At the beginning of every year, we are continuously reminded of the resolutions that people make to better themselves and their lives. Be it health and fitness or career related, January 1st marks a time for a fresh start to help accomplish the goals we want to achieve. It is also a great time to take stock of your finances and financial health, especially when the economic outlook is so uncertain. If you feel swamped by your debt or like there isn’t a way out, here are the essential questions to ask yourself in order to make a realistic plan to take charge of your debt once and for all.
What is my financial goal for 2023?
Setting a goal for yourself will help to set your priorities and drive your action to get control of your debt. Do you want to get rid of your credit card debt? Start saving for a house or for retirement? Improve your credit score? Is your goal more introspective like wanting to worry less about money or be confident or proud of your financial standing? It is important to have a goal in mind both to help you decide what needs to be done to reach that goal and help motivate you along the way.
Can I afford to pay my bills each?
Understanding your cash flow is an essential part of taking action on your debt. It comes down to a fundamental question: Can I afford my debt or not? The second step is to create a budget for yourself. Look through your bank or credit card statements and see what you actually spend earn each month and what you actually spend. Break down your spending into categories including credit card or loan interest and sort all of your spending into each of the categories.
In my experience, this exercise can be extremely revealing for clients who are struggling with debt. If you’re not balancing your checkbook every day (and let’s be honest most of us aren’t) you can be shocked to see where you’re actually spending your money. In many cases you might find that you are spending a significant chunk of your income on credit card or loan interest. Basically you are paying for the privilege of running a credit card balance. If you expenses are more than your income, can you cut any of your expenses to flip the equation and have money left over? What would your budget look like if you were not paying credit cards or loans every month?
How long will it take to pay down my debt?
All credit card statements will tell you the (often depressing) amount of time it will take to pay off your balance and how much you will pay in total when all is said and done. This information should tell you that making the minimum payment alone is often not a good financial decision even if it is the only thing you can afford. For example, at $15,000 credit card balance with a 20% interest rate with a current minimum payment of $150 will take almost 25 years to pay off if you continue to make the minimum payments. In that time, you will have paid back almost $38,000 in total, or more than double the original balance. Understanding how long it will take to pay your debt off, is important to know whether your goals are realistic and achievable or whether other options, like debt consolidation or bankruptcy, can help you reach your goals faster or more realistically.
What tradeoffs is my debt forcing me to make?
Another way to ask this question is: What am I not able to now, that would be able to do if I did not have make credit card or other debt payments? Spending money is ultimately about choices. If I only have $100, but I have three things that cost $50 that I want or need to purchase, which two things do I buy and what do I hold off on or forego completely. If $300 of your budget each month goes to pay interest on credit cards, what are you not doing because you have to make those payments? Saving for retirement or unexpected expenses like car repairs? Spending more time doing things you enjoy? Using the money to buy a new house or new car?
After you have put together your budget and have an idea of what your financial goals are, it can be much easier to see what your debt is literally, and figuratively, preventing you from achieving. If it is going to take two years to get your debt under control and down to $0.00, can you make a plan to pay the credit cards down one by one or potentially try and settle the account for less than you owe? If it will take longer than that, are you okay with continuing to make the sacrifices that paying your debt forces you to make?
What additional information do I need to get my debt under control?
It is important to utilize the expertise of professionals in this field to get advice on how to reach your goals. As a bankruptcy attorney, I meet with people every day seeking advice on how to deal with their debt and improve their financial outlook. For some people the answer won’t involve bankruptcy or other debt resolution services like debt consolidation or debt settlement. But for some people, bankruptcy might be helpful tool for reach their financial goal, doing so earlier than they ever would be able to if they tried to pay back their debts.
For many people, a bankruptcy filing eliminates most types of unsecured consumer debt like credit cards, personal loans, or medical bills. In the hypothetical above, eliminating $15,000 in credit card debt through bankruptcy would save a person almost $40,000 compared to making the minimum payments and allow that person the opportunity to focus on all of the things they couldn’t do because of the amount they had to spend each month on credit card bills.
Schedule a consultation with a bankruptcy attorney at Gale, Angelo, Johnson & Patrick P.C. today to see what options are available to deal with your debt so that you can reach your goals tomorrow.