Declutter Your Debt

Ways to Reduce Your Liabilities in 2017

Debt in America is a real issue facing most people today. To date, 70% of Americans carry a debt burden. That means the vast majority of individuals are trying to navigate a tricky balancing act of financial wellness. To help you get ahead in your financial life in 2017, and to set you on a path toward the prosperity you desire, take the time to look closely at your own liabilities.

From analyzing your budget to addressing your credit card interest rates, you have a variety of approaches to help minimize your debt. Here are some key ways you can declutter your debt this spring and move closer to financial freedom:


Assess Your Budget

Creating a household budget is a great place to start when working to reduce your debt. Unfortunately, many Americans overlook this essential planning item. In fact, only 41% of Americans use a budget to manage their financial lives. Without knowing how much you are spending versus how much money you are generating, you are left making blind financial decisions. AMERICANS

Your budget will help you gain a realistic perspective about every financial responsibility you have (such as mortgage payments) against all the money you bring in (such as rental income). Once you itemize every incoming and outgoing dollar, you might be surprised to find hidden expenses you did not realize were holding you back. This clear view of your financial obligations will help put you on the track toward creating short- and long-term goal-based strategies. You will want to revisit your budget at least annually to keep a realistic outlook on your financial profile.

There are many programs and apps available to help you budget, or you may prefer a paper-based worksheet to get started. If you need a recommendation on how to get started creating a budget, email Marc Shaffer at [email protected].

Create Forward-Looking Financial Strategies

Similar to creating a budget, developing your personalized financial strategies is a critical way to create and maintain financial wellness—and your plan should complement your budget. Yet most Americans don’t even have a plan in place. According to a study by Financial Engines, 52% of middle-income earners and 44% of high-income earners have no financial plan. For low-income earners, the number of Americans without a plan increases to 68%. As a result, many Americans have no financial structure for meeting their short- and long-term goals.

With customized financial strategies, you will be able to address your debt by constructing a clear picture of your various financial needs—and the specific actions you need to take to address them. Start by identifying all the life goals you hope to achieve, such as traveling the world in retirement and sending your children to college debt free. You’ll then identify how your budget fits into your financial strategies. You will also prioritize your goals and financial decisions based on their respective importance, among other things. With this strategic road map in place, you can make healthier financial decisions that support your debt-reduction goals without sacrificing other priorities you care about.


Increase Your Credit Card Payments

Monthly credit card debt can be a real burden on your financial life, and Americans are holding an increasing amount of credit card debt. In 2016, the average US credit card holder carried a $5,551 balance—and the average household had a balance of $16,048. By comparison, in 2015, the average adult American between 18 and 65 years old held $4,717 in credit card debt.

When it comes to paying down credit card debt, every extra dollar helps. In fact, an additional $10 per month can shave months off the time you have to pay your balance. While paying off your debt in full is the ultimate way to minimize your obligations, even small increments can help move you closer to becoming debt free.

Transfer Credit Card Balances to 0% Interest

Many credit card companies offer enticing deals to move your debt to their credit cards with 0% interest on the transferred balance. To date, the average credit card interest rate is 18.76%, which can result in some hefty monthly fees. If you make only the minimum payment each month, you’re further spreading your liability.

While no card will offer completely interest-free benefits, taking advantage of a 0% introductory period can help you save money each month—and pay off your credit cards more quickly. Most cards do have a transfer fee, ranging from 2% to 5% of the amount transferred, which will be added to the amount you must repay but in most cases this is still less expensive than the interest you would pay on the original card.


Pay Off School Loans

Taking on debt for education is increasingly common in America. In 2016, US student loans totaled $1.4 trillion. And, the average student loan debt in 2016 was $37,173—the highest debt yet. Carrying that burden with you throughout your adult life can hamper your ability to build lasting financial stability. Considering that some private school loans can have interest rates of 18% or higher, those debt obligations become even heavier.

To restructure how you’re managing this debt, you might want to consider actions such as refinancing your loan to lower your rates. You can also call your provider to ensure your payments are being applied to your principal first, rather than the interest. Taking actions today to minimize the time you take to pay your school loan will only help you better create the financial life you desire.

Manage Your Mortgage

For many Americans, owning a home—rather than renting—is a common financial obligation. As a result, mortgage payments comprise a large part of Americans’ debt. Recently, the average mortgage debt for American households was $172,806. In total, mortgage debt comprises 70% of the country’s household debt. So, finding the best ways to manage your mortgage should be a priority.

One route is to focus on paying down your principal by making additional payments, which will help you minimize the amount of total interest you pay. You can also consider refinancing your loan, which could help you generate either a better interest rate or shorter payment terms.

When it comes to your liabilities, remember that every dollar you pay toward debt is a dollar you can’t invest in building your wealth. So, reducing your liabilities can be an important tool for pursuing the future you desire. Of course, your unique financial needs and goals will drive what debt reduction strategies work best for you, so be sure to consult with a professional before making any large financial decisions. By starting to address these items today—and working closely with a financial advisor to help guide you—you can create a strategy for truly becoming debt free. In return, you’ll be better prepared to enjoy the life you imagine.

Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product made reference to directly or indirectly in this content, will be profitable, equal any corresponding indicated historical performance level(s), or be suitable for you or your portfolio. Due to various factors, including changing market conditions, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter (article) serves as the receipt of, or as a substitute for, personalized investment advice from Searcy Financial Services, Inc.

The content of this letter does not constitute a tax or legal opinion. Always consult with a competent professional service provider for advice on tax or legal matters specific to your situation. To the extent that a reader has any questions regarding the applicability of any specific issue discussed in this content, he/she is encouraged to consult with the professional advisor of his/her choosing.  

Published for the blog on April 12, 2017 by Searcy Financial Services, your Overland Park, Kansas Fee-Only Financial Planner and Investment Manager.