Debt

By Olivia Wooster

debt

Have you ever wanted to buy something, but didn’t have quite enough money? If you've borrowed money from friends, family, or anyone else and promised to repay them, then you are “indebted” to pay it back. This is called "debt."

Debt is money one person, organization, or government owes to another person, organization, or government. Typically, the person who borrows the money has a limited amount of time to pay back that money with interest (an additional amount you pay to use borrowed money).

Video introductions into debt part 1 & 2

What is U.S. Debt? - P1: Intro to Debt
What is U.S. Debt? - P2: Comparing Debt to GDP

why do we have debt???

People and businesses have debt because they need or want to buy something, but they don’t have enough money to pay for it at the time. Adults sometimes borrow a large amount of money to pay for a house, a car, college tuition, medical bills, or home repairs.

Credit cards are also a form of debt. If you purchase a pair of shoes by charging it on a credit card, you are in debt to the credit card company until you pay your bill. Businesses borrow money to help pay their employees and buy expensive items such as buildings, computers, and other large purchases.

15 signs of debt trouble

  1. Your credit card balances are rising while your income is decreasing.
  2. You are only paying the minimum amounts required on your accounts, or maybe even less than the minimums.
  3. You're juggling bills. For example, you apply for another credit card and use cash advances from it to pay an existing card.
  4. You have more credit cards than a successful gambler has poker chips.
  5. You are at or perilously near the limit on each of your credit cards.
  6. You consistently charge more each month than you make in payments.
  7. You are working overtime to keep up with your credit card payments.
  8. You don't know how much you owe and really don't want to find out.
  9. You have received phone calls or letters about delinquent bill payments.
  10. You are using your credit card to buy necessities like food or gasoline.
  11. Your credit cards are no longer used for the sake of convenience, but because you don't have money.
  12. You are dipping into savings or your IRA to pay your monthly bills.
  13. You are hiding the true cost of your purchases from your spouse.
  14. You're playing the card game by signing up for every credit card that sends you an unsolicited offer.
  15. You have just lost your job, or are fearful that you are about to, and are concerned about how you will pay all your bills.

How to get out of debt, steps.

1 - Stop increasing your debt.

If you have any credit cards that are maxed out, Get rid of them. If you have more than one remaining credit card, cut them up. When you're finish, you should have no more than one credit card. Also cut up any "convenience" cards, such as gas cards, department store cards, etc. You will use your one credit card only to buy "emergency things", and things that you know you will be able to pay off in a short amount of time until you can get your spendings under control.

2 - Record your spendings.

The idea of writing down what you spend is a concept most people find annoying and useless. However, this is actually your key to getting out of debt. You're in debt because you spent money you didn't have. If you're like many people, your debt didn't come from one single huge purchase; it was trickles of spending heaps over time. Avoiding more debt starts with knowing what you are spending your money on. Each day for one month, at least, write down everything you spend, no matter how much.

3 - Categorize your spending.

Categorize your monthly expenses into logical groups of "Must have," "Should have," and "Like to have." "Must haves" are things that will cause harm if you don't buy them, such as food, medicine, pet food, and more. "Should haves" are things that you need, but can do without for a little while, e.g., new clothes for work, gym membership, etc. "Like to haves" are things that you don't need, but enhance your life, e.g., magazine subscriptions, newspaper, weekly coffee with friends.

By doing this, you'll have a good idea of what you spend your money on, and you'll be able to figure out where you might need to cut back on spending. One of your expenses will be paying off your debt. You will want to always pay more than the minimum required, otherwise it will take an extremely long time to eliminate your debt. Paying only the minimum payment will equate to giving them 55% more than you actually borrowed.

4 - Make a budget based on your spending record.

Write down the amount you spent in each category of spending last month as you budget for spending for the next month. Don't worry if you feel like the amount is too much. For now, just write it down. If you spent $250 on clothes last month, write it down.

5 - Figure out your debt paydown fund amount.

Looking at your new budget, you're going to be able to see areas where you might be able to cut back. You might also see categories where you need to increase spending. In doing this step, no one is suggesting that you come up with budget amounts that are unlivable.

At the end of this exercise, you should have come up with a figure, a number of dollars that can be put toward debt paydown. Take note of this number. Day-to-day, if you don't want to keep taking note of all your expenditures, just write down what you spend in the categories you are trying to cut back. This will give you a very clear idea of how well you are going, and, if you know you're going to go over your budgeted amount, it may help you decide to hold back on a purchase.

6 - Figure out how much you owe, to who.

Debt can often feel overwhelming because you really don't have a clear idea of how much in debt you really are. Gather your bills, and make a simple list of all the debts you have. Write down all the facts, including name of the creditor, your total balance, your minimum monthly payment, and your interest rate

7 - Start paying it off.

Take the debt paydown figure of money you trimmed from your budget in step 4, and apply it to debt repayment. It's a good idea to prioritize the debts to which you are going to apply this extra money. first pay off the high priority debts and go forth from, there. Each debt gets easier to pay off than the last.

8 - continue.

Once you've figured out your spending and what debts you owe, keeping it up gets easier and easier. You'll refine your budget over time, increase the amount of money you can pay yourself and the amount you can put toward debt. Continue to pay off each debt in your priority list. As you pay off convenience cards and high interest credit cards, call those credit card companies and cancel those accounts.

9 - Don't give up.

Quick fixes don't last, but learning how to manage your money can bring great peace and reassurance into your life, and you can spend your mental energies on more fun things.