1. Money

Does It Matter How Much Debt I Have?

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Question: Does It Matter How Much Debt I Have?

Answer:

A quick and easy way to look at your financial picture is to find out how much debt you actually have. Often people will compartmentalize their debt, so that the number does not come across as big as it really is. For example, they may separate their mortgage out from the rest of their debt or they may separate the debt into types and then look at the debt that way. Someone doing this may say that he has $5,000 in credit card debt, $10,000 on a car loan and $20,000 in student loans. Mentally it sounds a lot better than saying that he has $35,000 in debt.

It is important that you do not separate the total amount of debt that you owe from each other, because it can make much easier to continue to go into debt. A true financial picture will list a large lump sum of all of the debt, and then a comparison of that to the amount that you currently make a year. If you owe more than you make in a year, you need to begin working quickly to stop going into debt and to turn that number around.

It also helps to add up and actually see the big number in order to change your habits. As a culture many people see a payment that they have to make instead of an opportunity that they are losing. Although you may look at some debts as being better than others, you need to include them all in your debt payment plan. Looking at the big number can help change the way that you think and feel about money.

Begin by collecting all the debts that you have, including your mortgage and then add up of the numbers so that you have. Then add the number without including the mortgage. After you do that look at each statement and then add up how much you are paying in interest each month. Then you can add together the amount that you pay towards debt each month. There are two things you should do with these figures. First, look at your budget and determine what percentage of your take home pay is being used to pay the minimum payments on your debt. This percentage should never rise above thirty percent of your income because it is dangerous. After you do this, subtract the amount you pay in interest each month from that amount you pay towards debt each month. The resulting number is the amount that you are actually reducing your debt each month.

These calculations and questions can help you see where you are currently standing financially. Your debt may quickly take over your life and limit your options because you always have a payment. Additionally, consider what you could do with all of the money that you send off to pay on your debt each month. Each of these factors can help you to make the decision to get out of debt, and to stay out of debt. It is important to stay focused on getting out of debt while you are working on your debt payment plan.

 

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