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Debt is a fact of life. Turning on a light switch, a water faucet, or driving your vehicle creates debt; there is no escaping debt. You will have to deal with debt your entire life. Keeping your debt manageable should be a goal. Stop attaching emotions to debt by thinking of debt as bad or good; debt is neither your friend nor your enemy, its debt. Yes this is a new concept for everyone to grasp, even the financial services industry. Everyday we read and hear about good-debt versus bad-debt like it’s a ball game, this is wrong and like we state, we won’t teach academic theories just because they’re in a text book, because most don’t work. Debt is manageable or unmanageable, a simple concept to grasp and the correct way to think of debt.
When debts become unmanageable you have a problem, and for service-members this could become a big problem, especially if you’re dealing with a security clearance or debt-collector calling your first-shirt asking for payment.
So how do you know if your debts are manageable or unmanageable? Most households know when their debts become unmanageable. It creeps up slowly and suddenly it slugs you in the gut. A few symptoms of unmanageable debt: Financial stress, arguments about the finances, juggling which bills to pay late, creditors calling for payment, you can’t sleep worrying about how the bills are going to get paid, afraid to answer the phone or get the mail.
How do you know if you can take on more debt? Use our “General Guidelines” that are in our books and use our debt-To-Income ratios we attached in this section.
Credit Counseling, Debt Settlement, Loan Consolidation:
1. Credit counseling from a non-profit Consumer Credit Counseling Agency, CCA. Yes, this is a good option for your unsecured debts; a CCA usually won’t work with secured debts or debt collection agencies.
2. Debt Settlement companies. No, this is not a recommended option, for details (Read our Books).
3. Loan Consolidation for debt pay-off. No, this is not a recommended option, for details (Read our Books). There are many financial institutions that advertise in military financial magazines and in base newspapers. Their advertisements mislead people to believe they are affiliated with, or approved by the military; they claim to be military friendly, they snare thousand of service-members each year with high interest (predatory, in our opinion) loans.
Keys to paying off debt:
1. Know your Values, Goals, Sacrifices, for details (Read our Books)
2 Build a weekly or monthly spending plan looking for areas to reduce costs:
4. You may need to reduce your contributions to your Thrift Savings Plan until you get ahead of your debt, then re-adjust back.
5. Have a debt pay-off strategy, we recommend using a simple approach, which is the Debt Snowball. The reason is because it’s simple and it works. There are other strategies that may work well for you. The Power Pay method, the debt avalanche method, they all will work, we believe some better than others. Most of academia recommends the debt avalanche, which is paying your debts based on interest rates; in theory you will spend less in interest, in real life things never work that way because interest rates change. Which ever you choose, or a combination of all of them, set a goal and stick with it.
Paying off debt is never an all or nothing approach; never use all your savings to pay off debts. If you haven’t established savings and expect a large income tax refund, use this refund to establish savings first, and then take a balanced approach to pay off your debts.
TSP Payday - Millionaire
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