Financial Expert Vanessa Stoykov reveals the best ways to reduce your debt.
Do you know how I can tell if someone is in too much debt? Well let me tell you, it’s not by looking at their bank account. Rather, it’s by looking at their stress levels.
While some people may actually be in way too much debt, and not stressing about it, the majority of people find that the more debt they are in, the higher their stress levels are.
There are many different kinds of debt. Usually those that would be considered wealthy owe the most amount of money, but this kind of debt usually produces an income in return and has capital appreciation. This type will be also be part of a much larger mix of assets that are liquid (meaning you can get to cash quickly).
Many people in Australia however, are in too much debt that is much higher risk. That is, where most of it tied up in mortgages for homes they live in, with capital appreciation being a long-term gain, and no short term cashflow. Add big mortgages to credit card debt on high interest rates, and you find people in stress levels that don’t go down, simply because there is a constant jungle to stay afloat.
So, how can you fix this? Well, firstly you need to consider:
Is your mortgage too much?
If your mortgage or rent is nearing half your income, most likely that’s putting you under financial pressure. Having your mortgage representing about 25% of your income, maximum 30% of your overall income every month can be managed. Any more than that, and debt Stress can creep in.
Are your credit cards bringing you down?
If you are constantly making credit card and bill payments, and then just paying the minimums to keep afloat, you are no doubt feeling a lot of stress. Credit cards need to be consolidated into one loan or card at a lower interest rate, so an intense focus can go into paying more than the minimum, to pay them back. And don’t spend anything else on them until the balance is zero, and you are confident you can pay them off monthly to zero.
Do you even know how much debt you are in?
To get a true picture you need to calculate all your debt and be real about it. Understand your true position and the assets you have vs your liabilities (debts) so you have an honest financial view of yourself. Only by doing this work can you know what to change. Reality is often fighting, but many people don’t even know how much debt they are in, let alone have a plan to pay it down. Knowledge is power.
Do you have no savings or back up plan?
If you are in too much debt chances are you have not had a chance to stash away a rainy day fund. Ideally this would be up to four months of expenses. For some people, that’s impossible – but even a small savings pool to cover unexpected emergencies can help you sleep at night. No safety net equals more stress.
Do you know your current job will never earn enough to take the debt pressure off?
If so, you need to get a side hustle. Use the gig economy to your advantage and make extra cash to get rid of the debt. Or sell assets to make you money to pay them down. What don’t you need that you put toward debt that’s dragging you down. Be inventive and be ready to hustle.
These five questions are only part of a bigger picture, to get your financial future sorted. Its near impossible to build a long-term wealth plan if you are struggling under insurmountable debt. You owe it to yourself to figure out ways to freedom – even it means selling your dream home, moving somewhere more affordable, and saying no to new cars, clothes and holidays. Because those things might feel good in the short term, but in the long term, the financial pressure takes all the joy from your life. And as you know, life is short. Don’t spend it under a debt cloud.
Women Love Tech would like to thank Vanessa Stoykov for her article.
Vanessa is a money expert and financial storyteller, who believes that unlearning money behaviours is the first and most important step in building a wealth plan and have the life people deserve. Her website vanessastoykov.com has tips and resources to guide you on your path. Her debut novel, ‘The Breakfast Club for 40-Somethings’ is the beginning of thinking about your financial future. You can find it at all good bookstores nationally, including Big W.