The consumer debt problem of Americans seems like a permanent thing. The truth is, debt is not really that bad. The use of credit is sometimes necessary if we want to bring our finances to the next level. However, there are credit management practices (or the lack of it, rather), that makes debt bad for our finances. When we abuse the use of credit or if we react irresponsibly to it, that is when it becomes a threat to our financial future.
One thing is for certain, debt is something that we cannot eliminate from our lives – at least, not completely. According to an article published on Fool.com, the average debt of Americans, at least for credit cards, reached $7,879 in the final quarter of 2015. This data from CardHub also revealed that the credit delinquencies are starting to reach a point when it is unsustainable again. That means when a financial crisis strikes, it will bring a lot of households down once more.
This is just one example of how a debt problem, when you do not deal with it the right way, can lead to your financial downfall. The truth is, a lot of people are scared of debt for the wrong reasons. They are scared of its effect on their finances but in reality, it is our own mistakes that make it bad for us. There are several successful people out there who use credit and yet, it never threatened their financial success. You need to learn how they do it because debt can be a great tool to drive you towards financial abundance.
4 reasons to keep your debt situation from discouraging you
Although your debt seems like a difficult problem to overcome, it is not the end of the world. It is true that your bad financial decisions had a hand in landing you in that particular situation. But despite that, there are 4 good reasons why your debt problem should not lead you to despair.
You are not alone.
When you make a mistake, there is no greater comfort than knowing that you are not alone in that mistake. Well, that is true for your debt situation, you should not despair because a lot of people are in the same situation as you are. According to an article published on CNBC.com, 8 in 10 Americans have some form of debt. It does not matter if the debt is a mortgage, car loan, student loan or credit card debt. The data from Pew Charitable Trusts revealed that majority of Americans owe money. Take note that this probably does not include debt borrowed from family or friends. More people are probably in debt and we just do not know about it. The article also revealed that some people believe that debt is a necessity. In essence, that is true. But before you treat debt as a necessity, it is very important that you understand how to manage it well. Otherwise, it will become a threat to your finances.
You need to focus on the task at hand.
Another reason why your debt problem should not lead you to despair is, frankly, because you need to focus. Getting out of debt is not an easy task. You need to have a plan and you have to make a couple of sacrifices along the way. It is often likened to getting your ideal weight. Even if you reach your target weight, you still have to continue working hard because you might gain the weight that you lost. The same is true for your debt. Even if you eliminate it, if you do not change your habits, you will end up in the same financial situation again. And when it comes to changing habits, you need to focus on it really well.
You are not entirely to blame.
Another reason why you should not despair about your debt is because you are not entirely to blame. Although your decisions landed you in this position, there are situations wherein you were forced to make a difficult decision. For instance, a layoff can come as a surprise. That is something that you have no control over. Your mistake is not saving enough money in your emergency fund but the job loss was not your fault – unless you did something really bad at work. But as you can see, there are outside factors that could have contributed to the fact that you were forced into debt by your lack of cash reserves.
You can still pay it off.
The final reason that should not make you feel bad about your debt problem is that it can be solved. No matter how high your debt is, you can overcome it. Of course, the difficulty will depend on how much you owe. But all types of debt can be paid off. There are debt relief options that you can look into to help make it easier to get out of debt. Understand the pros and cons of the various options and analyze your financial situation. There is a debt solution that is meant for your unique debt situation.
All of these reasons will not make your debt go away – but it will help put your debt under a different light. You still have to work hard to improve your financial situation but the gravity of your debts should not lead you to desperate acts.
How your debt can help you improve your finances
We mentioned earlier that debt, no matter what you read about it, can be used to improve your financial situation. There are investments and financial opportunities that cannot wait for your savings. Sometimes, it is more practical to borrow the money – as long as you can set it up to not be a debt problem or burden to your finances.
Here are a couple of ways that debt can be used to improve your financial position.
It can be used to build up your credit score.
There are two reasons why you have a bad credit score. The first is not having sufficient credit history. The other reason is mismanagement of existing debts. Regardless of the reason behind your low credit score, there is only one way to turn it around – you have to use debt and pay it off properly. That is the only way that you can fix your credit score.
It can capitalize an investment.
Another way that debt can improve your financial situation is through an investment. If you will use a loan to capitalize a business, that can prove to be a wise financial move. There will be risks – like all investments. However, credit management can help you avoid turning a great opportunity into a debt problem. Apart from a business loan, you can also use a home loan and treat it as an investment. Anything that will help increase your assets can be considered an investment.
It teaches you a valuable lesson about what not to do.
You know how a mistake can sometimes be the best lesson? The same is true for your debt situation. There are some people who are able to turn a devastating debt situation into a financial success. For one, it can teach you what you should not do. A failure, if you have the right mindset, can also be a source of motivation. According to an article published on WSJ.com, when we teach children about debt, we should teach them the dangers and benefits that it can bring. Instilling fear of debt is not the best way to shape them into responsible adults. We can learn a lot from debt – as long as you have the right mindset when you are handling it.
Speaking of teaching kids about money, you need to get them started on financial lessons to make sure they will not have a debt problem when they get older. Here is a video with tips to help you teach your kids about money.
