Are You Guilty Of Treating Your Debt Too Emotionally?

Are You Guilty Of Treating Your Debt Too Emotionally?

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Most of us today carry some debt and how well we manage with that debt may have more to do with our personal financial style than actual money management skills. It is quite possible to be very deeply in debt and not know it or at least not take it seriously. When is some debt too much debt? How can you know if you're starting to get yourself into trouble?

Most of the time, the decision that you have "too much debt" is made emotionally. That is, you have too much debt when you feel you have too much debt.

So why do some people panic over small debts but others sleep like babies even when they owe tens of thousands?

The answer is that people have an emotional sense of how much debt is acceptable. The danger is that this personal gauge is highly unreliable. You may have gotten it from your family situation, past experiences, or what you saw on TV or in the movies. Your debt style also involves your own maturity level and self control.

We also have an emotional response to what is unacceptable, which is sometimes called "hitting rock bottom." For some people, hitting rock bottom is having a car repossessed. For others, the repo man was a familiar character from childhood.

Hitting rock bottom may be the day you cannot make minimum payments, the day you lie to a spouse about an overdue bill, or the threat of impending homelessness. In other words, the emotional response and not the event itself is what defines a "hitting rock bottom" moment. One man's rock bottom is another man's standard of living.

So when is debt too much debt? On a purely emotional level, many people hit "rock bottom" when the first calls from bill collectors start to come.

Getting hounded by a professional bill collector is tough. Some people cope, but others find it embarrassing, humiliating, and shameful. For some people, it may take an intervention of friends or family members to drive home the point that the debt is getting out of control. Others may wait till they are evicted or sued.

So how much is too much debt?

First, it's not a question you should answer emotionally. Most entrepreneurs have nerves of steel when it comes to debt and financial risk taking, but most of them do not carry a lot of personal debt. So the amount of debt you can tolerate emotionally is not the governing factor; in fact, it should not even be taken into account.

Debt is not an emotional issue, it's a financial issue. The best way to solve a financial problem is to use financial tools.

Your financial report card is something called your "net worth." You can do a reasonably good snapshot of your own net worth without hiring an accountant or doing a bunch of fancy stuff. Just write down all of the money you owe. If you have credit cards, list all the balances. If you have loans, list all of them. If you have a mortgage, add that. Add all of these debts together; this is what an accountant would call your personal liabilities.

Now take everything you own. This includes the contents of any bank or investment accounts you have, your retirement account, stock portfolios, and so on. If you own a house (even if it's mortgaged), add the fair market value of the house. If you have vehicles (cars, boats) add them in. It is fair to add in the value of your furniture, electronics, and clothing, but be very conservative. It may have cost you thousands to build the wardrobe hanging in your closet, but it's doubtful you could convert it to very much cash. Do not calculate how much you spent to acquire these items, figure in only the amount you could get if you had to turn around and sell them right now. Add everything together to get what accountants call your "assets."

Now subtract liabilities (what you owe) from your assets (what you own), and you have your net worth.

I hate to disillusion you, but the number should be positive. And it should be thousands.

There are some reasons for a low net worth. For those who are just starting out or those just starting over, your net worth may be low because you have not had chance to amass any assets. You may have just gone through a major medical disaster or other catastrophe. The other reason your net worth may be low is a lot of debt.

Now look at your income and your monthly bills. Don't worry about total debt here, just look at what you spend each month versus what you bring in. Take some pencil and paper time here. Does your out-go exceed your income? That's a debt-making machine. Until you turn this around, you're going to keep your debt growing which, in turn, will keep your net worth negative.

If you can't make minimum payments, if you are adding to your debt each month, or if you are really unsure of your financial states, you are probably in need of some financial help.

Certified credit counselors can help and there are lots of excellent books and programs on the market aimed at getting you debt-free. There are even free resources. For instance, your local banker can probably help you come up with a financial plan to manage your debt, including things like debt consolidation.

If you're wondering if you have too much debt, you probably do. One of the great financial secrets of the truly wealthy is this: no debt. It's possible for even ordinary people to live debt free.

For most of us, the first step is recognizing that too much debt can happen long before the first bill collectors call or the car gets repossessed. When the warning signals come, even if we are not rattled by them, we should take firm steps to dig ourselves out of debt. The difference between too much debt and being destroyed by debt are just a few missteps.

About the Author:
To learn more about debt consolidation from a site that does not sell financial planning at all, click through to http://www.Debt-Consolidation-Diva.com . If you are facing financial problems, including debt, get the facts.



Article Originally Published On: http://www.articlesnatch.com


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