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June Goal: Reduce Your Debt Load

June Goal: Reduce Your Debt Load

| June 12, 2017
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The most recent report from the Federal Reserve Bank of New York shows that the U.S. has set a new record in household debt. Debt levels have exceeded the peak set in 2008 – preceding the recession.

When people think of debt, many think that it is due to reckless spending. Data suggests otherwise… Food, housing costs and medical expenses continue to rise while the average household income has remained steady.

“Today, the average household with credit card debt has balances totaling $16,748. The average household with any kind of debt owes $134,643, including mortgages.”
          - Nerd Wallet

How does your household compare to the national average?

Household

NOT ALL DEBT IS CREATED EQUAL:
Some debt can be necessary to help you meet your financial goals. For instance, it is well documented that workers with a college degree earn significantly more income than those with only a high school education. Similarly, real estate is an investment which can gain value over time. Mortgage loans can be tax deductible. Mortgages, automobile loans and student loans typically have much lower interest rates than do credit cards. Credit card debt is sometimes necessary, but can be costly over the long-term. Improve your financial situation by eliminating credit card debt as soon as possible.

“For households that carry credit card debt, it costs them about $1,300 a year in interest.”
          - Nerd Wallet

How much would you have accumulated, if you had invested the dollars you paid in interest?

HOW MUCH IS TOO MUCH?
When considering large purchases like a vehicle or home, ensure your debt-to-income (DTI) ratio is 43%, or lower. Calculate your DTI ratio by adding together all of your debts - home, auto, student loans, etc. - then dividing by your gross monthly income. Be disciplined about how you're spending your money. Don't let lifestyle decisions over-extend your budget.Reduce Debt

TACKLE YOUR DEBT – ONE STEP AT A TIME:
If you find yourself in an unhealthy amount of debt, don’t fret. Instead, refocus your energy. Set an intention to change your spending habits. Create specific milestones with a realistic time frame. To achieve your financial goals, establish a series of manageable steps, and work backward from your goal date.

1. Itemize
Make a list of your debts. Include creditor, interest rate, minimum payment and outstanding balance.

2. Prioritize
Place the debts with the highest interest rate on top of your list. Put as much money toward paying off highest interest loans off first. Reduction of debt will lessen the amount of interest you pay. Continue making minimum payments on your other outstanding liabilities. 

3. Minimize
Ensure you’re getting the best rates possible. Contact your credit card companies and ask them to lower your APR. Consider refinancing your mortgage and your student loans to get the lowest interest rates available to you. If at first you don't succeed, call again in another few months. 

4. Consolidate
Simplify your monthly bill payments by consolidating multiple credit cards into one loan. Simplification can help you stay focused and organized. Plus it may give you some negotiating power when you ask credit card companies to lower your interest rate.

5. Adjust
Improve your spending habits. Small tweaks to your budget can make a big impact. Be persistent. Cut out the expenditures that matter less to you than paying off your debt. Consider spending only cash for all of your purchases for an entire month. See how this small change affects your spending habits.

BOTTOM LINE:
Paying off debt can be liberating and can reduce your overall stress level. When you pay down expenses, you free up more money to invest in the things that are most important to you.

A financial advisor can analyze your current debt load, and help you gain control over your financial future. Select a trusted professional who will work with you to set attainable objectives, and help you stay focused on achieving your goals.

Questions? We’re just a phone call away.

How soon can you pay off your credit card?  Use THIS calculator.

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