Why Debt

There are many reasons why people go into debt. Some people may choose to go into debt to finance a large purchase, such as a home or a business venture. Others may go into debt to cover unexpected expenses, such as medical bills. And others go into debt for everyday purchases like grocery shopping, online orders, and big expenses for entertainment and transportation.

When not managed carefully, debt can be very dangerous and have serious financial repercussions. Recently, the U.S. Court system reported 387,721 bankruptcy filings for 2022. Being in debt can cause a great deal of stress as individuals face extensive monetary challenges and often feel alone facing while it. Humans are created to be free, but when you’re in debt you are indebted to somebody, you freely chained yourself to the a contract to somebody else. This moves you from free to slave, and our bodies don’t like that because we weren’t created to be like that. So we stress and the body pays the price. Stress increases cortisol, which releases sugar into the bloodstream, which causes weight gain, which causes more stress on the organs. Stress causes sleep issues. Stress. Stress. Stress. We all know we’re suppose to stress less, yet we rack up more and more debt. As of this article, Quarterly Report on Household Debt and Credit said that total household debt rose to $16.9 trillion! Credit cards were up to $986 billion! Car loans were at $28 billion! “‘Credit card balances grew robustly in the 4th quarter, while mortgage and auto loan balances grew at a more moderate pace, reflecting activity consistent with pre-pandemic levels,’ said Wilbert van der Klaauw, economic research advisor at the New York Fed. ‘Although historically low unemployment has kept consumer’s financial footing generally strong, stubbornly high prices and climbing interest rates may be testing some borrowers’ ability to repay their debts.'” That’s why it’s so important to understand the reasons why people go into debt and the practical steps to overcome this enemy of wealth.

Practical Steps

Step 1 – Say “Never Again.”
This is the most important step. Most people go into debt simply because they haven’t made the conscious decision not to do otherwise. And this phenomenon is really unique to contemporary times. The first credit card wasn’t even around until 1958 and it had a “ghastly” high limit of $300. And no, you don’t need to worry about your credit score – those weren’t even around until 1989 (suspiciously these “high score” charts came about four years after home video games started). Just yesterday I rented a car with my debit card – cost me a $50 retainer and the company posted that a retainer could be as high as $300. And you don’t need a credit score to buy a house – it’s a tradition known as “manual” underwriting, where a person actually verifies your creditworthiness instead of looking at a mysterious number.

Step 2 – Make and Follow a Budget
According to Penny Hoarder’s 2021 poll, only 45% of Americans budget. Well guess what – according to 2023 CNBC Your Money Financial Confidence Survey, 58% are now living paycheck to paycheck. I’ll just say it like this, if you want to stop the cycle then (Step 1) choose to say “never again and (Step 2) make and follow a budget. We at Branch Financial Coaching specialize in helping people make their realistic budget and follow it.

Step 3 – Get Caught Up
Although an undeterminable credit score won’t hurt you, a bad credit score will. Even if the creditor doesn’t report it on your file, a manual underwriting may uncover your late bills. So get caught up as soon as possible, like now. Do a yard sale, go deliver food, walk the dogs in the neighborhood, start cat sitting, do what it takes.

Step 4 – Make a Starter Emergency Fund
According to Bankrate’s 2023 Annual Emergency Savings Report, 57% of Americans said they can’t afford an emergency of just $1,000. Which means they rely on credit scores. Are the numbers vaguely similar? 45%, 58%, and 57%? It get’s worse, 10% of Americans don’t even have any savings. So how much do you need right now?

If you’re single or married without kids, and one of you have a dependable job, get a $1,000 emergency fund going. Once you’re out of consumer debt, increase it to a 6-month emergency fund that includes your basic expenses.

If you have kids, then it changes based on the circumstances. If you’re married with 2 kids, then have a $1,500 starter emergency fund. If you’re single with kids or married with a larger family, then look at a $2,000 starter emergency fund. For most people, we don’t recommend more than that for a starter emergency fund until you’re out of consumer debt. Why? Because consumer debt is literally stealing you of your money. Go ahead and add up last month’s debt interest. Multiple that by 12 to see how much money you’re spending in a year. Not astounded? Multiple that number by 10 and see just how much money you’re giving away for free in just one decade. On average, Americans are projected to spend $164,066 for the privilege of being in debt, according to CNBC’s 2023 article by Elizabeth Gravier called “You could end up paying $160,000-plus in interest alone over your lifetime.” Would you take $166k, put it on the road, and burn it? Of course not! Now imagine what that money could do in a good investment, like a mutual fund that doubles every 7-8 years (which is the historical average).

But what if you don’t have a regular job? Real estate agents, construction workers, salespeople – we all make a commission income. Well, that depends on your circumstances too. And we dig into that during our coaching session because your financial foot isn’t the status quo.

Step 5 – Get A Fighter In Your Corner.
You need several people in your life to avoid debt and get hit with wealth: a financial coach, a real estate agent, an investor pro, a tax professional, and a “good” lawyer. All of these should have three common traits: success, a good reputation, and the heart of a teacher that you jive with.

A financial coach can keep you accountable to your goals and help you stay on track. A Branch Financial Coach can tailor their guidance to your specific financial situation and goals, and provide objective perspective on your finances, which can be helpful to avoid emotional decisions. And coaches can help you save money by identifying ways to cut expenses and increase income, plus give you peace of mind knowing that you have someone to turn to for guidance and support.

A good real estate agent has the knowledge and expertise in the market, which can be invaluable when buying or selling a house or investment property. They have a deep understanding of the local market, including price trends, zoning regulations, community politics, schools, and services like utility providers, so you can make more informed decisions. Having a good relationship with a realtor means that they are familiar with your needs and preferences, they can help you identify the right properties, and streamline the buying or selling process. The relationship with a realtor doesn’t end when the sale is complete; rather, it can grow into a lasting business relationship that gives you access to advice and support when you need it, and help you avoid scams, fraudulent offers, and illegal activities that can cost you time and money.

The investor pro is a must. They can help you cut through the clutter of the investment world by identifying quality, diversified investment products and building a customized financial strategy that works for your goals and comfort with risk. A good one will keep you from jumping off the rollercoaster when it gets scary, so you can rise to the top of your financial wellbeing.

Having a good relationship with a lawyer can yield many financial benefits. For example, having an established relationship with a lawyer means you can get useful advice more easily. They can also help you avoid complications and provide direction on legal matters. Additionally, they can help you with paperwork and ensure that you meet all necessary deadlines and procedures. And there’s the huge benefit of referring you to trusted professionals when you’re dealing with something outside of your lawyer’s specialties.

Debt can be an especially difficult problem, as it affects much more than your finances. Mental, physical and spiritual health are all affected by debt. Studies show that those in debt are more likely to experience anxiety and depression, suffer from sleep issues, have poorer overall health and be at a greater risk for heart disease. Additionally, feeling undeserving of good things or shameful about financial circumstances can make the situation even worse. If you find yourself in this troubling situation, don’t despair – help is available! Professional organizations and numerous online resources exist to help you get back on track.

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