Do you want to tame your debt situation? If yes, then you are part of the 61% of Americans who planned to pay off debt as their main financial goal. With all the debts accumulated in the previous year, you need to start working harder to get rid of your debts.
Fortunately, there are a lot of options to do this. It does not matter what your financial situation is. There is a debt relief program that will suit your specific debt issue and payment capabilities.
If that is the case, then why are there still consumers in debt? Why are Americans still struggling to completely solve their credit problems? If there is a solution to every problem, what is the reason why people cannot be debt-free?
It seems like we never really learned from the past. After all the trouble we went through during the Great Recession, we are back to having huge amounts of debt. What will it really take for us to solve our never-ending debt issues?
Well, there is one habit that you can develop to help tame your debt situation.
You just have to keep on setting goals.
How goal-setting tames your debt situation
Having goals will bring a lot of benefits in your life. Basically, these goals will improve your overall situation. That is the main reason why we set them in the first place. But how can it specifically help with your debt situation? Does this mean you have to keep having “pay off your debts” as a goal?
Not entirely. Even if the goal is not related to your debts, it will still help with your credit issues. For instance, you can save up for the down payment of your new home. This can still help with taming your debt because it still influences your current financial situation.
In what way? There are three reasons why goal-setting can help tame your debt situation.
You learn the right habits
By having a goal, you will be forced to learn the right habits. After all, it is these habits that will help you reach your goals – like savings, smart spending, and of course, budgeting. The idea is to live below your means so the extra money can be used to get closer to your goal. Of course, part of that will be used to pay off the debt. But long after the debts are paid, this is a habit that will continue to benefit you. The habits that you are forced to have because of your goals will really help you manage your finances better. In effect, you are less likely to fall into another debt pit.
You are motivated to make better spending choices
Having goals will also give you the motivation to make better choices when it comes to the use of your money. For instance, instead of eating out, you can opt to plan your meals. You can save more by buying in bulk and cooking your meals from scratch. And it is not even about buying what is cheap. It is looking for value. If you are in the market to buy a car, you will opt for the fuel-efficient one. You know that it is smarter to buy this compared to a second-hand car that will cost you a fortune on repair and maintenance.
Bottom line is, having goals will make you more cautious of how you spend your money. You know that you have limited resources and that a part of that should be used to help you meet your goals. This mentality of smart spending will also help you avoid another bad debt situation.
You are always focused on the future
Finally, goal-setting can keep your eyes focused on the future. And we all know that debt is all about instant gratification. Debt fuels your need to make the present better. While we all want to enjoy life now, it should not be done with complete abandon for the future. You have to understand that your decisions now (e.g. buy things using debt) will affect your future (debt payments). If you are not careful, the debts of your past can compromise your ability to build wealth in the future.
What makes goals great for your current debt situation is the fact that it gives your life direction. You are not just depriving yourself for nothing – which i/s what some people feel like when they are not using credit cards freely. Goals can really give your life something to look forward to. This is why you have the motivation and constant reminder to make the best choices for your future.
Why you need to tame your debt situation
Just to make things clear, taming your debt situation does not mean you will stop using it. In our society, specifically the way credit scores are given importance, it is not advisable to completely eliminate the use of debt.
What is more important is for you to learn how to manage credit. That way, you do not have to be afraid of using it. Because debt, when it is tamed, can lead to either of two things in your life.
It can be used to improve your financial position
The truth is, debt can be a great way to improve your finances. Admittedly, there are purchases that can be very hard to pay in cash. For instance, not everyone can buy a house in cash. It is too expensive. It will take forever to save up for it. So it is more practical and logical to use a home loan to buy a home. The same is true for starting a business. When used properly, credit can really be good for you. However, you need to choose when you will use it. A house is okay because it appreciates in value. Not only that, it is a secured loan so it only has a low-interest rate. But if you keep on using credit cards every time you dine out or you use it to pay for a vacation, that is not the best way to use credit. These are expenses you can save up for and pay in cash. If a debt is to be used in a way that will benefit your finances, you need to be very careful in how you use it.
It can threaten your financial future
If you do not learn how to tame your debt situation, it can threaten your financial future. Take the recent holiday season as an example. Reports reveal that Americans accumulated around $1,325 worth of holiday debt. And 15% of these people said they can only pay the minimum for this debt. With the high-interest rate of credit cards, this means it would take them longer to pay it off. In fact, the next holiday would roll in and they would still be paying off this balance.
As you can see, if you do not take your debt situation, it can affect your future for years. There are debts, like mortgages that will take decades to pay off. But what you used it for appreciates in value. So paying it off over a long time makes sense. It is worth it. However, if it was just used to pay for holiday expenses, that is not justified. It will compromise your financial future and possibly destroy it too.