YOU, The Debt Slayer
I’m pretty pumped about this topic, which is debt slaying! And anything that has to do with slaying just excites me for some reason, LOL. So as spring has officially arrived and spring cleaning has began in households across America (you know, where you go through all your stuff, declutter, reorganize and complete improvements).
Well the same needs to be done with your finances. We also need to reorganize and beautify our financial space to make it serve us better and spring us into that nice springtime, positive mindset.
Winter can be a time when we can spend a little more money than we wanted or intended. Between Christmas, annual property taxes due in many states, other year-end expenses, and new-year expenses such as healthcare deductibles restarting, it’s really not too difficult to do. So now is a great time to take a look at your finances as you start planning for the remainder of the year and beyond.
Where Are You In Relation To Your Goals?
So the first step is assessing and understanding where you’re at with your finances. Then factor in your goals you want to accomplish in both the short-term (such as paying for a family vacation or completing a home improvement) and the long-term (such as expanding your business or going back to school). As you look at your goals which often involve spending or needing money for reserves, how is your financial picture looking?
We all probably know first-hand by now or instinctively know, it often takes money to make money. Or in other words, you need the funds to invest in your goals and your future. Fortunately though you will often get these funds back with the success of your goals, depending on which type of goals you’ve set for yourself.
For goals such as planning a family vacation, you won’t necessarily get the funds back in direct terms. However you will get the life experience and enjoyment of uninterrupted time and adventure with your family or loved ones. And that can absolutely be just as valuable.
There Isn’t One Right Way
As for other types of goals such as going back to school for example to expand your skill set and education. This obviously will cost money. But if your plans go accordingly and you work hard towards your end goal, you should see a return on that investment with a higher paying job or a promotion in your existing field.
And as a side note, going back to school doesn’t always equal going back to college for a higher degree. That certainly may be the right course for you. But there are many ways to expand your education and skill set in this world to improve your income. And oftentimes, you can find more affordable education options depending on your specific objectives and goals.
Obviously if your goal is something such as becoming a teacher in the education system, you will need to get the proper college degree required to achieve this goal. However don’t discount alternatives to expanding your education and skill sets such as trade schools (you can check out local trade union options), specialized certification programs (such as EMT) or the military which teaches a high variety of skills for future career opportunities.
I’m also personally a fan of self-education in addition to these other options. You can certainly come up with your own education plan which can be a combination of on-line courses specific to what you need, books, etc. to get you where you need to go.
Some of our most intelligent and groundbreaking innovators and examples of success were self-educated in this country, including many of our founding fathers such as George Washington. Bill Gates only had a high school diploma and then dropped out of college to follow his purpose in life which was…you know, founding Microsoft! So don’t limit yourself. It’s what’s best for you.
A Budget Is Necessary
No matter what your money goals are, one thing that can absolutely put a wrench in the money plans is too much debt which can quickly start eating away your cash flow. So it’s important to review your financial picture and know where you stand, so you can slay this debt before it slays you and your budget.
Speaking of budgets, I’m a firm believer that you need one! You need to have your cash flow organized and tell your dollars where to go every month. This also helps so much with awareness. Money is free flowing, so it’s way too easy to lose track of your finances if you do not have a plan in place.
A budget gives us the reality check we need to truly understand how our funds are being spent. It also sets us up for success with our financial goals when done right. Listen to the prior podcast Budget Doesn’t Have To Be A B Word for detailed advice on setting up your budget. A budget is an absolute requirement for setting yourself up for financial stability and success.
By going through your budget, you will see if you have a monthly cash flow surplus or deficit. This then allows you to plan and adjust accordingly.
Not All Debt Is Created Equal
One big chunk of the average American’s monthly budget is typically paid out toward debt. Some debt is most likely necessary for the average person, so not all debt is inherently a bad thing. Most people have or have had mortgages for example on their homes or other properties owned.
Since property is typically classified as an appreciating asset, this debt can actually be earning you money in the long-term as long as the value of your home is continuing to increase as your mortgage loan is continuing to decrease. The podcast Keep Your Eye On The Goal will help you differentiate between types of debt impacting your overall net worth or net assets. More times than not, debt and loans will be necessary for building net worth and investing in your goals.
So even credit cards aren’t inherently bad. It just depends on how you use to leverage your goals in addition to the specific terms of the credit card. If the credit card you use has a super low interest rate, a killer rewards program and you are paying way more than just the minimum payment to aggressively payoff, then this might be a great lending option for accomplishing a specific goal.
For example if your goal is to complete home improvements because you want to sell your home in the next year, you may leverage a low interest credit card to complete the improvements needed to then get the higher return on the sale of your home in the near future. An added perk can be the cash back from the rewards program. Just be sure to set up an aggressive payment schedule on the balance each month or plan to payoff in full with the proceeds from the home sale in this example.
Some Debt Is Your Enemy That Must Be Slayed
On the flip side, debt can also be your freakin’ worst enemy and can crush you financially with a quickness if you don’t handle it right. Debt which is not serving you and is pulling you backward needs to be slayed!
So let’s take out our daggers and talk about a few ways to slay this kind of debt. Only you will know which portions of your debt load need to be slayed. This can be identified through the budgeting process. But honestly most people know which debts are wreaking havoc on their lives, bringing their cash flows off balance and therefore need to be slayed. It’s often fairly obvious.
Debt Slaying Options
So once you identify the debts in need of slaying, you have some options:
Sell The Asset
If the debt is being secured by collateral such as an expensive auto loan, then you can consider selling the collateral to payoff the loan. So for the expensive auto loan example: You can sell or trade-in the vehicle, payoff the loan and then find another vehicle with a more affordable payment. This concept applies to mortgage loans, auto loans, motorcycle loans, ATV or boat loans and any other loan secured with collateral.
Another option to slay debt is through debt consolidation. So for example if you have ten credit cards with balances which are causing you to stuggle, then consolidation could be a great option for you. Consolidation basically takes multiple loans and combines into one loan. This option often makes the debt easier to manage and payoff.
So let’s say you own your vehicle out right and have a free and clear title; or you have equity in your home if you are a homeowner. You can utilize these assets to obtain a loan and combine credit card balances or other debt into one manageable payment. You can also set up on a shorter term so you can actually get paid off. You don’t always need an asset or collateral to accomplish this, but you will often get a lower interest rate this way. Consult an appropriate professional in the financial industry to see what is available to you.
Debt To The Grindstone
Another option for paying off debt is the old tried and true method of setting your debt to the grindstone. Aka: setting up your budget to aggressively pay down the debt through self-sacrifice in the moment with the expectation the debt will be paid in full and your cash flow will be flowing again in the future.
I find the best way to go this route is to set a time goal in regards to how long you want it to realistically take to payoff a debt. Once you have your time goal, then back into the payment you need to pay each month to reach your goal. You can often do this through online financial calculators and will want to know the current interest rate on the loan to properly calculate.
For example if you want to payoff a specific credit card debt in two years, plug in the existing balance with the current interest rate to determine the monthly payment you must pay to accomplish your two-year goal. Then rework your budget to make it happen!
This will often equate to taking money away from other categories in your budget (possibly such as entertainment or eating out), but that’s where the self-sacrifice comes into play. Also set up payments on automatic payment each month to help stay disciplined. Automatic payments are a great tool to help you stay on track.
When it comes to prioritizing paying down debt, there are many ways to approach this depending on where you are at financially. I would advise people who are really needing cash flow relief to check out Dave Ramsey’s debt snowball method. With this method, you are paying off debt in order from smallest balance to largest regardless of interest rate or other terms.
For people who are not feeling the cash flow crunch as much, you may consider other strategies such as paying off highest interest rate debt first to save money on interest costs. Do some research and know your situation to determine which route is best for your situation.
Option Of Last Resort- CCCS
There is one last option I’m going to cover, but it comes with the following important disclaimer. Disclaimer: I suggest this only as an option of last resort if the first three options 100% will not work for your situation.
So I would only consider this option after you’ve exhausted your research and other options in addition to discussing your financial situation with a trusted professional in the industry to confirm this conclusion.
Consumer Credit Counseling Services can offer great programs for people as a more extreme measure if debt is too excessive or burdensome to reorganize or payoff without this aid. The reason this is the option of last resort is because it can impact your ability to get future loans.
Because this option can result in you not paying lenders back on the contractual terms that you agreed upon when you borrowed the money, lenders may not view this route as favorably. As you might guess, lenders don’t really appreciate not getting paid back as agreed upon!
When you agree to pay lenders back at a certain interest rate within certain terms, they expect you to fulfill your end of the bargain. Makes sense, right? So when you don’t, future lenders may be a little more reluctant to lend to you. I’m certainly not saying that using this program automatically stops you from getting future loans. It can just cause more complications.
However these programs exist to help people who’s debt load is such that they can not qualify or pay off through other methods. So if you absolutely need to use a consumer credit counseling service after exhausting all your other options, please do consult with them. There are great companies out there who offer these services.
Just remember to complete detailed research on the company and the terms before signing up for these services. There are unfortunately fraudsters out there who take advantage of people looking for debt relief. So do your homework. Make sure it’s a reputable organization first and foremost. Then before agreeing to anything, understand any fees and how the program will impact you financially such as on your credit report.
If You Need Help, Get It
If you geniunely need this option, don’t be too proud to utilize. No judgment. Life happens and/or we don’t always make the best choices. The most important thing is to get back on track and then learn from any mistakes. Learn any applicable lessons and keep moving forward.
So are you ready and motivated to go slay some debt? Then go crush that debt and take no mercy! You will not regret tackling this issue. Tackling your debt issues will have such a positive impact on you and your overall financial picture. It is so well worth the effort.
President Abraham Lincoln had this message for us. Honest Abe said, “Discipline is choosing between what you want now and what you want most.” Doesn’t get anymore honest than that statement!
Listen to the Mind Your Money Podcast on iTunes Podcast, Spotify and Stitcher apps today.
Contact me for a free 30 minute consultation to see if Personalized Financial & Mindset Coaching is right for you!