Keep in mind that debt planning is a form of financial engineering that would enable you to better handle your finances in the future. This is pretty much conventional wisdom. After all, as the saying goes, “If you fail to plan, you’re planning to fail.”
When you’re operating off a solid plan, everything becomes easier. All your activities tend to have a focus. All your activities tend to lead to a certain predictable objective. This is all very easy to get. This all makes sense.
The problem is, as easy as this concept is to get on an intellectual level, this is not how most Americans handle their finances. Most Americans are actually quite impulsive as far as money is concerned. Most people would whip out their credit cards almost instinctively when they feel that they need something.
This really is too bad because if you think about it, most people don’t really need much. Of course, you need the shirt on your back, the roof over your head, the heating during winter, and air conditioning during summer. But the bottom line is that your range of needs is actually quite narrow. You really don’t need all that much.
Unfortunately, we Americans have such an entitlement mentality regarding what we need that it’s very easy to fall into the common trap of your expenses going up along with your income. It seems that the more money you make, the more financial hot water you find yourself in. It’s a never-ending race. But if you think back to what you need, you’ll be surprised that you really don’t need all that much.
If you remember college and you were able to live on $10,000-$15,000 a year, how come you can’t live on that same amount of money now that you’re making over $100,000? It’s ridiculous. So it’s really important to plan your debt in such a way that you maximize your ease of payment. Keeping a clear focus on what you actually need is crucial to this.
Of course, I’m not asking you to redefine what you need based on how you defined your needs back in college. I’m not saying you should go backwards. I’m saying that you should just exercise more discipline over your personal finances.
Another key planning technique that you should employ is to pool all your debt into one pile and work with your creditor so you can consolidate everything under one interest rate. The downside to this is that your repayment time will be stretched out.
However, if you are going to be generating more money with the freed up savings because you are investing in assets, this probably might be the best move you could make.
You are just setting yourself up for financial freedom down the road. All the long drawn out repayment scheme might be a hassle in the short-term. But if paired with a clearly thought out and effective asset-building system, this might work out for the best. The key is to take action soon.