This post was originally posted on ChristianStewardshipCoaching.com July 17, 2014.
So as we talked about in Part 1, you are having a hard time making ends meet. You get to the end of the month and you still have more month left than you have money. Maybe you find that you can't pay your credit card bills on time every month, or even worse, you find yourself falling behind on rent or your mortgage.
So, is this an income crisis....a debt crisis....or a career crisis?
Let’s look at Debt Crisis now….
Ok so in Part 1 we discussed having an income crisis, when it seems like you just aren't making enough to make ends meet. In this part we are talking about a debt crisis. If you've not ever done it take a look today at your monthly debt payments. No really, do it now. I'll wait.....
Did you include any credit card balances? How about student loan balances? How about medical debt? Financing on a car? or two? Mortgage balance? (ok that last one is debt...but generally we pay it off differently, the other ones are all consumer debt, typically have higher interest and lower balances and are generally looked at as the major worry when it comes to debt.) Add all those payments up for a month, take a look. This is how much you pay every month just to pay for things that you bought when you weren't able to pay for them in full.
If you are "average" you'll have over $7,000 in credit card debt, a student loan balance around $33,000 and a mortgage over $150,000 (now your numbers may vary, these are averages and the spread really ranges from $0 to very big numbers...a technical math term see here, here, and here for some data.) Your monthly payments on this debt (let's leave off the mortgage for now and just look at the non-secured and consumer debt side) may range from several hundred to several thousand dollars. If you didn't have these debts would your current income cover all the other things? Food? Electricity? Shelter (this is that mortgage or rent)? Transportation (gas and repairs not the car payment)? Medical? oh and don't forget Entertainment...
If the answer is yes...
If the answer is yes, this means you are likely having a debt crisis...after all if you got rid of your debt you'd have enough to cover your needs and reasonable wants.... But wait, if you are struggling to make ends meet because of the debt HOW do you get rid of the debt? Bankruptcy? Well that's the nuclear option, you can often take care of it without going there...it will be hard and take focus but you CAN pay it off in nearly every case. How?
Well this is where we again look at BOTH sides of the equation. There is outgo and income. Take a close look at your spending. ALL of your spending.... You start making tough decisions. Take tuna (ugh) for lunch. Stop going out to eat. Have friends over for a pot luck rather than going out. Cut the cable. Reduce your spending by making choices. This is NOT about denial of every pleasure and it is NOT forever. This is about making choices. Finding those things that you can choose to give up today so that you can have BETTER things for you and your family in the future (and yes that's HARD)
You can also look to the income
You can also look to the income side. Maybe you get a part-time job early in the morning before your full-time job. Maybe you start a side hustle buying things at garage sales and selling them on eBay. Maybe you just HAVE a garage sale. Maybe you look to a new career (we'll talk more about that in Part 3). Basically, just as hard as you look at the outgo side you look to the income side. You find ways to increase the income.
The truth is the DIFFERENCE and RATIO of these two numbers is far more of a measure of how quickly you can get out of debt than the SIZE of either number.
So the truth is if your income just covers your Debt payments or, worse yet, doesn't cover them you are having a debt crisis. As someone who really believes there is no good debt I would go so far as to say that if you have any Debt payments you are having a Debt crisis. (and if you say, but I pay off my credit cards every month take a look at your bills and make sure that's really true, cause many folks who aspire to pay them off every month, don't).
Now, I'll be honest as someone who lives without debt, I can tell you that it is a Great place to be, the land of Debt Free. But getting here isn't easy. There isn't a nice road with plenty of guides. It's more like cutting your way through a jungle. This is one reason my wife and I coach others on how best to personalize a plan to become Debt Free, because a guide can be helpful when you are cutting your way through a jungle.
So, to summarize, look at what it takes to service your debt every month. If you aren't happy with that number pay it down. How? Change the ratio between income and outgo. How? Bring in more and put out less. It really is that simple conceptually, but that is REALLY REALLY tough to do in reality. But you CAN do it if you are willing to work at it.