Debt: Living on the edge

Little by little, debt can crowd out opportunities for investing and retirement planning.

When it comes to your financial liabilities, how much is too much?

We tend to think of financial planning as growth oriented (and we should). We invest in “Fund A” and hope to reap returns over time.

However, there’s a tactic every bit as important as investing: avoiding and managing debt.

Not all debt holds the same risks. Some even holds promise. The debt incurred to buy a home often results in a profitable investment by the time of sale. In addition, in an era of low-interest rates, the risk of borrowing money for a home has been reduced compared to that of previous decades.

The same is not true of many (most) other types of debt. For example, consumer debt financed by credit cards generally carries sky-high interest rates. Unless the bills are paid monthly, principal and interest can explode.

Debt, like fire, can be a tool. The flames inside a fire ring are pleasant, warming and could even be life giving on a cool night in the mountains. But getting too close to the fire is risky. And if the fire oversteps its bounds, it can destroy everything in its path.

“The core question is: How will we finance our lifestyle? Will it be through planning and resolve? Or through debt?”

Excessive debt not only plagues the present, but the future. I have met with people eager to invest. But their resources are so tied to financing debt that they have no financial margin.

Much of our economy is based on financing (debt) and the marketing is relentless. But a loan with an interest rate of 0% is still a loan and is still debt. And if it isn’t paid off in time, the rate often soars.

If you’re struggling under a load of debt, you know the psychological affliction it can cause. But there’s good news.

While I can’t remove your obligations, I can help you establish a debt management plan that will put you on a path to reach your goal. Sometimes we have to be content with daily victories that come little by little. This is often the type of win we achieve over debt. But when we see progress – even small amounts – we discover victory is possible.

As debt decreases, investing can increase. Then you’re winning on both battlefronts.

Questions about managing debt and investing? Let’s talk.