Money Girl’s Smart Moves to Grow Rich by Laura D. Adams

Author:Laura D. Adams
Language: eng
Format: epub
Publisher: Macmillan
Published: 2010-04-28T16:00:00+00:00

Set Your Debt Priorities

Thinking about debt and how to get out of it can be depressing. Many people are overwhelmed by their financial obligations and feel trapped. I want to offer some words of encouragement if you’re struggling with any amount of debt. The best way to overcome a challenge is to meet it head on. You can unbury yourself. Successful people stay focused on finding solutions, not dwelling on their problems.

One of the questions I often hear about getting out and staying out of debt has to do with setting priorities. You may be confused or feel conflicted about what to do with your discretionary income. You know you need to pay down debt and put money toward your other goals, like saving for retirement and an emergency fund. Your priorities for doing those should depend on your situation. If you have no emergency fund, your top priority should be to build up at least a couple thousand dollars. One of the ways you can get sucked into short-term debt is by getting caught without an emergency fund. Having a cash reserve is a fundamental part of being financially healthy. (And never, ever dip into it for anything other than a critical emergency.) It’s important to expect the unexpected, because life throws lots of expensive mishaps at us. Cars break down, people get sick, and jobs can be lost. In many cases, those types of problems may be the reason you got into debt in the first place. Don’t let it happen again.

Once you have your emergency fund in place, you can start paying down your short-term debts. If you have a retirement plan at work that offers company matching (more about that to come), I recommend that you continue to contribute to it while you reduce your dangerous short-term debts like credit cards or payday loans. If you have a large amount of short-term debt, and don’t have a workplace retirement plan that offers matching funds, I recommend that you spend six months to a year working exclusively and diligently to pay down your debt. Put retirement savings on hold for a specific time frame, so you can send as much money as possible to your most dangerous, high-priority debts. After that time period, begin saving for retirement while you continue to pay down short-term, then long-term debt. But if your short-term debt is manageable, I don’t recommend that you stop saving for retirement. As important as it is to get out of debt, you must also have a plan for a financially secure future.

Just like losing a lot of weight doesn’t happen overnight, getting out of debt won’t happen quickly, either. It’s a part of making a commitment to a new and improved lifestyle. It’s a part of accepting new beliefs about money and adopting better financial habits that you follow every day. Don’t let the desperation you may feel about your situation allow you to fall prey to get-out-of-debt-quick scams. Even those created by so-called nonprofits, who claim to have your best interests at heart, may not be legitimate.

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