Do you know how if I have too much debt? It’s not by looking at your bank account; it’s by looking at the level of stress it puts on you...
While some people may actually be in too much debt and not stressing about it, the majority of people find that the more debt they are in the higher their stress levels are.
There are different kinds of debt, and usually those that would be considered wealthy actually have the most debt. The difference is this debt usually produces an income in return and has capital appreciation. It will also be part of a much larger mix of assets that are liquid (meaning you can sell them for cash quickly).
Many people in Australia are in too much debt that is placed at a much higher risk. That is most of it is tied up in mortgages for homes they live in, with capital appreciation being a long term gain and no short term cash flow. Add big mortgages to credit card debt on high interest rates, and you find people with stress levels that don’t go down, simply because there is a constant juggle to stay afloat. If you're struggling with debt, ask yourself these questions:
How much debt you are in?
To get a true picture of your situation, you need to calculate all your debt and be real about it. Understand your position and the assets you have versus your liabilities (debts) so you have an honest financial view of yourself. Only by doing this work can you know what to change. Reality is often frightening, but many people don’t even know how much debt they are in let alone have a plan to pay it down. In this case, ignorance is not bliss. Knowledge is power.
Are your credit cards hurting you?
If you are constantly making credit card and bill payments, and then just paying the minimums to keep afloat, you are no doubt feeling a lot of stress. Credit cards need to be consolidated into one loan or card at a lower interest rate, so an intense focus can go into paying more than the minimum to pay them back. And don’t spend anything else on them until the balance is zero, or you are confident you can pay them off monthly to zero.
Is your mortgage too big?
What is too much debt, outside of feeling stressed? If your mortgage or rent is nearing half your income, most likely that’s putting you under financial pressure. Having your mortgage representing about 25% of your income, maximum 35% of your overall income every month can be managed. Any more than that and debt stress can creep in.
Do you have savings buffer?
If you are in too much debt, chances are you have not had a chance to stash away a rainy day fund. Ideally this would be up to four months of expenses. For some people, that’s impossible - but even a small savings pool to cover unexpected emergencies can help you sleep at night. No safety net equals more stress.
Do you earn enough to pay off your debt?
If not, you need to get a side hustle. Use the gig economy to your advantage and make extra cash to get rid of the debt. Or you could sell assets to make money to pay them down. What don’t you need - put toward debt that’s dragging you down. Be inventive and be ready to hustle.
These questions are only part of a bigger picture, to get your financial future sorted. Its near impossible to build a long term wealth plan if you are struggling under insurmountable debt. You owe it to yourself to figure out ways to freedom - even it means selling your dream home, moving somewhere more affordable, or saying no to new cars, clothes and holidays. Because while those things might feel good in the short term, in the long term the financial pressure takes all the joy from your life. And as you know, life is short.
Don’t spend it under a debt cloud call us on 1300 861 143 to work with you to resolve your situation.
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