Let’s get back in the Black: Reducing Debt

Yes, make no mistake; you are bound to the debt you create. Part of our exercise on the last chapter was to notice the feelings that came up for us when we were thinking about our budget and our bills. Our feelings are actually part of the Super Power that informs us when our reality and our dreams are out of alignment.

The pandemic caused many to lose jobs and catching up has remained difficult. The cost of living has begun to outpace median incomes and many turn to their credit cards for basic necessities. However, there are options to gain control but they require hard work and discipline.

Not all debt is bad debt—in fact, few of us can pay for a home or an education outright. Mortgages and Student Loan debt are generally considered “good debt.”

The debt in this country is serious. Americans’ revolving credit card balances, is $790B as of October 2021, according to debt.org. 

• Average Household has $8701 of credit card debt, counting households carrying any type of debt that number goes up to $155,622! (debt.org)

• Average debt per US adult - $5525 (debt.org).

• Average number of cards held by cardholders – 3.8 (debt.org)

Action:

Let’s create a simple plan to stop relying on credit and live within our means --- we will pay down our debt AND save AT THE SAME TIME. (Oh yes we will.)

1. FACE IT:
Let’s get it all on the table—you’ve already done the work in Gathering your information and in Budgeting your expenses. Put together a list of each of your debts HERE.

A GOOD GUIDE: Keep your credit utilization ratio below 30%. Credit utilization is the amount of revolving credit you're currently using divided by the total amount of revolving credit you have available.

2. CHECK IT:
Check your credit score. Your credit score is not a measurement of your soul; it’s an algorithm that tracks your credit worthiness overtime. Go to www.annualcreditreport.com. Here you can get a copy of each of your 3 credit reports annually for FREE. We also love creditkarma.com. They offer insights and monitoring of your credit score and report. AND IT’S also FREE!

3. ADJUST IT BY MAKING NEW HABITS:

• Pay with CASH. It may be a painful process at first, but we become far more aware of prices at the store.

• If you must use a card, don’t use any credit cards that are not ESSENTIAL to your monthly household. If you can’t trust yourself then cut them up, hide them or freeze them. (literally freeze in the freezer!).

• Don’t open any new credit cards. Rewards, discounts and zero interest transfers sound enticing, but if the problem is your lack of self control then those incentives become meaningless when you’re racking up more debt.

• Pay down the debt with the HIGHEST interest rate FIRST (unless of course the interest is the same across all accounts) – increase the amount you pay each month now that you have an idea where all your spending is occurring. The higher interest rates will have a substantial impact on your finances – especially if the balances are high and it would take years to pay off with only the minimum. Use your Divine spreadsheet to create a paydown plan and timeline for each card.

• Use bonuses or tax refunds to pay down that debt faster.

• Automate your bill paying and automate your savings! Make sure you are putting a minimum amount toward a savings account EACH MONTH as if you were paying a credit card.

We’re halfway done! How are you feeling about your financial transformation so far? Tweet us your thoughts and progress (@GatherGrowGive) and get ready for the second half of your journey to financial stability.

Journal time! 

Grab your journal to reflect on what you've discovered this week.

Dani Hughes & Valerie Sanchez
Co-Creators of the Divine Empire Transformation System

Divine Asset Management LLC is a Registered Investment Adviser