Budgeting Debt

Drowning in Debt

Are you drowning in debt? We’ll discuss different kinds of debt, statistics on how people accrue debt and how you can begin paying off debt quicker with proven methods from financial experts.

According to Experian data, consumer debt has grown to around $14 Trillion in 2019. Debt for Americans has been increasing steadily since at least 2009. This debt includes things like credit cards, home loans, vehicle loans and student loans.

Americans Struggle From COVID-19 Shutdowns

Americans are struggling financially right now because of COVID-19 shutdowns. Many people live paycheck-to-paycheck and have no savings. As a result, a sudden loss of employment caused them to face economic ruin or bankruptcy.

However, the good news is that you don’t have to suffer financially and continue drowning in debt forever. Learning to be disciplined and make small sacrifices today can mean more financial security for the future. We’ll show you how to how to save money from salary and become more financially independent. In addition, you will sleep better at night knowing you’ve saved money for a rainy day.

Types of Consumer Debt

There are several different types of debt. Debt can include:

  • Mortgage Loans
  • Auto Loans
  • Credit Cards
  • Student Loans
  • Home Equity Loans
  • Personal Loans

Statistics on Debt

Mortgages, Credit Card Debt, Auto Loans and Student Debt Increased in 2019

-Consumer Debt 1950-2020, US Federal Reserve Bank

Mortgage loans are by far the largest portion of debt for consumer loans. The majority of American families that buy a home need financing. According to the Federal Reserve, approximately 2/3 of families in 2019 held mortgage debt on their home. And many consumers are drowning in debt.

Debt from credit cards is the most widely held and most common debt among different groups of consumers. This group is also the one who are typically drowning in debt. In 2019, the median balance for credit card debt was $2,700. According to Federal Reserve data from 2016-2019, credit card debt among families increased. Unfortunately, approximately 45% of all families carry a credit card balance of some kind.

Student debt is the greatest source of debt outside of mortgage debt. According to US News & World Report, the average total debt of graduates who took out loans exceeded $30,000 in 2019. This number has been increasing since at least 2019, when graduates only had approximately $23,700. According to Federal Reserve data, from 2016-2019 student loan debt among families increased by 10%.

Auto loan debt has been skyrocketing for consumers for years. According to Experian, approximately 85% of all new vehicles are financed. In addition, there was approximately $1.2 Trillion of outstanding auto loans in the United States in 2019, up approximately 15% in the past 3 years.

Debt and Loan Payment Challenges

Lenders and Borrowers Have Different Ideas of How Much to Borrow; Easy Credit and Low Interest Rates Have Made Borrowing Easy

Often, families struggle to pay off debt or even make minimum payments on their debt. People lose jobs, get divorced or encounter other financial hardships that make it difficult to continue debt payments. Not being able to make payments can make you feel like you are drowning in debt.

When a person initially borrows money for a house or a car, they make an estimation of what they can afford. For example, if you make $35,000/year and you have other bills, you know that you probably shouldn’t borrow $120,000 for a new Ferrari sports car. This amount of debt would be beyond your ability to re-pay.

However, in the 21st century, lenders have made borrowing larger sums of money much simpler and easier. Record low interest rates and low barriers to credit have made borrowing money a dicey game. On the one hand, sales people who work for lenders frequently benefit from making more loans to clients, whether the client can re-pay the debt or not. Yet, clients may be unaware of the difficulty of repaying the loans because of the loan terms or changing circumstances.

How Do I Stop Drowning in Debt?

The first step to getting your head above water and paying down debt is to assess your financial situation. You must begin understanding what has brought you to the point of feeling like you are drowning in debt. Begin to look in detail at how you spend money and create a budget. You will also start making plans and setting goals. In addition, you will learn discipline and begin using proven methods for keeping more money.

Create a Budget Now

One of the best ways of paying down debt is to learn to budget. That is, it’s important to keep track of your money. And a budget helps you achieve that objective. Having a balanced budget means spending less of your paycheck. Preferably, you will have some money left over to pay off debt and save for the future. In short, everyone should budget, whether you are a large corporation or just one person.

Live below your means

Eliminate Unnecessary Expenses: Dining Out, New cars and Designer Clothing

In many cases, frugal living is the cornerstone of financial success. This simply means spending less than you make. Moreover, creating a simple monthly budget can assist you in determining whether you are meeting your goal. In addition, learning to be frugal can help you steer clear of debt in the future. For example, when you eliminate extra expenses that are unnecessary, you will have more disposable income available for saving. As a result, your savings from disposable income are how to save money from salary. This will be a big help in keeping you from drowning in debt.

Cut Expenses and Control Spending

List Items to Remove from Your Budget: Memberships, Subscriptions, Etc.

No matter what kind of budget you have, it’s critically important that you cut expenses. Before you start your budget, begin finding areas in your life where you can make cuts. Cutting expenses will help you discover how to save money from salary.

It is helpful to make a list of what expenses are needs and wants. For example, paying for electricity is needed; having a spa membership is a want.

In addition, you will also want to figure out ways to cut spending. This will help you save more money quickly. Ideas for Budget Items to Cut:

  • Memberships (Spa, Gym, Entertainment, etc.)
  • Subscriptions (Magazines, news, etc.)
  • Eating Out
  • Cable
  • New credit card spending
  • Traveling/vacations

Stop Using Credit Cards

If you are starting a budget, you probably have credit card debt. The problem with credit card debt is not the debt, it’s the interest. First, every day that you maintain a balance on your credit card, interest compounds. Compounding interest works against you when you’re trying to pay off debt. Finally, getting rid of credit card debt will keep you from drowning in debt.

Save Money Every Paycheck

Put Aside 10-15% of Your Regular Income as Savings

One of the habits that you want to form that will help you reach your savings goal is to start saving each paycheck. Make it a habit to take 10-15% of each paycheck and save it. After a short time, you will realize that you don’t even miss the money.

First, make saving 10-15% of each paycheck easy by setting up an automatic money transfer to your savings account. For example, each time your paycheck is deposited into your checking account, have an automatic transfer set up that moves money into your savings account. Some people even have a savings account that is in a different bank to reduce the temptation of borrowing from the account.

Finally, saving a small portion of your regular earnings is far from a new concept. Financially successful people have been doing it for hundreds or thousands of years. Read The Richest Man in Babylon to learn more.

Always Keep an Emergency Fund

Save $1,000 for Emergencies such as Car Repairs, Home Repairs or Medical Emergencies

Unfortunately, emergencies happen to all of us. Having money for an emergency is critical. Many investment and debt consultants recommend that you start with $1,000.

Emergencies can come in many forms. Examples of emergencies you should be prepared for include medical issues, home repairs, car repairs, natural disasters, etc. Once you reach your goal of $1,000, start saving for the longer term. Some experts recommend having 3-6 months of salary saved for emergencies.

Saving for emergencies should probably be one of the first things that you do, even before saving for retirement. Make it a priority in your budget and you will rest better at night knowing you have prepared for the future.

Keeping Up with the Joneses

Don’t Pay Attention to What Others Are Doing: Focus on Budgeting

Don’t get caught up trying to keep up with the Joneses. Who are the Joneses? Mr. and Mrs. Jones are your neighbors who live in the big, two-story house. They just bought a new SUV and a new boat. The Joneses always seem to have flashy, new things.

It takes some discipline and habit changes, but in order to be successful at your budget, you must forget about what the Jones family is buying. Remind yourself buying new things prevents you from getting ahead and puts you further behind in debt. Moreover, what’s important is sticking to your budget so that later you can have financial security. 

Increase Your Income

Great Ways to Earn Extra Money Include Seasonal Work, Side Hustles and Starting a Business

Some people who complete their budget may realize that they don’t have enough money to start saving. Perhaps all your money goes to bills each month, or you just have a lot of family and friends for which to buy gifts.

The best ways to make more money fast:

  • Sell Things You Don’t Need
  • Rent Out Your Room or Car
  • A Side Hustle job
  • Borrow Money (Last Resort)

One little secret that successful people don’t often share about their success is how hard they work. Successful people often work 2-3 jobs, work long hours and work to do things that no one else wanted to do. Working hard at a side hustle may be one of the best ways to save money on a tight budget.

It’s not glamorous to deliver pizzas or wash cars for money. However, sometimes to get ahead you have to swallow your pride and do what is necessary. I’m not suggesting that you do anything illegal to make money; on the contrary, there are plenty of legal jobs that will earn real money for you.

Hopefully, you find these suggestions and solutions helpful on how to stope drowning in debt. Many of the fixes for debt problems require sacrifice and discipline. But they are proven methods that work and will allow you to live a happier, more secure and more free lifestyle.

Read More:

The Best Budget App

Why Saving Money is Important

Financial Planning Services

Value Investing Books

10 Things to Know Before Starting a Budget

Wealth Building Cornerstones

Best Investing Books of All Time

How to Become a Millionaire from Nothing

How Much Savings You Should Have at 40

Why Saving Money is Important

Debt Elimination

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