Research from financial services company Northwestern Mutual found that excluding mortgages, the average personal debt per individual currently sits at $21,800. The latest New York Federal Reserve data also shows that rising credit card debt and auto loans helped push U.S. household debt to new records in the second quarter of 2023.
35% of Americans reported that they’re in the most debt of their lives, despite the personal debt being significantly lower than the $29,800 recorded in 2019.
Credit cards are the main source of debt for U.S. adults, accounting for more than double any other source. Car loans, medical debt, home equity loans, personal education loans following respectively.
So what can we do if we are struggling with debt? Financial coach Jeannie Dougherty shares insight.
“To live a debt-free lifestyle requires you to streamline your wants and needs into nearly one category. It also means you become a money hunter. This person knows when things are on sale, uses coupons, and will pre-pay their bills, not just when they are due. They chose to live where their cash is there to empower them, their family, and their goals. Suppose you have no intention of living your life that severely. Then, use the strengths of money hunting and be clear on your goals. If you don’t want “heavy debt.” Be clear with yourself and your partner about “heavy debt.” Set up rules on how quickly debt has to be paid back once you have borrowed and what to do if you have extenuating circumstances.”
Jeannie Dougherty emphasizes the importance of setting specific goals and being clear about the concept of “heavy debt.” This clarity helps in making informed decisions about borrowing and repaying loans. It’s crucial to establish rules about the timeframe for repaying debts and the steps to take during extenuating circumstances.
Another key aspect is budgeting. Creating a realistic budget helps in tracking expenses and identifying areas where you can cut back. Dougherty suggests using budgeting apps or tools to make this process easier. This approach not only assists in managing current debts but also in preventing future debts by avoiding overspending.
Financial literacy plays a significant role in managing debts effectively. Dougherty recommends educating oneself about different financial products, understanding interest rates, and the impact of long-term loans. This knowledge empowers individuals to make better financial choices and avoid predatory lending practices.
Dougherty also advises seeking professional financial advice if debt becomes overwhelming. Financial advisors can provide personalized strategies to manage and reduce debt. They can help in negotiating with creditors, consolidating debts, or finding suitable repayment plans.
Additionally, Dougherty mentions the importance of building an emergency fund. This fund acts as a financial buffer, reducing the need to rely on credit during unexpected situations. Even small contributions to this fund can make a significant difference in the long term.
Lastly, Dougherty highlights the psychological aspect of dealing with debt. She recommends addressing any underlying emotional or psychological factors that might contribute to poor financial decisions. Seeking support from counselors or support groups can be beneficial in dealing with the stress and anxiety associated with debt.
In conclusion, managing personal debt requires a comprehensive approach that includes clear goal setting, budgeting, financial literacy, professional advice, an emergency fund, and addressing psychological factors. By adopting these strategies, individuals can work towards a more secure financial future, free from the burdens of excessive debt.
