Your Money: How To Eliminate Debt

>>> Your money is not really your money if you are drowning in debt. In the third installment of our your money series, we are taking on the difficult subject of debt and how to get your personal finances back in the black. The average amount of debt Americans are shouldering continues to increase with credit card debt and student loans leading the pack. Joining me to discuss strategies for getting out of debt is Chandra Aduesi . She is a financial planner with Elise Financial Services and volunteer or Society of Financial Awareness. Welcome to the program. >> Thank you. >> After the recession, Americans learned a hard lesson about living beyond their means. Apparently, those lessons did not stick. What are some of the reasons that debt is increasing? Two it goes back to behavior. There is a quote I heard recently, it is called, if we do not master our second chances, our circumstances will master us. Regarding debt, it is about our behavior and our mindset around money. It goes back to understanding how much do you need and how much are you willing to pay? >> Getting into debt is something that can sneak up on you working come in one devastating emergency, health or life emergency. What do you see most often with clients? >> What I see most is there not tracking their spending habits. A year later, two years later, they come to the realization that they are up to their eyeballs in debt. It goes back for most of my client to the fact that there is not a sound financial plan. Most Americans, don't have a written financial plan. When you don't have something written down, it is hard to track those expenses like debt, credit cards, student loans. >> What is the first thing you advise people who want to start paying down their debt? >> Write down your plan. Write down your goals. It is almost impossible to follow something through you don't have that plan written down somewhere, either on your own or on a piece of paper. I personally recommend writing down your financial plan and more importantly, your spending plan. How do you want to spend your money? That is very important. If you have a lot of debt, you have to figure out what your short and long-term goals are around that debt and that is where your spending plan -- your budget -- it sounds like going on a juice cleanse for a month, right? It is not fun at all but if we have a spending plan, we are empowered and in charge of her money. That is a powerful place to be. You would draft your spending plan and see how much debt you have and where you want to be. That will allow you to focus on how to pay down the debt. >> To advise clients to focus on putting extra money that they save by creating a financial plan to pay off debt or put that away in a reserve so that they don't amass any more debt? >> It is a combination of both. You have to survive. This mountain of debt is not going to hold off while you pay it off. Other things will happen. Got to bed, it is always good to be prepared. I advise putting a large portion of whatever money you have towards paying off the debt, and a smaller portion into your reserve fund, just in case. Let's say you are a goober driver and you have a lot of debt. It makes sense to put the cash you have towards the debt but also put money towards your reserve fund because of the driver your car breaks down, you can't go back to your creditors and they, that payment I just made, I need to borrow a portion of it. I advocate that a large portion goes towards the debt and a smaller portion goes to a reserve fund. There would you advise and how to prioritize which debts to pay off first? >> That is subjective to each client. For some it may make sense to pay off the account with the highest APR while others may have the smallest debt for those quick wins. >> To amass a series of quick wins you feel like you're making progress? Mac right. >> The question from a listener. >> My question is about zero interest credit cards. Am curious as to how badly those affect your credit open multiples. Once you pay them off, should you close them or keep them open? >> You have to ask yourself, why am I getting into debt and what am I truly doing about getting out of debt? That is the whole point of moving it, possibly moving your debt one credit card to another credit card. It is because of the zero interest APR. If you're just moving your debt from 10% introductory rate to the next so you don't have to pay interest on it, that is not a plan for your future. Especially for your financial situation. You still have to think about your life in terms of what you want to do for your future self, retirement may be on the horizon, it is closer than you think. That behavior is not supportive of a healthy financial future. >> So let's say you pay off the debt or you get all of your money off of one credit card, should you close that credit card? We've often heard that just closing a credit card can affect your credit rating. >> It can, but it would be beneficial for you in the long run if you're not going to be using it. I recommend having at least one credit card on your profile because you still have to use it to establish credit. How many credit cards does a person actually need to sustain their livelihood? I am a big advocate of using your checking account to purchase goods. It all goes back to our behavior. Unsecured debt is not the type of debt that is going to propel you to live a quality and financially savvy lifestyle. >> In each of our segments, we have asked our guests for online tools they recommend. Other any tools you like? >> I really like the debt calculator on credit Sesame. You can take a look at their debt repayment calculator and see what would happen if you put just a little extra that your minimum her current payment. That can also be a great tool to help you reduce the debt in your life. >> Even the budgeting and paying off loans and credit cards is hard work, the hardest work if I'm hearing you correctly, might be to change her behavior about spending money. Tell us about that. >> Finances don't have to be something that we avoid. A lot of times, people get into the financial situation they are in because of the ostrich effect. We put our head in the sand and we hope the debt goes away. [Laughter] that is not a plan for success. I advocate look, understanding what your ideas are around money. What habits have you formed regarding the handling and the management of your money. Work towards changing that. Getting into debt is not a part of any savvy financial plan. I challenge anyone to say that getting into massive amounts of debt will help them in the future. >> I have been speaking with Chandra Aduesi, with Chandra Aduesi and volunteer for Society of Financial Awareness. >> Thank you so much for having me.