This article was published in the New Haven Register on September 15, 2019.
As summer memories fade and we head back to school and into the holiday season, it’s a good time to get a handle on debt. It’s difficult to buy your children awesome Christmas gifts when you are struggling to keep creditors at bay.
Many Americans are deep in debt: The average household carried more than $38,000 in debt exclusive of home mortgages in 2018, according to a survey by Northwestern Mutual. Debt is harmful to your financial health because every dollar you spend to pay off past expenditures is a dollar that could be invested in your future.
Credit card debt represents 25 percent of the $38,000 average, according to the study. That’s up from 19 percent in 2017. While education loans only made up 6 percent of the average for all Americans, among millennials (age 18-24) school debt made up a staggering 28 percent of the total. Car loans made up 7 percent.
If you’re caught up in the vicious cycle of paying tomorrow for what you want or need today, here are some tips to come up for air:
Become a financial planner. Create a financial plan that includes a budget and follow it. One of the biggest reasons people get into debt is because they spend without understanding their overall financial picture. Having a plan helps you make healthy spending decisions, since you will know how much of your income must go toward debt, savings, spending and investing.
Tackle the plastic. If credit cards contribute to your debt misery, write down which carry the highest interest rates and have the highest balances, and start by paying those off first. Always pay more than the minimum balance and take advantage of low-interest balance transfer offers. Oh, and put your credit cards in a drawer until they are paid off.
Consider a home equity loan. If your mortgage lender will provide you with a home equity loan at a much lower interest rate than the one on your credit cards, consider using this method to pay off high-interest cards. But remember, this strategy will backfire if you continue to pile up credit card debt!
Get creative. If you are expecting a bonus at work or a “refund” on your tax payments, decide right now to use all of the money to pay off debt. Not part of the money, all of it. In addition, consider holding a garage sale to raise money or selling high-value goods privately, and use the proceeds to slash your debt.
Cut spending. As part of creating your new budget, look for ways to cut spending. There are obvious ways — do you really need to stop at Starbucks? — and not-so-obvious ways — do you know how many “automatic annual renewals” your checking account and credit cards ring up? Subscriptions to streaming services tend to be forgotten, but every expenditure adds up. Do you really need four different streaming services, or will one — or none — do?
Eric Tashlein is a Certified Financial Planner professional and founding Principal of Connecticut Capital Management Group LLC, 2 Schooner Lane, Suite 1-12, in Milford. He can be reached at 203-877-1520 or through www.connecticutcapital.com. This is for informational purposes only and should not be construed as personalized investment advice or legal/tax advice. Please consult your advisor/attorney/tax advisor.