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Don’t Let Debt Stop You

Don’t Let Debt Stop You

| December 19, 2017

In my post dated November 16, 2017, we addressed the second of six roadblocks to creating a financial plan: Lack of Financial Knowledge.  NO KNOWLEDGE, NO UNDERSTANDING.  Here's the link to review the post:  Do you Lack Financial Knowledge?

The third roadblock which can stop someone from creating a financial plan is debt.  It is not news that American households have accumulated a lot of debt.  As of June 31, 2017, total household debt was $12.84 trillion,  comprised of mortgage loans, student loans, credit card debt and auto loans.*

In some cases borrowing is not necessarily bad.  Sometimes, long term borrowing can be appropriate for investing – for example, buying a house, an investment property, or assets that can generate more income or growth for you.

Credit card debt can be problematic for many individuals.  In fact, credit cards can be such a problem that we have heard it said that a better definition for a credit card would be, “A means for buying something you don’t need, at a price you cannot afford, with money you don’t have!”  Many people do not realize how much they pay out in interest because they pay in small increments over a long period of time.  Unless you are paying off your balance every month, credit cards can be very expensive.

If you have accumulated a lot of debt, you may feel like you are falling into a steep ravine with no escape.  You may be embarrassed to seek help or feel that your debt is keeping you from saving and investing for your future.  The road to paying off debt starts with facing reality. You need a solid financial plan and a lot of self-discipline. Staring at the numbers can be intimidating, but you are capable of getting out of debt as long as you are committed.

A good financial planner takes a holistic view of your finances. The planner should look at your income and current investments and then suggest ways to maximize your earnings. For example, in an effort to get a bigger tax refund, you might have directed your employer to take out too much tax from your paycheck. It might be more advantageous to simply adjust your withholdings so you have more take-home pay each month.  This would also mean you are not giving the government your hard earned money for a year interest free.

Financial guru Dave Ramsey suggests tracking all your expenses for a month to see where you’re spending your money. When you’ve got a better picture of your typical income and spending habits, a financial planner can formulate a debt-management plan. Then, you’ll have a clearer picture as to where you can cut back and then apply any extra money to your debt.  A financial planner will also have some tips and guidelines to help you set up a budget and pay down debt to advance toward achieving financial freedom.

One example of a tip is from the Harvard Business Review: In an experiment, the Harvard Business Review found that people who worked on paying off one credit card at a time (rather than spreading out payments over multiple cards) were the most successful at reducing debt.  Furthermore, those who started with the smallest balance felt the most sense of progress, and therefore had the most motivation.

Please do not let debt stop you from creating a Financial Plan!  Rather, let me help you create a plan unique to your situation. 

Until next time, cheers!


*1 Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit, August 2017