Carla Seely Column: How To Manage Your Debt

[Written by Carla Seely]

The coming weeks will mark the start of the holiday season and also serve as a reminder that we have somehow managed to navigate through another year of the COVID-19 pandemic. I firmly believe that each and every one of us has been impacted in some way. Be it physical, emotional, or financial, I think it safe to say that we all bear battle wounds.

For those people who have been financially impacted directly, being constantly reminded of the joy of giving during the holiday season can be emotionally draining and exceptionally frustrating—especially when you’re doing all you can just to keep afloat. Chances are you already have a mortgage payment, a car payment, or credit card debt due. It’s important to continue to service your existing debt punctually, while also putting food on the table and clothes on your back. However tempting, the pressure to look at credit as a way to bridge the gap is not recommended; it’s unwise to increase your debt without a concrete way to service it.

I was recently chatting with a friend who reminded me that knowing how to manage your debt and sticking to a realistic budget isn’t always common sense—it’s a skill that has to be learned and, unfortunately, not all have truly mastered this skill. Creating a budget is one thing; sticking to it and making a few sacrifices to get out of debt is another.

The reality is, debt is a vicious cycle and once you get into it you almost have to work twice as hard to get out of it. Whether you’re in arrears with your electricity bill, struggling to pay your monthly mortgage, or can only afford to make the minimum payment amount on your credit card each month, when you’re in debt you’re controlled by it—and often mentally consumed by it. Therefore, I challenge you to make it your mission in 2022 to rid yourself of your debt and gain financial independence.

When dealing with debt, you first need to determine how much debt you have. You can start this process by checking your credit card statement, mortgage statement, essentially anything credit related. Without having an idea about the size of your debt, it will be difficult to work out an appropriate plan of attack to rid yourself of it. Consider using a net worth calculator to review your overall financial position as this will help you take all your debts into account.

Once you have an idea about your overall financial position, you can start looking at options for making extra repayments and clearing some of your debt. Depending on how much and what type of debt you have, there could be a couple of options open to you:

• 1. Paying off the debt with the highest interest rate first; or

• 2. Paying off the smallest debt first [so you feel a sense of accomplishment].

If you’re struggling to manage your debt, it may be a good idea to roll all of your loans into one single loan; consolidating or refinancing loans can work for some people if it means they pay less in fees and interest with just one payment per month. Make sure you can actually afford the new monthly payment, though; there’s no point consolidating if it puts you in the same position or one that may cause more struggles later on.

Next, create a budget and stick with it. Regardless of whether you make a lot or a little, how you actually manage the money coming through the doors will determine your financial freedom. A budget allows you to sort out your money priorities and find the right balance between spending and saving.

Remember, while debt shows you how good a spender you are, budgeting shows you how good a money manager you are. A budget gives you the tools to focus on paying off a credit card or loan and allows you to pre-plan better for your upcoming bills, save up for a holiday, determine when to make a big purchase and how much you should start saving for retirement.

It’s important to stay focused and remain dedicated to your action plan for 2022 as this will help you settle past debt, control future debt, and put more money in your pocket.

- Carla Seely is the Vice President of Pension, Life and Investments at Freisenbruch-Meyer. If you would like further details, please contact cseely@fmgroup.bm or call 441 297 8686.

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