One of the big issues facing both families and small business is debt as a result of our recent financial sector crisis. As we continue to explore how we could assure our financial health, remains in the forefront. Credit card debt, home mortgage, car loan, educational loan and various other financial obligations have become very much a part of our life and we need to start dealing with them before we can become financially healthy.
Managing debt therefore requires the following coordinated steps:
- Make a list of all your debt including the interest rate and payment schedule and then rank it from the highest interest rate debt to the lowest
- Prioritize Your Debt: Focus on eliminating highest interest rate debt first while making the minimum payments on all other debt, thus putting into action Debt Snowball Method for prioritizing
- Consolidate Your Debt: Consolidation can reduce the loan interest rate and therefore the monthly payment
- Gradually Eliminate Your Debt: Make your financial plan, stay away from additional borrowing, control your expenses, and execute your consolidated debt settlement priority plan
While working through the above noted 4 steps illustrated via video links, also keep in mind that it is equally important to protect the value of your assets that underlie your debt. If you do not maintain your car or home adequately, while you pay off your debt, your asset purchased via debt begins losing value making you asset poor and cash poor. Cash poor because you are pending cash to pay off debt and asset poor because the underlying asset is deteriorating in value faster than its natural phase resulting from neglect or lack of effective maintenance.
Our homes are our single largest investment and therefore we must protect its value. Understanding the various ways a home loses value is therefore very critical and realizing sometimes they are not directly visible is equally important. Some ways a home value decreases are:
- Not maintaining proper up keep, maintenance and repair causes structural decline – remedied by effective upkeep
- Deteriorating public school districts cause community degradation driven value decline – remedied by insuring proper funding of the school district to maintain adequate educational standards
- Deteriorating public safety resulting in higher crime and hazards leading to safety concerns and rise in home owner’s insurance cost in the face of declining home value - remedied by insuring proper funding of the fire and police departments insuring security and quality of life which in tandem leads to appreciation of home value and reduction of home owner’s insurance costs