Dealing with Debt

image1_compressedLinda Stroman works for Capital Area Asset Builders, where as a financial education coordinator she helps individuals (specifically in the District of Columbia and the tri-state area) either get out of debt or increase their credit scores or with other debt-related concerns.

Debit is a tremendous burden and can hold people back from realizing their full potential. Stroman wants to outline some ways to reverse that process.  Debt at its most basic, Stroman says, is an expense that has been incurred by an individual. It constitutes an agreement: a regular repayment on the part of the individual who has incurred the debt. In addition, there’s a price to pay: if you borrow money, for example, you will expect to pay back what you borrowed as well as make additional payments called “interest.”

image2_compressedWho is in debt?

Everyone in the United States, says Stroman, has some kind of debt load. It may be a mortgage, a car loan, credit cards, and other financial vehicles. The trick isn’t to not have debt, as that would be difficult to avoid. The trick is to make sure that we don’t have excessive debt, and to manage the debt that we do have. So this is really about those two factors: getting rid of excessive debt, and managing debt responsibly.

image3_compressedMake a plan

The first step in managing your debt is to make a plan. Nothing happens on its own, or overnight. Having a strategy will get you out of excessive debt and keep you managing the debt you do have in a way that you can live with.

Start with a list: write everything down: anybody you owe anything to. You can divide it however you like, but make sure that every entity to which you own money is on this list. (It can be a sobering experience, and may teach you a lot about your financial decisions and habits. This can be a good thing!)

image4_compressedCredit cards

First you want to look at the most expensive debt, which is probably your credit cards. They’re the most tempting to use, and are costing you the most. Now it’s time to see if you can lower any of those expenses first. Call every credit card company and ask if you can qualify for a lower interest rate. If one or two of them are willing to lower your rate, then move the balances from other higher-rate cards onto these lower-rate ones… and close the accounts with the higher-interest cards. Then create a three-year plan for completely clearing the cards that remain.

Other loans

If your car is on a high-interest loan, see if that can be adjusted. You’d be surprised at what you can actually negotiate.  Refinancing is an option that can help move a lot of debt off your plate. While you’re at it, if you own a home, call your mortgage company and see if you can refinance. Mortgage interest rates are at an all-time low, so it’s an excellent time to negotiate a mortgage refinance.

Being clear about how much you owe and especially what your plan is for getting out of debt is what will set you up for fiscal security in the future. Do it now!