Be Done With Debt…
…or at least bad debt. Marlene Satter is an author at ThinkAdvisor who recently wrote a piece called the 10 Scariest Retirement Statistics: 2019. 1 The title was very fitting. Much of the statistics were centered around debt. Take a look:
- Credit Card interest in 2018 was $113 billion – with a projected growth of almost 8% this year to $122 billion!
- Only 40.5% of Americans report that they are spending less than their income. That means over half the population is spending more than they make.
- Consumer debt, which is bad debt, has topped $14 trillion. Baby Boomers, on average, carry over $95,000 of consumer debt. But GenX has them beat with a whopping $134,323 average.
- Of the 77 million Americans that have a credit file, 35% – to almost 27 million people – have an item on their report that has been in collections.
- Student loan debt for Baby Boomers and GenX increased by 7% over the 12 months ending March of 2019. On average, Baby Boomers had a balance of $34,703 and GenXers beat them again with $39,584.
If any of these statistics include you or someone you know, it can be fixed. You can be done with bad debt, which, by the way, is any debt not helping to benefit your long-term financial picture. But to get there, you have to really want to. It won’t be easy, so are you sure you want it? If so…
Progress starts by telling the truth…especially to yourself. Ask yourself. Do you have bad debt? Do you have habits that create bad debt? Do you have relationships that contribute to your debt?
Learning how to say “no” even to yourself is the most critical step in being done with bad debt. It is a waste of your time, money, and efforts to spend money on programs to help your work to clean things up if you cannot stop the root of the problem. What do you need to change? Can you change? When will you do it? Mark it down, ask someone to hold you accountable, and get to work.
Now that we have that rough conversation over, it’s time to look to your budget and your resources. If you don’t have a budget, stop here. Create one and then continue. If you have a budget, go through it. What can you cut back on over the next 12 to 24 months to be done with bad debt? Even the little things like an online iTunes subscription. Every dollar counts.
What is your credit like? Is it great? If not, this is a priority. It could take you 10 to 20 times longer to clean up bad debt with bad credit. Here is how you do it. Already have great credit? Great! Let’s use it.
Here is where the real work begins: The goal is to get the highest interest balances paid first, but this does not mean you should simply put every extra dollar on these balances first. Perhaps you have a balance requiring a monthly payment with a low interest balance, but you could get it paid off in 2 months with the extra dollars you found. Do it, then apply this payment with the extra to the highest bidder. As you can see, it’s very important to look at your debt holistically and pay it down logically. Too many people just take the extra and divide it up amongst all their balances or just pay extra on the highest interest balance. It may seem logical, but time is money.
Where does credit come in? This might be one example. You get a 0% interest credit card offer for the next 18 months. This is gold! Use it. Replace your highest interest balance with this, but only to the amount you know you can pay before that 0% window is up. After window closes, many of these have ballooning interest. I would event suggest paying that balance down to zero a month early for safety’s sake.
There are a lot of good debt programs out there, but most people don’t really need them. They need a little direction and a lot of accountability. So why not make a plan and make it happen? How much daily stress do you carry just because of this? What if it were gone? It can be. It is that simple. Just do it.