We’ve all been in that situation when we want an item so badly that we actually neglect the price of that item. Our wants can often cloud our judgment, making it easy to lose sight of our needs, especially our financial needs. Other times, though, our wants are so important, like the want to further your education, we find a way to make it financially possible. These situations can quickly and negatively impact your finances.

Debt is a major problem for many people. In fact, in 2018 the average American had about $38,000 in personal debt(2). In a perfect world, we would remain debt free, but realistically, most of us have to face it. This is when a debt management plan comes into play. Whether you have debt now or not, it’s important to understand how to manage it. You don’t want to be caught off guard if it’s thrown your way.

Understanding Debt and Its Costs

Debt basically means paying for things with another person’s money(1). It makes everything cost more money too. When you buy something with a credit card or take out a loan, that’s using someone else’s money to make that purchase. The issue that arises when you pay with debt, is the interest associated with it. All credit cards and loans have a set interest offer that affects the amount of money you will have to repay. The catch, not all interests remain the same throughout the loan period. While 0 percent interest might sound perfect, chances are you will start paying that percentage, but if you don’t abide by the terms of the contract, that interest will most likely increase. If you’re not careful, you could be responsible for paying all the interest at the end of the term.

Forms of Debt

Debt comes in many forms. Short-term debt is caused from short-term loans like credit card debt, student loans or other personal loans that can be repaid in three years or less. Intermediate-term debt is anything that can be paid off in five years. This can include loans such as home equity or auto loans. Then there’s long-term debt such as a home mortgage which can take anywhere from 10 to 30 years to repay. Keep in mind that the longer the term on many loans will result in a higher interest rate. Meaning, the longer it takes to repay the loan, the more money you will pay for it.

If you familiarize yourself with the implications of debt, its costs and how to manage it wisely, it will lower the chance of a financial frenzy. Take the time to educate yourself on the many facets of debt and arm yourself with the management plan to protect yourself.  

Ready to manage your debt?

The Financial Fitness Group, a purveyor of comprehensive online financial education programs, has the many resources you need to be a financial success. We offer unbiased online, interactive instruction in personal finance, financial planning, investing and much more. Learn more about our online resources or to schedule demo today.