How Much Debt Are You Really In?

5 Steps to Mastering Your Budget

Most people avoid creating a budget because they don’t want to face their debts. It can be downright demoralizing to see the list of your liabilities grow longer and longer in comparison to your income. People usually know know much they owe on their mortgage, car loans and student loans within a few hundred dollars. The part that seems to come as a shock to people is consumer debts. Consumer debt is defined as “Credit card debt, payday loans, and other¬†consumer¬†finance, which are often at higher interest rates than long-term secured loans, such as mortgages”. The average american has 3 or more credit cards and according to ValuePenquin more than 40% of card holders carry their balance over month to month for an average of $5,700. (https://www.businessinsider.com/average-credit-card-debt-in-every-state-ranked-2018-8)

With these kinds of numbers it is no wonder that people avoid detailed budgeting like the plague. I’m here to tell you that you don’t have to be afraid of your debt. The best way to take the power away from something that frightens us is to shine a light on it. Once you have acknowledged your debts, you will be able to create a course of action to reduce and eliminate it once and for all. Below are the 4 steps that you will need to take to shine a light on your debt.

Step 1: Acknowledge that you have debt and forgive yourself. Give yourself some grace. Life happens and you should be proud of yourself for taking action to make healthier financial choices moving forward. Maintaining a positive attitude about your debt will greatly increase your chances of sticking to your plan.

Step 2: Calculate your large debts. Gather your credit card statements, auto loan statements, mortgage statements, student loan statements, personal loan and payday loan statements. If you use paperless billing you will need to log into each site and write down the current balance.

Step 3: Calculate your irregular expenses. Annual subscriptions (Amazon Prime, Magazine subscriptions, etc.), monthly subscriptions (Netflix, Gym memberships, etc.)and utilities (gas, electric, cell phone, etc.). Food (groceries and restaurants), Gas, Insurance and anything else that you spend money on. You may need to take a look at your bank or credit card statements to find them all.

Step 4: Add it up. Total all of the balances. Give yourself a moment to process the total balance (and maybe freak out a little). Then you can prepare for the next phase of the journey. If your total is less than you expected it to be then you are further along than you thought. Knowing really is half the battle. Now that you know what the battlefield looks like you are ready to win this fight.

Step 5: Determine your repayment strategy. With your debt balance in hand you are ready to create a your debt elimination plan. See if you can fund your debt payment plan by cutting expenses or if you will need to add additional income to your household. If you find that your expenses are more than you earn, it is time to look into a part-time job or side hustle.

Remember, it took time for you to build your debt portfolio and it will take time to eliminate it. Taking these steps to create a plan to eliminate it and consistently working towards your goal will be rewarding. It will also give you the confidence you need to improve other areas of your life. We are not meant to live a life filled with financial stress. When you master your budget you are better equipped to lead the life that you were meant to live.