Managing Debt

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Managing Debt Financially and Emotionally

Debt can be sneaky. Balances on loans and credit cards that accrue interest can force you to pay more than you anticipated, eat away at your monthly cash flow, and make it difficult to save for the future. And since debt lowers your total net worth, it can make achieving big-picture goals, like buying a house or car, more difficult.

However, debt is practically inevitable in today’s financial landscape. According to Business Insider, the average American holds a whopping $51,900 in debt (including mortgage loans, home equity lines of credit, auto loans, credit card debt, student loan debt, and other debts like personal loans). And if the effect of debt on your finances wasn’t enough, it also plays a significant role in your emotional and mental wellbeing. By prioritizing a repayment plan, you can take on the financial and emotional impacts of debt and start living the life you want with your debt under control.

Managing the Financial Impact of Debt

The best way to free yourself from debt is to create a financially sensible plan and stick with it. By making debt repayment a part of your monthly habits, you can get a handle on the impacts of debt on your financial situation. Following the four steps below can get you on track to debt relief.

1. Make a list: Include all types of debt and make note of balances and interest rates for each. Seeing all the debt you have in one place lets you take stock of the situation and plan how to move forward.

2. Make a budget: Once you know how much you owe, a budget will be critical to paying it off. Identify all your monthly expenses while looking for places to cut back on spending. Aiming for a budget where approximately 30% of your after-tax income goes toward debt repayment can be a good goal, but keep in mind that you may need to adjust it depending on your situation.

3. Pay down debt: Once you’ve identified how much money is available for debt repayment, start paying off your high-interest debt first. By doing this, you minimize large interest payments on credit card balances and other debt with high interest rates. As you pay your balances down, leverage your newly freed-up funds to accelerate your repayment of other debts via the snowball method, where you combine the monthly payment from a recently paid off debt with the payment on another balance. The money you have available for repayment will continue to increase as each additional balance is paid off.

4. Get creative: If you haven’t been able to squeeze much extra money out of your budget, you can look to windfalls such as bonuses from work or unexpected cash gifts for a chance to pay down your debt. You might even consider doing freelance work on the side to achieve your goals faster. Depending on the kind of debt you have, options for refinancing, or even loan forgiveness (in the case of medical school debt), can also be good options to consider.

Managing the Emotional Impact of Debt

The impact that debt has on your finances is huge, but something you may neglect to consider is the negative impact that debt can have on your mental health. Money and emotions can play equal roles in financial decisions, making it important to check not only your financial wellbeing, but also your emotional wellbeing. If you’re experiencing negative emotions related to your debt, it’s even more important that you create a plan to pay it off.

Psychology of Debt

Debt can have a significant impact on psychological well being. According to a survey conducted by LendingTree in late 2019[A2] , stress about money affects the majority of Americans (about 60%), with credit card debt being the worst stressor. When your debt seems to be out of control, or you lose your means to manage it properly, depression, anxiety, anger, or fear can set in. Guilt can play a role too, not just in your thoughts about your financial situation, but the decisions you made that led into debt in the first place. Even “good debt” (like student loans and mortgages) can still take a toll on your mental health. While it’s normal to feel overwhelmed, hopeless, or unsure about what to do about your debt, it is important not to let it own or define you.

Revisioning Your Debt

The first step to managing the emotional impact of your debt is to embrace debt for what it is and for the opportunities it has given you. Perhaps your student loans have improved your ability to find work, your mortgage has helped to provide your family with a home, or your car loan has given you access to transportation. Your debt has provided you with the experiences, for better or worse, that have shaped you and brought you to where you are today. By accepting your past choices and looking to the choices that will shape your future, you can feel more secure about facing your debt.

Making a Commitment to Debt Repayment

Once you make peace with your debt, you can begin to work on a repayment plan that prioritizes becoming debt free. This may seem difficult at times, but you won’t be able to embrace a debt-free life if you don’t fully commit to paying it off. While it may take time to pay down your balances, just creating a debt repayment plan can help you to feel more comfortable with your debt by knowing  you’re on a path to financial success.


Debt can weigh you down both financially and emotionally. That’s why debt repayment is an important piece to solving the financial puzzle of paying off debt, saving, and making reasonable sacrifices. By following the steps above, you’re on your way to identifying your debt, creating a budget, paying extra towards your balances, and considering alternative sources of funds. Now is the time to follow through – make debt repayment a priority and you will be able to achieve your financial goals and start living a life beyond debt.

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