An average American will have debts reaching $90,460, including various types such as personal loans, student debts, mortgages, etc. In every age group, debt balances differ. The age group with the largest average debt balance is Gen X, aged 40 to 55. Each Gen X has an average debt amounting to $135,841.
The age group with understandably the lowest debt balance, as per CNBC, is Gen Z, with a mere debt average of $9,593. These people are between 18 and 23 and might be starting to navigate their way through adulthood. With yet limited financial power, Gen Zs tend to swerve from huge purchases and have slim credit card history.
The Real Secret to Financial Success
However, whatever the age, the secret to financial success isn’t having a fat bank account. It can be as simple as having no debts. Why’s that so? It’s because debts can accumulate, making you end up with less disposable income, liquid assets, or savings on hand.
When you have a higher debt to income ratio, most of your money will go to your debts that only a little amount would be left for your household or personal use. When financial emergencies come, you don’t have sufficient funds to back you up. Financial hardship is something no one would want to experience or get stuck in.
It all boils down to the advantage of having zero debts. No matter how high your income is, if you still have higher debts than what you earn, you’re still not nailing life financially, although you have the advantage of having a higher income—it can help you easily rid of debts. Nevertheless, the goal is to be financially free. Clearing your debts can lead you to financial freedom.
Fix Any Spending Issues First
Firstly, make sure if your debts aren’t a result of your unconscious spending issues. It’s easy to fall into the trap of spending too much, and for most people, it’s because of being unaware of their true spending habits. The usual best remedy for this is keeping track of their cash flow—keeping spending versus income in check.
But having a spending problem is a different thing. It’s when one gets to the point that they shop to deal with their unpleasant emotions, feel guilty after shopping, or argue with their family or spouse about their spending habits.
Those with spending issues tend to hide their purchases from others, seek the “high” in purchasing items, and max out their credit cards. With all these, such persons would still continually deny the debt balance they have or the real amount of money they spend on things they don’t need.
People who find it hard to differentiate their needs and wants may also tend to buy things just for the sake of it. They go around the store and put any random items onto their cart. They may even buy too much for their friends or family on holiday, which can be a subtle sign of having a spending problem.
Then, Get into Paying
After fixing your spending issues and realizing that you finally want to have the upper hand in your debts, strive to clear them all. Remember this to be the way to your financial success. But if your spending is on necessities and not about spending issues, it’s a lot better on your part. With the right commitment and income, you can get out of it for just ten years. Here are how:
Use your savings
Pay your larger debts, especially those with higher interests, through your savings. Interests increase over time, so paying those high-interest debts can stop them from increasing.
Increase your debt payment
You can put 15% more of your paycheck or Social Security income into your debts. Paying off larger amounts per month can greatly save you from the accruing interests.
Use tax refund check
Instead of going on a vacation with your tax refund check on hand, use it to paying some, or if possible, all of your debts.
Call your creditor
This will work for you if you have a good payment history. If so, call your creditors to talk about lowering the rate of your interest.
Cash in your life insurance
Once you feel like you are already drowning in debt, you can always choose to cash in your life insurance, which is also a great way to pay in a single lump sum and make your debt load lighter.
Make more money
Either selling your items for cash or increasing your income by having another stint, it’s your way. Use the extra money from your extra source of income to pay your debts.
Life’s burdens get a little lighter when you have less or no more debts on your baggage. Make an effort now; reap the benefits later.