Financial Health Check: Is Debt Becoming a Problem?

Have you become used to living in debt? Can't see a way out? Not sure if you even have a problem with debt in the first place? Debt has become a major issue in today's trying economic times.

How do you know if debt is a problem? Here are some simple questions to ask to reveal whether or not debt will become a major factor in hurting your financial health.

Do you know how much debt are you in right now? If don't really know or are scared to look then this is a good place to start.

Do you know how much interest, fees and charges you pay to maintain this debt? What you pay here is the equivalent of throwing your money in the garbage. This is how credit card companies, lending institutions and banks make their money. Imagine if you took these interest fees and charges and actually put it into a savings account. How much would you be ahead?

Are you caught in an endless cycle of finance and refinance? Going into more debt to finance current debt or make more purchases, although it may provide temporary relief and even smaller payments, is not a solution. If you find yourself in this cycle, you have an issue.

Are you taking more and more money from your equity? These days it is very popular to take out equity of a home to service debt or make other purchases. Equity is hard to build but very easy to spend and the banks know it. If you are going to use your equity, you need to use it wisely in a manner that provides a greater return then the cost of the equity in the first place. Equity should be a tool, not an escape hatch.

Are you building assets or liabilities? If you don't understand the difference, we highly recommend you read Rich Dad Poor Dad by Robert Kiyosaki. Assets create value for your personal wealth, where liabilities require you to keep working to maintain. If something happened to your earning potential, assets don't change, but liabilities will crush you. The secret is understanding what is an asset and what is a liability.

It's never too late to make a plan to get out of debt. With the right financial advice, discipline and strategic approach, debt doesn't have to own you. There is also healthy debt and bad debt. Great financial health depends on t he ability to manage both. If debt has become a problem, a great financial educator can help you today.

About: This article was made possible in support of social enterprise by Kim Mark, financial educator for World Financial Group.

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