Americans are $2.45 trillion in debt! (source: Federal Reserve G.19 Report on Consumer Credit, published July 2011).
The average Canadian family is $100,000 in debt and owes much more than it earns, according to a new report (source: The Vanier Institute of the Family).
Many divorced women think that because they are managing to pay their bills and no one is knocking on the door to take their things, they are not in debt. Think again!
To find out if you are in debt, you need to calculate your net worth. It does this by taking all of your assets and subtracting all of your liabilities.
NET WORTH CALCULATOR
Examples of financial assets
Life insurance
bank accounts
Retirement Accounts (RRSP, RIF, 401K, IRA, SEP)
company pensions
Investment funds
Inventory
jumps
Guaranteed Investment Certificates (GIC)
Tax Free Savings Account (TFSA)
Cash (CDs, money market funds)
No RRSP investments
Pension/LIRA
Other
Examples of Personal Assets
Boats and other recreational vehicles
Home
Vacation Property
Furniture and appliances
· Art
Jewels
collectibles
· Vehicles
Other
There are no examples of financial assets
Real estate
company property
Other
LESS
Examples of liabilities
Credit line
car loans
Credit cards
house mortgage
Mortgage on other properties
student loans
Home Equity Loan
cash advance
taxes owed
medical bills
Alimony owed
Child support owed
Now, if your assets minus your liabilities are a positive amount, you’re in great shape! If your assets minus your liabilities are a negative amount, YOU ARE IN DEBT!
What is debt?
According to the Merriam-Webster dictionary, debt is an amount of money that you owe to a person, bank company, etc. It can include the amount borrowed and accrued interest. Debt can include credit card debt, mortgage debt, car/truck debt, student loans, etc. According to money-zine.com “According to 2010 census statistics, that equates to nearly $7,800 in debt for every man, woman, and child living here in the US.”
5 tips to get out of debt
You can get out of debt if you are committed and diligent. It can take a while, and if you stay focused on your goals, the rewards will be worth it. Here are some tips that can help. Choose one, two, three or all four. The faster you work on this, the faster you will succeed.
1. Prepare and stick to a budget. A budget is a way to control your spending. Since you have little control over the amount of money that comes in, you have to control the money that goes out.
List all your current income streams
Make a list of all your monthly expenses
Compare your income with your expenses
Stay on budget and avoid any new debt
2. Reduce your credit cards. One way to get out of debt is to stop using your credit cards. The easiest way to do this is to simply cut them. Once you are debt free and have learned how to better manage your money, you can apply for a new card. And then you’ll get a better rate because you’re debt-free!
3. Lower your interest rates. Credit cards today have incredibly high interest rates and you end up paying more in interest than the original amount you borrowed. You can get credit card companies to lower your interest rate. You just have to call and ask.
We have a balance of $5,000, if you paid $150.00 per month
20% interest, it will take you 50 months to get rid of your debt
You will pay $2,359.09 in interest.
We have a balance of $5,000, if you paid $150.00 per month
16% interest, it will take you 45 months to get rid of your debt
You will pay $1,656.82 in interest.
That’s $702.27 less!
And talk to your bank manager about the interest rate on loans and mortgages. If you don’t ask, you will never get, as you will surely not be offered. Consult the different types of mortgages to see which one best suits your current situation. Ask about variable rate versus fixed rate mortgages.
4. Double the minimum payments. It’s amazing how much you can save with this tip alone. For example:
Pay the minimum of a debt of $5,000
It will take more than 300 months to get rid of your debt
You will pay more than $9,194.47 in interest.
Paying twice the minimum on a $5,000 debt
It will take 120 months to get rid of your debt
You will pay $2,445.32 in interest.
That’s 180 months (15 YEARS) and $6749.15 less!
I know you’ll tell me that you continue to carry credit card balances because you usually don’t have any free cash left over after paying all your bills and minimum credit card payments. You should review your budget every month and find expenses that you can eliminate. Any time you can do this, use the extra money to double the minimum payment on the credit card with the most debt. Once you have finished that card, do the same with the next card, etc.
For mortgages, consider making biweekly payments instead of monthly payments. Take a look at this example:
• You have a $200,000 mortgage
• Fixed rate at 7%
• Term of 30 years
If you have a biweekly mortgage payment, you’ll save a total of $68,925 in interest instead of making one payment per month.
5. Debt counseling. If you are overwhelmed with the thought of getting out of debt, there are many companies that offer debt consolidation and debt relief plans and advice to help you. They can help you avoid bankruptcy and be free from collection agencies. They can reduce it to one monthly payment for all your debts.