April is Financial Literacy Month – Dealing With Debt

_financial_literacyIf you read my blog regularly, you probably know by now that April is Financial Literacy Month. This is my next article about the subject.

Around the beginning of April I discovered that there was a website dedicated to this presidential proclamation dating back to 2011.The website has numerous tools and information that I was amazed to see in one place.

My theme on these articles has been the 30 step process for gaining more knowledge about your finances. I’ve made a pledge to focus on mine even before April, with my New Year’s Resolutions.

This article is going to focus on Step 9: Do You Pass The Debt Test? and Step 13: Pay Down Your Debt.

I often find that some of the most disappointing financial behavior that I observe is regarding debt. I also describe debt as a crushing misery of servitude. If you’ve ever been deep in debt, or feel as though it is out of control, you’ll completely understand that statement.

In Step 9: Do You Pass The Debt Test? there is an online test. If you answer “yes” to any of these, you may need to make debt payoff a priority. There is a handy worksheet in this step so you can see where it all is and what is going on.

It’s important that you eliminate or at least minimize your debt as soon as possible.  However, don’t borrow from your 401(k) to do it. We’ll address retirement savings soon enough.

Step 13: Pay Down Your Debt addresses this. One of the really cool tools in this step is the Dealing With Debt Worksheet. The worksheet will help you with balances, interest rates and track payments made.

There are two schools of thought on paying down your financial bondage. First, you can pay off the smaller balances and work your way to the higher balances. Typically called the snowball method, it can help get you momentum and give you encouragement early on with small victories.

The second is to concentrate paying off the debt with the higher interest rate first. This will save you the most interest charges over time. The point is: go after this stuff. I personally like paying off the smaller debt first and then using that payment on the next debt, and so forth.

We all have struggled with debt from time to time. Our society makes it really easy to get in over your head. Don’t be ashamed and don’t give up. You will never achieve financial independence if you have significant debt. Keep working on reducing it and your attitude toward it.

My next article will deal with financial goals and priorities and cash reserves. Is your debt a problem?