Part 1 – Debt, Bills & Obligations
Debt can have a significant impact on personal finances. It can help you achieve major goals, like buying a home or funding education, but it also requires careful management.
High levels of debt can lead to financial stress, lower credit scores, and increased interest costs, making it harder to save and invest. Conversely, well-managed debt can improve credit scores and financial stability, offering more opportunities for favorable loan terms in the future.
SECTION TOPICS
1. Debt. Evaluate the amount of Debt you currently have compared to your income.
2. Interest Rates. Consider the Interest Rates and terms of the debt. Lower interest rates and favorable terms can save you money over time. Ensure you can comfortably afford the monthly payments without stretching your budget too thin.
3. Purpose of Debt. Think about the Purpose of the Debt: is it for something that will appreciate in value, like a home, or rather a short-term need that could lead to financial strain?
4. Credit Score. Maintain a good credit score by paying your bills on time and keeping credit card balances low, this will help you qualify for better loan terms.
5. Budget. Create a realistic budget, repayment plan and stick to it. Avoid taking on more debt than you can handle. Practice these principles and you can manage debt wisely and maintain financial stability.
#1 – DEBT
Debt To Income – A healthy debt to income ratio is no more debt than 36% of your gross monthly income. By sticking to these guidelines, you can ensure your debt levels are manageable and maintain a healthy financial life.
Example: If you earn $5,000 a month, your total debt payments (housing costs, car loans, student loans, credit card payments, etc.) should be no more than $1,800.
IS YOUR DEBT WITHIN THE 36% OF YOUR INCOME? If not, we can look at this and how you can get into a healthy range.
#2 – INTEREST RATES & TERM OF DEBT
Interest rates and the length of debt are key factors affecting your finances. Understanding them helps you make smart borrowing decisions, manage your money well, and keep your debt affordable and manageable.
1. Interest Rates – Interest Rates affect the cost of borrowing. Lower interest rates reduce the cost and make debt more affordable. Higher interest rates lead to paying more money over time and can strain your monthly budget, making it harder to cover other expenses.
2. Term (Length) of Debt it makes sense that with shorter term debt you’ll pay less interest and frees up income for other uses. While longer term lowers the monthly payments, offering more immediate financial flexibility yet ties up resources for a longer period.
a. Short-term debt is due within one (1) year. Examples are credit cards and some personal loans with a short repayment period.
b. Medium-Term debt has a due date of one to five (5) years and includes auto loans and some personal loans.
c. Long-Term debt has a repayment period of more than five (5) years. Examples include mortgages, student loans and home equity loans
TRACK YOUR DEBT
1. Financial Awareness: Understand your debt obligations and prevent over-borrowing.
2. Budget Management: Plan monthly expenses and avoid late payments.
3. Interest Cost Control: Minimize interest payments and identify refinancing opportunities.
4. Credit Score Improvement: Maintain timely payments and reduce debt levels.
5. Financial Planning: Set financial goals and prepare for future expenses.
(THERE'S MORE INSIDE → PART 1: DEBT, BILLS & OBLIGATIONS)
LORI WILSON
YOUR MONEY COACH
For over 18 years, I immersed myself in the world of financial services as an advisor, mastering a broad spectrum of areas from insurance (i.e., life, disability, long-term care, health) to investments and comprehensive financial planning. Today, I'm dedicated to helping my clients improve their financial literacy, as too many people are so unprepared — not just for retirement, but for managing their day-to-day finances. This has to change. The ever lurking problem is that money does bring up both anxiety and fear, not just because people lack capability or the ability to grasp or understand money, but because financial literacy was NEVER TAUGHT to them, either by their parents, society, in school or a combination of those three.
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As a MONEY COACH, LORI WILSON is dedicated to helping you improve your financial literacy, as too many people are so unprepared, not just for retirement, but for managing their day-to-day finances. Lori's mission is to provide the financial knowledge her clients need to make clear, confident, and informed decisions about money. When you're ready to start your journey to financial mastery, you can call upon Lori to help.
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