollar phone. For people who are having trouble with making on-time payments, try working with debt management organizations that can assist you in avoiding making hasty decisions like applying for debt settlements or bankruptcy. At the end of the day, manage your money responsibly!