THE DEBT CRISIS AND HOW TO GET OUT OF IT
You’ve bought your car, took out loans for college, and maybe even bought a house… You are for real adulting (like for real, for real!). It feels good to have some of your own things, and you take pride & joy knowing that you are actually doing all the adult things. But… buying a car + college loans + house (or rent payment!) + every other big & little thing along the way can really start to add up.
Some of us start to feel like we can barely make month to month payments, let alone save or pay off debt. Almost half of American’s are in debt and the average millennial is in at least $42,000 of debt. Needless to say, there is a debt crisis in America… so we need to act fast.
Thankfully, there are simple everyday ways to getting out of debt and learning how to manage your money. Just like weight loss, it’s more about changing your lifestyle than it’s about getting to where you want fast. There is no quick & easy fix, especially if you’re overwhelmed by massive debt; BUT, there are plenty of changes and perspectives towards money that you can have to take control of your debt, rather than the other way around.
Your money is more valuable today then it will be tomorrow
In the simplest terms, inflation means that the value of your money decreases every day. In 1980, the average college tuition was between $3,500 and $10,000 (depending on private or public). This doesn’t just mean the colleges today has more, it just means that the value of $1 was higher in 1980.
It sounds almost counter productive, but being in debt isn’t entirely bad. The cash you have on hand now may do more for you in the long run then throwing it all at your debts. With cash, your money can grow through interest. Look at paying off your debt as a money game: there’s a fine line between building up your cash reserves and paying off your debts. So, as you begin to think about paying off your debts, build up some cash on hand. The extra $100 you got this week, may actually be better off stored with interest than paying off your car loan.
Start with your smallest debts first
The absolute worst thing about debt is interest. Did you know that people often pay for their house twice before paying it off? That’s thanks to interest (you’re a real B***). When you have multiple debts, you are paying interest on each and every one of those individual loans. Pick a smaller loan with higher interest and focus on paying one off at a time. In the long run, you’ll avoid paying a lot more money. Once your small payment is paid, put what you had been spending into your next monthly payment. This method not only saves you money, but it can build momentum and make you feel like paying down your debt is possible.
Make a habit of only spending what you have
This seems obvious, but with the invention of our favorite plastic card, it can be really easy for American’s to spend more than what they can afford. Those new wood floors you really want? If you can hold off on it for one month, two months, or five, you’re better off. Don’t live beyond your means, and better yet-- make it a goal to live below your means. Remember, the debts you have is already spent money; so, technically, the money you earn has already been spent.
Know where your money is going
This follows our last point nicely, because spending within (or below) your means is impossible to do unless you make a budget. A budget is basically knowing your household income, figuring out your necessary expenses (think: place to live, transportation, food) and knowing unnecessary expenses. Obviously then you will know what you can start cutting back on and what you actually need. If you need more help, we have a blog allll about budgeting.
Dream big
Paying off debt can be really tiring + draining. Whether you have a spouse or you’re going at it alone, write things that you can do when you are debt free. Visualize how your life will change. Get a whiteboard or chalkboard and write it where you’ll see it every day. At the end of the day, it will be your dreams of paying off your debt that will give you the inspiration and motivation to get you where you need to be.
Paying off debt is a tall task, and it can seem really intimidating. Know that you’re not alone; and, that it is so worth it to be debt free! How do you pay off debt? And how do you stay motivated to continue paying it down?