Break the Cycle of Debt and Rebuild Your Finances, Part 1

Stacy Livingstone-Hoyte, AFC®, is an experienced Financial Counselor who has worked extensively with U.S. Armed Forces members and families. She is a long-time volunteer blogger for and previously served at the Fleet and Family Support Center, Millington, Tenn. as a financial counselor. Prior to government service, she worked as a financial services representative for several brokerage and insurance firms. As a military spouse, Ms. Livingstone-Hoyte knows firsthand of the financial challenges and opportunities that face military families across the globe. To that end, she embraces a steadfast belief that financial success can be simple, just not easy.

If at any time you’ve felt the pangs of realizing that you have accumulated too much debt, then you can probably relate to every other passerby at one point or another in their lives. Today, it seems that personal consumer debt (excluding mortgages) is not only commonplace, but is significantly on the rise. Also on the rise is the list of fallout attitudes and actions that may accompany our new debt reality: stress, anxiety, bankruptcy, divorce, collection activities, career effects, etc. Whether your debt stemmed from over-shopping, under-budgeting or emergency circumstances (medical expenses, home repairs, etc.), know that there are ways to climb out of the hole and regain your peace of mind.

How much personal debt is too much for you? Some maintain that any debt is too much. Others hold a more moderate view that debt which cannot be paid in full with existing funds, without creating strain, is an indication that you’ve crossed the line. For example, if you charged $1,000 on a credit card for debt1your annual auto insurance premium, but do not have that $1,000 already set aside to pay off that transaction, then you have created too much debt. Some guidelines state that having a debt-to-income ratio of 20% of net income is the maximum standard, while some institutions state that figure should be 36% of gross income. Whatever metric you choose, if your total outstanding debt makes you uncomfortable—considering your current income, level of savings, spending patterns, expected earnings, short and long term goals, etc.—then you probably have too much debt. So what is the next step?

Take control! Create a budget and spending plan. It can sometimes be a painful (yet thoroughly liberating) process, but by identifying your exact financial position you can get a better handle on your current and anticipated resources to pay down debts. Start by considering key items such as net worth, monthly expenses and income, savings and investments, total debt, etc. The Navy’s Financial Planning Worksheet can help you keep track of these items and achieve your savings and debt reduction goals, so that you can declare financial independence. A boost of confidence and the reality of what’s possible will follow.

Have a safety net to buffer you from the “what ifs.” What if the roof leaks? What if the A/C in the car stops working in the middle of July? What if…? Having extra savings will provide a safety net in case of unforeseen expenses or a loss of income. At least three months’ worth of expenses should be saved. If that’s not feasible based on you circumstances, a much more attainable and less intimidating goal of around $1,500 serves as a starter fund or work through your spending plan and budget to determine a financial cushion that works best for you. Once a reasonable amount of savings has been accumulated, the extra funds can then be redirected towards debts in a strategic manner (e.g. smallest balance or highest interest rate first, etc.). Try a debt repayment tool to help you create a practical plan that works for your family’s goals and abilities, such as the tools on

Be cautious of exhausting your savings in the name of repaying debts. If an unexpected event pops up that requires those funds, you have now put yourself back into debt and will erase the leverage that you possessed in repaying debt(s). Again, if no savings exist then that should be a priority above paying off debts – as long as the required debt payments can be met to maintain or regain good standing.

Personal discretion can be much more influential in curbing debt than trying to conform to a generic description or percentage of what that should be. Be careful that you’re not overgeneralizing, however, as you may be unintentionally creating your own loophole to spend above your means. As the West Indian adage goes, “Don’t hang your hat where your hand can’t reach.”

Stay tuned for Part 2 where we will share tips and resources to navigate repayment of past debts to rebuild your financial future.

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