It is a goal of many people in today’s world to be debt-free, and, for some, it seems unattainable.
After we closed on our first home, my husband remarked with some trepidation that it was the first time in his life that he was in debt.
Of course, the amount of mortgage debt, when taken as a whole, always seems like a whopping amount when compared to other smaller debts we might have incurred.
Car loans and credit card balances may be substantial, but they usually pale in comparison with our mortgages. Now, looming in the background of many young and middle-aged Americans is that second largest obligation – student loan debt.
I recently wrote a column about student loans – the largest debt held by Americans with the exception of mortgage debt. The trouble is that student loan debt affects not only the graduate debtors, it has a devastating effect on the economy and affects every one of us in one way or another. Families burdened with student loan debt are slow to invest in housing, automobiles and a variety of commercial purchases that fuel the economy.
Excessive debt doesn’t happen by itself. It’s often the result of some bad habits we acquire over time. Early education would go a long way to prevent the debt crisis, which recently caused untold foreclosures and enormous credit card debt.
So, how do we avoid falling into the debt pit? Judy Sorensen, president of the Association of Credit Card Professionals, offered 10 reasons why so many of us have fallen into debt.
1. You chose to live in an area or in housing that really isn’t affordable for you. It might have started with a loan that was too much to pay, or, because of job loss or cutbacks, is no longer supportable. The cost of living in the area where you live also might be more than you can handle.
2. If you’ve failed to distinguish between wants and needs, chances are, your budget is out of balance, and the only way to dig yourself out is to start from square one and make sure everything you’re spending is really necessary. Cutbacks might be painful, but it’s the only way to become financially stable.
3. You overestimated your income and find that the raise or commission you expected hasn’t materialized. Even if everything started out affordable, if that imagined extra income doesn’t become real, inflation will sink your budget ship as time goes on.
4. Hidden costs appear when you least expect them. Even if the car payments seem reasonable, the increasing cost of regular maintenance, gas and repairs come with the package.
5. Your lifestyle ambition turns out to be too much for you. Forget living like the Joneses and enjoy the luxury of sleeping well with no debt.
6. You never learned the miracle of compound interest and haven’t started investing in yourself by feeding a savings account. Having three months of living expenses in the bank can ease the pressure when unexpected emergencies occur. Depending on credit cards leads to a never-ending spiral of paying high interest and fees.
8. You’ve failed to construct a long-range plan to eliminate debt and improve your net worth. It takes time and effort, but it’s the only way to travel the road to financial freedom.
9. You’ve underestimated the time you have to start getting back in balance and saving for retirement. It’s easy when you are young to think the horizon is far off. Just ask your parents or older acquaintances how fast the time to plan and save slips away.
10. You’ve overlooked the little items that jam up the works in your otherwise seemingly adequate budget. Only by tracking your expenses, especially the cash ones, will you succeed in accomplishing your perfect budget goal.
• Virginia Peschke is executive director of Consumer Credit Counseling Service of McHenry County.