One of the biggest causes of stress for Americans is debt. We like to buy stuff! A recent article in USA Today noted numbers from the Federal Reserve, as follows: the average American household carried nearly $140,000 in debt as of the end of 2017. When compared with the median household income of around $60,000, it’s easy to see how debt can cause major stress, and paying off debt is a pressing priority.
Paying off debt can be liberating
Not all debt is equal, however. Buying a Starbucks latte on credit can wind up costing you quite a bit more than the $5 purchase price. This is because the interest rate on the balance of your credit card could be 15 or 20 percent. By paying only the minimum due each month, a small $1,000 credit card bill could take many years to pay off. Even worse are payday loans that sometimes have interest rates that make those on credit cards look minuscule by comparison.
Once consumer goods are used, they tend to lose value. A house, on the other hand, will usually have a value that keeps up with inflation, and mortgages have tended to have relatively low interest rates in the 4- or 5-percent range over the recent past. Mortgages are definitely less bad than most other forms of debt.
Paying off debt requires a budget
Paying off debt from cars and credit card bills can seem overwhelming, but there are strategies that can help you dig out of the hole. Some are more painful than others, but they can definitely improve your life over time. The first strategy that most personal finance experts recommend for getting out of debt is crafting a household budget. Few people get excited about budgets, but they they could save your financial life. Those who have a monthly salary or steady hours on a job will generally know about how much they can expect to bring in during a given month. After deducting all necessary expenses that cannot be cut, all other money should go toward paying off debt until it’s gone and you can ease up a bit.
Popular personal finance expert Dave Ramsey recommends starting out by paying the minimum on all debts except the smallest, which should get every additional cent that’s available in a given month after paying for necessities. After that debt gets paid off, the money that went toward it should get rolled into the next-smallest debt. Repeat this process until all debts are paid off. Seeing your debts go down one by one can be powerfully motivating!
After setting up a budget and a strategy for paying off debt, it’s important to look at other ways to increase income. There is a limit to how low a family can cut their expenses. There is no such limit on how much a person can make. There are countless stories of individuals who started “side hustles” that started making money for them, or took on an additional part time job for the purpose of reducing their debt. Even if you can’t come up with the next big thing, working for a few hours a week at a second job can cut down the amount of time that will be necessary for paying down debt.
No one, other than credit bankers who make money from it, likes debt. However, debt does not have to be a dreaded necessity. By carefully tracking spending, setting up a financial strategy and increasing income, it is possible to pay off debt over the long haul.
Find out more about being debt free in our guide: All About Debt Relief
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The Law Office of Barbara B. Braziel helps people get out of debt. We offer free consultations to people of Savannah, GA and the surrounding areas, including Richmond Hill, Hinesville, Pooler, Port Wentworth, Tybee Island, Clyo, Ellabel, Midway, Ludowici, Springfield, Pembroke, Brooklet, and Garden City.
We are a debt relief agency. We help people file for bankruptcy relief under the U.S. Bankruptcy Code.