Psalm 37:21
The wicked borrow and never repay,
But the godly are generous givers.
By the end of 2022, American household debt was at $16.9 trillion, a $2.75 trillion increase from 2019. $11.92 trillion was due to mortgages, $1.6 trillion from student loans, $1.55 trillion on vehicle loans, and $986 billion from credit cards. As one’s income increases, so does their likelihood of carrying debt. However, the lower the income, the more of it goes to paying debt. Debt can affect your ability to retire. Though you don’t need to be completely debt-free to retire, the number of older adults who carry mortgage debt into retirement has doubled over the past two decades from 20% in 1992 to more than 40% in 2016.
One indicator to understand one’s financial health is the Debt to Income Ratio (or DTI). This quotient takes monthly debt expenditures and divides them by monthly income. For instance, if monthly bills come out to $4,000 and income is $8,000, the DTI is 50%. The maximum DTI for a mortgage is usually 43%. Despite one’s financial position, 1 in 2 Americans say they wish that people were more open to talking about their personal finances, and 70% say they feel a sense of community when discussing financial goals with others that have similar objectives. Despite the Federal Reserve finding that 77% of households have debt of some type, personal finance is a subject typically ignored. 56% of people would rather talk to their family about their dating life than about their current debt.
There are different methods for paying off your debt. Some suggest paying off the smallest debt first, called a debt snowball. Others suggest a strategy called the debt avalanche, in which people repay their debts with the highest interest rates first. Setting up a budget and following it can help organize your debt repayment strategy. The best strategy for you is a topic that you can discuss with your advisor.
As the Bible says, “The wicked borrow and never repay, but the godly are generous givers.” Making sure one pays off their debt is an important principle to uphold. When defaulting on a loan, there are many serious consequences. Damage to your credit score, increased fees and penalties, and legal issues are among some of the possible issues that can affect you. Different circumstances may interfere with one’s ability to pay off debts as planned, such as losing a job or incurring a health issue, but multiple strategies can help.
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