Having debt is a fact of life.
According to Northwestern Mutual’s 2018 Planning and Progress Study, the average American has about $ 38,000 in personal debt, excluding mortgages.
But how do you manage your debt to make sure it doesn’t suffocate you?
Emily Braun, financial advisor at Edward Jones at Solon, and Randy Carver, president of Carver Financial Services at Mentor, said the first step is to know where you stand financially.
“First, identify your debt and what the interest rates are,” Carver noted. “Then focus on paying off the highest interest first. If you have equity in your home, consider refinancing your mortgage and using the money to pay off high interest debt. Mortgage rates are at historic lows today, so now is a good time to consider consolidating debt. “
Braun suggested developing a financial strategy.
“Develop a solid financial strategy based on your goals and stick to that plan,” she said. “Create a budget and stick to it. It can also be helpful to find an accountability partner.
Individuals should also consider the type of debt they may be facing. Carver explained that there can be “good debt” and “bad debt”.
“’Good debts’ are usually things that appreciate over time and ‘bad debts’ are things that depreciate,” he explained. “Borrowing credit cards for frivolous things like eating out, etc., would be considered bad debt. A mortgage that you can afford would be good debt.
When starting your debt management journey, starting on the right foot can make all the difference.
“When you’re in a hole, the first thing to do is stop digging,” Carver said. “In other words, if you have a lot of debt, the first thing to do is figure out what’s causing it and see if you can adjust your budget so it doesn’t get worse.
“Understanding your debt is also important because you’ll want to pay off the highest debt first. It’s important to be honest with yourself about how much debt you have, how much you spend, and how much you can save.
The debt management journey also depends on the end goal, Braun said.
“How long will you have to reach the goal?” she asked. “What compromises are you prepared to make? And with long term goals, like retirement, it will be a little different. You may need to ask yourself how much return and how much risk you are willing to take. I think this is a very good starting point.
To truly understand your debt management journey, Braun said it’s imperative to track your progress.
“Everything you do, all your strategies, it all makes sense,” she said. “And if you’re lagging behind, you may need to explore new ways to get back on track. It’s about creating those habits.
Seeking professional help with debt management is not a bad way to go. But, it’s important to know the type of professional you need to hire.
“There are certified financial planners who will help manage debt as part of a holistic plan,” Carver noted. “It’s important to understand the credentials of someone who calls themselves a planner and how they bill for their services. There are many debt and loan consolidation services that could ultimately cause more harm than good. “
If you are considering declaring bankruptcy, it is essential to contact a lawyer who specializes in this area. Braun said she can also guide her clients through their goals and how debt might affect them.
“It’s so great getting to know my clients and learning what’s important to them because everyone has something they’re working on,” she said. “A lot of people have financial goals, like a comfortable retirement, a long vacation, or saving for college. But a financial professional is someone who has the perspective, experience, and skills to help you make the right choice.
While it may seem like you’ll be in debt forever, the pros have suggested that you don’t be put off by the struggle.
“Be honest with yourself about what you need, how much debt you have and how much you earn so that you can make a plan to pay off debt and have a real budget,” Carver said.
Braun said, “Realize that trying to achieve too many goals, whether it’s debt management, retirement or something like that, is a daunting task. Just follow a clear strategy and be ready to prioritize, accept that compromise, and get the help you need.