Gary Nakauchi is a financial industry executive and wealth management specialist. In the following article, Gary Nakauchi discusses why alleviating debt effectively is a wise financial strategy.
Nearly 80% of all households in the United States are carrying some kind of debt, be it student loans, a mortgage, a car loan, medical bills, or credit card debt. Why is managing debt important and how can it be done?
Debt management is essential for preventing mental and physical health issues that result from stress, reducing the amount of interest paid, qualifying for loans down the road, and avoiding collection costs. A few important aspects to consider include creating a budget, consolidating high interest debt, paying more than the minimum, and consulting with a credit counselor.
Below, Gary Nakauchi dives into the importance of smart financial management and discuss some strategies that help alleviate debt effectively.
Importance of Debt Management
Many people live their lives on the philosophy that debt doesn’t exist if they don’t think about it, but unfortunately, that mentality will only lead to further problems down the road. The importance of debt management cannot be overstated.
Prevent Stress-Related Mental and Physical Health Issues
For most individuals, debt creates stress. Gary Nakauchi reports that chronic stress can present as physical symptoms and mental health issues to varying degrees. Although most people cannot pay off their debt immediately, even a debt management plan can have positive effects and improve an individual’s quality of life.
Qualify for Loans and Cards Down the Road
Anyone carrying around a large amount of debt on a continual basis will be faced with a poor credit score. Gary Nakauchi says that this can make it difficult to qualify for loans and credit cards down the road, which may indicate that the person is a risk to the creditor. When these financial tools are greatly needed but cannot be acquired, it may be difficult to find an alternative.
Avoid Collection Costs
If debt is left for too long, creditors may send it to collections to put more pressure on the individual who has an amount owing. Gary Nakauchi explains that the cost of this is high: it will remain on their record for seven years, impacting their credit score significantly. This should be avoided at all costs.
How to Manage Debt Effectively
Effective debt management can take many forms, and usually, multiple strategies need to be combined in order to restore someone’s financials to a healthy state.
Create a Budget
Gary Nakauchi explains that budgeting is the single most effective tool for managing debt. Even if someone were paying off a fair amount of their debt each month, it wouldn’t make much of an impact if they are still overspending and creating more debt. Budgeting will help structure a household’s spending to prioritize essentials and put more money toward debt repayment.
Consolidation loans are a great way to make debt easier to pay off. Many people end up with debt on multiple credit cards and loan types. They will each require monthly payments and have their own interest rates. A consolidation loan gathers all of someone’s debt into one place to dramatically reduce the amount of interest that accrues over time and make the monthly payments easier to manage.
Pay More Than the Minimums
Unfortunately, Gary Nakauchi says that when someone is paying only the minimums on their debt, most of their money is going to interest rather than paying down the principal amount. As a result, it can take an extremely long time to actually pay off the amount owed. Adding an extra $50 or more per month to debt repayment can help pay down the balance faster and reduce the amount of interest that accrues.
Talk to a Credit Counsellor
A credit counselor is an excellent resource for anyone struggling to manage their debt effectively. They have years of experience helping people recover from overspending and other causes of debt. A credit counselor can assist with budgeting, repayment plans, consolidation loans, and more.
Gary Nakauchi notes that they will take the time to get to know each client as an individual to understand their debt, their finances, and their lifestyle in order to personalize a repayment plan that is reasonable and effective.
Debt can quickly get out of hand, especially when it isn’t prioritized. The consequences of long-standing debt can be pretty severe, but luckily, there are many ways to get out of debt and stay that way.