GETTING OFF THE YO-YO DEBT
There are ways to break cycle
Debt loads, like our waistlines, tend to expand as we approach middle age and then gradually diminish as we get older.
Some people, though, are yo-yo debtors, fighting an ongoing upand-down battle with debt.
They pay it off, or come close, only to find themselves battling bills once again. But there are ways to break that cycle.
By age 21, Chris Browning of California had accumulated US$5,000 in credit card debt — mostly from eating out and trying to impress his then-girlfriend, who is now his wife.
After several failed attempts, Browning, 30, made and stuck to a budget. He cut back on expensive meals, looked for free entertainment and slowly paid down the balances until he was debt-free four years later in April 2012.
That didn’t last. As the couple prepared for their wedding that November, debt crept back in.
“By October 2012, we had over US$14,000 in credit card debt. Then from there things just snowballed,” Browning says. “Between finding a new place to live, school costs, medical bills and just poor decisions, our debt grew to just under US$27,000 by November of 2014.”
LOOK BEYOND DEBT TO OTHER SIGNS
The vast majority of households — roughly eight out of 10 — carry at least some debt during their working years, according to the U.S. Federal Reserve’s Survey of Consumer Finances.
The median amount owed peaks when the head of household is between the ages of 45 and 54 and diminishes afterward. The mix tends to change, with younger households more likely to have student loans and older households more likely to have mortgages and credit card balances.
Owing money isn’t necessarily a crisis unless you consistently live beyond your means, putting you at risk of bankruptcy or a lower standard of living. Signs you’re doing that include:
Your debt payments, including mortgage or rent, eat up more than 40 per cent of your gross income.
You’re struggling to make minimum payments.
Your net worth — what you own versus what you owe — is shrinking rather than growing over time.
Your debt prevents you from saving for important goals, including retirement and emergencies.
SHED DEBT SLOWLY, STEADILY
Careening back into debt can be deeply discouraging and stressful. That’s why debt experts, like weight-loss experts, recommend a slower, steadier approach to vanquishing debt.
Among the most important principles:
Don’t be in a rush to pay off lowrate mortgages and student loans. Focus first on toxic debt, such as credit cards, that erodes your financial security.
Make saving a priority even as you’re repaying debt. That means having at least a $500 emergency fund and contributing enough to get the full company match for any workplace retirement accounts.
LIFESTYLE CHANGES MATTER
Browning and his wife, Vina Gainer, 29, tackled their debt from both ends: by cutting their spending and increasing their $60,000 household income.
Browning found a job that paid $1,200 more a month and experimented with a few side gigs, such as selling stuff on eBay and delivering food for DoorDash. Gainer, a college student who works in her mother’s daycare centre, started doing her own hair and shopping at thrift stores. The couple also devoted time to planning — and discussing — how they spent money.
“We weren’t really talking about what we were spending. We just spent it,” Browning says.