At the start of the new year, many people made New Year’s resolutions — promises to yourself or others to enact a change. Unfortunately, the enthusiasm for those resolutions often wanes as the hard work required to honor them becomes a reality. Did you make a New Year’s resolution? Perhaps you made one to get your finances in order or get out of debt — commendable resolutions that require work and self-discipline.
People have lots of ideas about debt; some believe there can be good debt and bad debt. Others believe we should avoid debt altogether. No matter how many talking heads say you should never carry any debt, except possibly a home loan that you pay off quickly, debt is an unavoidable fact of life for most of us.
Instead of looking at debt as “good” or “bad” perhaps we should classify it as “wise” or “unwise.” How about contemplating how the debt you are about to incur will affect your life? Will accepting debt to redecorate your home or buy a new car, sparkly piece of jewelry or designer clothes really make your life better — or will it make it more stressful when the bill comes due?
Personally, I consider purchasing something on credit, knowing I cannot pay the bill in full when it comes due, to be unwise debt. I also consider purchasing something (furniture, new car, bigger home, etc.) on an installment plan, knowing the additional payment will cause undue strain on my budget or family, to be unwise debt. Before purchasing something you think you must have, I recommend you put yourself in timeout (sit in that corner and think about what you are about to do); look clearly at your finances, do an honest evaluation and decide whether it’s worth the cost.
Maybe you already have made unwise debt choices, and now you are living with the consequences. Here are a few suggestions to help you:
• Take the time to gather the balance, payment amount and interest rate on every debt you have. Write it down on a piece of paper, create a spreadsheet or use whatever method works for you so the information is in a format you can review. Sort the debt by interest rate, then by outstanding balance. Add a column on your worksheet or paper for all your monthly income and expenses, including your installment and credit card payments.
• Admit you need help. Recognize that if you could get control of your debt on your own, you already would have done so. Seek financial counsel from someone who is good with finances, like your CPA, financial advisor, banker, pastor, family member or mentor with financial wisdom. Do not ask for help or counsel from someone who is in a financial crisis themselves; a drowning person can’t help someone else stay afloat. Tell your trusted advisor the full story (he or she can’t offer sound council otherwise), and allow this person to help you create a plan to help you work your way out.
• Once you have a plan for reducing or eliminating your debt, begin to work your plan. Be accountable and meet with your advisor regularly to evaluate your situation.
I recently met with a client, discussing her situation and her ideas for paying down her debt and working on her retirement savings. As we evaluated her situation, we helped her see something that she’d been unable to see on her own — a different way forward that allowed her to work toward her goals in a way that also provided flexibility in case of unforeseen circumstances.
I could list many general ways to reduce and manage your debt. However, your situation, though similar to others, is not the same. Just as people have similarities and differences, so do financial situations. General information is just that, generally accepted methods; they may work for you, or they may not. However, through relationships with people you can trust, you can receive help tailored to your specific needs in a format that can work for you.
I encourage you to seek out help from a trusted source today.