4 strategies for getting out of debt
The following column from Jennifer Pagliara, CapWealth Senior Vice President and Financial Advisor, was posted by The Tennessean on April 2, 2018.
Likely, you caught the recent headlines broadcasting the news that Americans’ national credit card debt hit $1 trillion for the first time in history. These findings emerged from WalletHub’s recent Credit Card Debt Study.
That’s a shocking statistic, but it doesn’t seem out of line when you look at the Federal Reserve’s latest numbers, which show that the average American household has $137,063 in household debt (including mortgages). Add to that the fact that the median household income in 2017 was only $59,039, according to the U.S. Census Bureau, and it’s clear that Americans are putting themselves into a hole they aren’t likely to climb out of.
Unfortunately, debt is a natural part of life for many millennials and young professionals in what we call the asset accumulation phase of life. They are in the early stages of establishing their careers and likely carry a hefty amount of student debt. They also often rely on credit cards for lifestyle spending at this point in their lives and are adding auto loans and mortgages to their financial obligations.
It’s not uncommon for new millennial and young professional clients to come to us with debt burdens. And, we’re prepared to help them chart a course to reducing their debt and begin focusing on growing — and preserving — their assets. Here are a few of the first steps we walk them through.
One of the first things we look to do is consolidate credit card debt into one lump sum with a lower fixed rate. There are a number of methods out there, from taking out a personal loan at your bank to opening a balance-transfer credit card, and each have pros and cons to consider. The best option for each person depends on the individual situation, so the best practice is to lay out all of the options available to your specific situation and weigh the pros and cons to determine the best choice for you.
Set a plan of attack
Next, it’s time to set a plan to attack the debt, starting with the smallest loan. Paying off that first debt will be a psychological win that will serve as motivation to keep going. Determine a set amount to pay toward the smallest loan each month, and be consistent with your payments. And, when you get rid of that first loan, celebrate it!
“Budget, budget, budget” in finance is as important as “location, location, location” in real estate. It is the key to success. You can be deliberate with your spending by outlining your income versus expenses for the month and identifying spending categories where you can set limitations.
There are a number of budgeting apps and websites that can help you, but you can simply start by tracking your spending for a few months to identify how your money flows in and out of your account.
Before long, you should be able to determine where you may be overindulging and can cut back. And, once you’ve set a budget, stick to it! You will be surprised by how empowered you will feel once you take charge of where your money goes each month.
Persistence pays off
I’m not going to lie to you and say it’ll be easy. It may not feel like much fun to buckle down, set a budget and be diligent in your spending, especially if you’ve become accustomed to a lifestyle of spending at will. But once your debt is down, not only will you feel a sense of relief, but hopefully, you will also have acquired the tools you need to ensure you don’t let it get out of control again.
Jennifer Pagliara is a senior vice president and financial adviser with CapWealth Advisors, LLC, and a proud member of the millennial generation. Her column speaks to her peers and anyone else who wants to get ahead financially.