Talk About Debt

Let's talk about debt ba-by

Lets talk about you and me

Let's talk about all the good things

And the bad things - debt maybe

Let's talk about debt (let's talk about debt)

(Must be read to the tune of Sex by Salt n Pepa)

So now, that I have that classic stuck in your mind, let's have a read about debt. Debt is definitely a negative tool, albeit necessary in some cases when you want to achieve your dreams and you don't have immediate liquid assets available. For example, some people do not have enough cash available to buy a home outright, so a mortgage is necessary. Now in a perfect world we wouldn't have debt because everybody would have the resources available to use to meet their needs. That's not our reality so nonetheless here we are.

When budgeting, it is important to budget one's debt as well as assets. Budgeting only assets can put one in a place where they can limit the amount of cash spent by hand and from the checking account, but while reducing cash spending, there might be an increase in credit spending. Clearly, this is counterproductive and is not budgeting properly. Although in the moment the consumer doesn't realize this behavior as such. When you sit down to make a budget, make sure to also limit spending "on your card" so you can actually make the sacrifice needed to pay down your debt/liabilities and increase your assets(cash, investments, real estate, etc).

One practice you can use is to treat yourself like a business and calculate your net worth. This holds you accountable to your own bottom line and to operate/live in the black is the goal. Although our government treats debt as never ending and an infinite option, eventually "the bill comes due" as stated by Chiwetel's character, Mordo, according to IMDB, in the Marvel film "Dr. Strange". My husband and I like this saying because it is fitting for almost all things. The road eventually ends when the can is constantly kicked further ahead. I digress, from my point of holding oneself accountable. You can use the net worth calculation which is simply net worth = assets - liabilities. Having a clear understanding of where you are makes it easier to determine where you want to go. It is important to set the standards by which you will measure progress. Set target dates for smaller achievements along the way to continue to motivate yourself. This is important because your many achievements can make the sacrifice seem worth it. In business the acronym SMART is used as a tool for goals. It means to make your goals Specific Measurable Achievable Relevant and Time based. This allows one the opportunity to really understand the goal of the budget(and any other goal for that matter), measure progress, and redirect when necessary.

Debt is sooo easy to compound and fall into especially in vulnerable communities. John Hope Bryant in his book, "How the Poor can Save Capitalism" and in his Hope foundation, speaks about building 700 credit score communities because the communities which are most disadvantaged are those where the credit score of the residents are below and well below 700. Some of the easy debt traps which are officially termed predatory lending options include payday loans, title loans, other high interest installment loans, and these new home equity options. Everyone will hit many bumps in the road along the way to financial independence, but having to rely on one of these options is a surefire way to fall into a cycle which becomes such a huge burden it ultimately blows up the whole road you are traveling.

In a community where the credit scores are under 700, all business costs its residents more. Just think of the local pantry stores, everything is marked up, then there may not be a bank for miles so the residents use the currency exchange and prepaid debit cards. Each of these have costs with the consumer accessing their own cash. Then this can lead to shortcomings where one of the previously mentioned lending options presents itself and now the consumer needs to spend extra money on paying back the loans(usually paying APRs up to 450%) which are literally mob rates. All of this spirals people into a situation much worse than they were before they borrowed.

So what are some keys to managing debt? Of course increasing available assets is one way to reduce debt. Make more money and borrow less money basically. That is not always an option for people, so try to stop adding to your debt. This is the part where sacrifice is most important. Be honest about your spending, cut out the unnecessary and impulsive shopping. Some people decide to shred credit cards or even freeze them so they cannot easily access them(if you have them). Find a way to monetize your passion. If you like taking pictures as a hobby, find a way to do that for others to create a hustle. Try doing Lyft, Instacart, Uber Eats, etc to generate sporadic on demand income. Save, even if you think you have no money. I'm gonna say that again, Save even if you think you have no money. The truth is, once money is spent it's gone, so treat your savings like a spending. Put money into an account somewhere separate with no card. This account should be a hassle to access, to deter you from dipping in your pot. If you can set aside a small amount of money from every paycheck/payment you can start to establish an emergency fund, and an emergency fund can keep one from those predatory lenders.

In every situation read your paperwork and ask questions to check for understanding. This can certainly save you a ton of money in the long run. Make sure the terms are understood by you on the most simple of terms. Many times lenders will not highlight the small print so that's where you have to be your own best advocate. Be careful of high interest and maintenance fees. These are just more gauging techniques to make borrowing cost you that much more.

The overall thing about debt is borrow only when necessary, the minimal amount needed, and up to what you know you can pay back. Many times looking at what should I borrow versus what can I borrow can make such a huge difference. Just because you can do something doesn't mean you should. Buying too much car, house, material things can make you look rich, but be broke on paper. Looking rich isn't the goal, building wealth is the goal.

So in closing, be responsible with debt. Do not fall for all of the okey dokes, and budget your debt the same way you budget your money. Don't be afraid to do a little more research and digging before you borrow. Bargain shop your rates the same way you do for food and clothes. Life might leave you feeling like Alicia Keys, (insert "I keep on fallin' innnnnnnnn and outta love...with you...) but just make sure you have control and have a clear understanding of the debt(s) before they overwhelm you.