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(HealthNewsDigest.com) – The United States is a nation in debt. We have a national public debt of about $12 trillion (it will be even higher by the time you read this). Americans owe $2.4 trillion more in consumer debt – excluding mortgage debt.1 Households with credit cards carry more than $9,600 in debt on average.2
Believe it or not, debt can be healthy. But only certain types, and manageable amounts, qualify and help maintain good financial health. What do you really owe, and is it “healthy”? Read on to find out.
Determine what you have and what you owe. A first step to understanding your finances is to tally your net worth. Net worth is the sum of your assets minus the total of your debts. Assets are checking and savings accounts, retirement plans and other investments, and the resale value of real estate, vehicles and other major material goods that you own. Debt may include credit cards, car loans, personal loans, student loans, mortgages, unpaid medical expenses and loans from friends and family. The median net worth of all U.S. households was $93,000 in 2004 — meaning half of all households were above this figure and half were below. The figure varies greatly with age, increasing for older Americans.3 Follow the next two steps to improve your net worth.
Evaluate healthy vs. unhealthy debt. Take a close look at your debts. While eliminating all debt is a noble goal, the truth is, most families find it difficult to function without some amount of debt. Four types of debt can be healthy, in limited amounts:
Student loans — Furthering one’s education can increase future earning potential.
Mortgages — Home ownership is an asset that can build equity and net worth.
Necessary medical bills — One’s health always takes priority.
Business debts — Loans are often necessary to build a business and future earnings.
“Healthy debt” must be manageable to pay, not designed to increase, and be an enduring investment in something like health, education, buying a home or creating a business.
Eliminate unhealthy debt. All other types of debt – especially credit card debt – create more problems than they solve. Credit cards charge an average interest rate of 15.39 percent.4 A missed payment can send the rate skyrocketing to 30 percent or more. If you can’t pay the full credit card balance monthly, you have too much debt. To increase your comfort level and decrease that debt:
Create a spending plan (a budget). Understand how much money you have to live on each month.
Discipline yourself to live within that budget. Use cash or a debit card for daily purchases. Live within your means, and get out of the mindset that you can buy whatever you like and pay it off later.
Pay off debt, starting with paying the most on your debt that carries the highest interest rate while making minimum payments on other debt. When the debt with the highest interest rate is paid in full, move to the next-highest-rate debt and implement the same strategy. Whatever you do, always pay secured debts (mortgage, car) first.
Work toward your goals. After you pay off debt, you can invest money in your future, instead of paying creditors. Set goals for yourself. Do you want to retire comfortably, buy a second home, pay for your child’s college education or start your own business? The first step is to pay what you owe. Then, put those funds into savings and watch your future grow.
Eliminating unhealthy debt provides incredible freedom. No longer will you be haunted by looming bills or worrying how to pay (or even remember to pay) each bill. For more information on creating a plan for financial freedom and health, visit www.bills.com/guide.
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