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Why is Debt an Issue?

Debt is a double-edged sword.  Some of the best ways to improve your financial standing involve creating debt.  Whether it is investing in higher education and walking away with student loans, or taking on a mortgage to build equity in a home, some debt has benefits.

However, many Americans are suffering from crippling debt that they don’t know how to manage to their advantage.  The average American household carries over $15,000 in credit card debt.  Those in extreme credit card debt could hardly call their finances secure.  Many don’t even know how financially precarious their situation is.  It’s common for consumers to underreport their own debt, and in a NerdWallet survey, 23% of respondents said that they were surprised at one point by the amount of their credit card bill.

How Do I know if my Finances are Okay?

Here are 10 ways you can determine if you’re in a good financial situation.

1) You don’t overdraw on your accounts.

Overdraw fees are a thing of your past! You are always aware of how much money you have sitting in your checking and savings accounts, and never feel the need to incur a fee just to buy a necessity.

2) You don’t feel obligated to use a credit card.

When you use a credit card, it is either because you enjoy the convenience or the card is allowing you to accumulate certain rewards, like airline points or cash back.  Knowing you have the money to pay for an item without putting it on a credit card means you won’t be leaving balances unpaid each month while the interest stacks up.

3) You always pay the bill on time.

You have the funds to cover your bills on time or even early. None of your bills acquire late fees and because of this are never sent to collection, which would put a strain on your credit score.

4) Saving for retirement is one of your top priorities.

The percentage of your paycheck going in to your 401k is more than what your employer matches.  You aim to contribute the maximum amount in a year and have diversified your savings into more than one retirement fund.

5) You live within or beneath your means.

There is always money left over from your paycheck for savings.  You’re willing to forgo that luxury car because you know it will stretch your paycheck too thin.  Just because you are approved for a $300,000 mortgage, doesn’t mean you’ll buy a $300,000 home.

6) You have room for wants in your life.

You’ve been eyeballing a new HD television for months now, or you want to take an impromptu trip to New York City.  Go ahead and splurge a little! You know you can afford it without eating through your savings.

7) But you also don’t feel the need to splurge on everything.

Seeing on Facebook that a friend from high school has bought a beautiful home doesn’t make your feel inferior because you’re still renting.  You don’t feel the need to compete with others who are in the same stage of life, and you place more value on experiences than material things.

8) You have an emergency fund.

If you lost your job tomorrow, you know you could keep a roof over your head. Your savings is enough to cover six months to a year without a paycheck.  You don’t lose sleep at night worrying what would happen if your car broke down or your hot water heater needed replacing. Your emergency fund is large enough to take care of unexpected expenses.

9) You’re on track to meet your financial goals.

You’ve started saving for your dream home, or you’ve made a plan to retire in five years. Whatever your financial goals are, you are prepared and taking active steps to achieving them.

10) You’ve had a professional look over your finances.

A financial expert has taken a look at your financial picture, talked with you about your goals, and has given their stamp of approval or has offered suggestions on where to improve. Getting an unbiased opinion from an expert has helped you determine if you’re debt is beneficial or a burden.

Did you check 10 out of 10 on that list?

If not, you are not alone.  Too many people ignore their finances instead of taking charge and improving their financial situation.  There is no better time than now to take action!  AmeriChoice offers free personal financial analyses to get you started.  Take advantage of our unbiased experts to evaluate your financial picture and take steps for your future.