Understanding Deleveraging/Debt

Debt is a problem because it deflates our confidence. It diverts us from our real wealth goals because we’re constantly attending to our debt problems. It takes away from our future savings. And it just plain costs us time and money. If this is a problem that you’re facing, you’re not alone. Look at this; the United States has a record debt load of 31 trillion. But that’s not just the United States; it’s a global problem; the global debt crisis is up to 300 trillion, and we can hardly even get our minds around that. Let’s bring it home. The United States households reached 17 trillion this year, 2023. They say the average debt per household is about $95,000. Now, some of you may have less than that. But I’m here to help you understand this because many of you have more than that.

Deleveraging can be accomplished in a number of ways, including:

• Paying off debt: This involves making extra payments towards outstanding debts, such as credit card balances, loans, and mortgages. By paying off debts faster, individuals can reduce the interest they pay overtime and improve their credit scores.
• Refinancing debt: Refinancing involves taking out a new loan to pay off an existing debt. This can be a good option for individuals with high-interest debt, such as credit card balances because it can reduce the interest, they pay over time.
• Selling assets: Selling assets, such as a house or car, can be an excellent way to reduce debt quickly. However, it is essential to consider the tax implications of selling assets before deciding.

Deleveraging is important because it can help individuals reduce their financial risk and increase their financial stability. By reducing debt, individuals can improve their credit scores, making it easier to obtain loans and credit in the future. Additionally, by reducing debt, individuals can free up more of their income to invest in other areas, such as retirement accounts.

Why do I say to heal your debt?

Debt is a healable mindset; you can reverse it. But many of us get into a mindset where that debt becomes almost like a long-term wound that we’re nursing, it is like a long-term health issue that has been with you your whole life, and you’re destined to have it because it’s in your DNA. Not true. That is absolutely not true. But it can feel that way because debt loads can indeed Weigh Down on your otherwise healthy opportunity to create wealth in your life. Many of my clients have often shared with me that they feel they’ll never be able to create wealth because they’re in debt. And that debt load feels like a weight around their ankles, almost like they are a prisoner of their debt.

It is important to note that deleveraging should be done carefully and with a clear plan. Individuals should consider their financial goals and the impact that deleveraging will have on their financial situation. Working with a financial advisor to develop a deleveraging plan tailored to individual needs and goals may be helpful.

In summary, deleveraging is an essential financial tool for 50-somethings looking to retire soon. By reducing debt, individuals can reduce financial risk, improve their credit score, and free up more income to invest in other areas. However, it is vital to develop a clear plan before deleveraging and consider its impact on overall financial goals.

5 Steps to Successful Deleveraging

Deleveraging can be challenging, but with the right strategies, it can be a successful and rewarding experience. Here are five effective steps for achieving successful deleveraging:

• Freedom mindset
  You must adopt a freedom mindset. Some of us don’t even realize we’re in a debt mindset. Similar to thinking negatively all the time. This is a shift. Do everything you can to shift this mindset and decide that you’re going to go into a freedom mindset; you are an ace money manager; you can do this. We can do it together.
• Access Your Debt
  Your Freedom mindset allows you to access your debt.
  There’s a difference between good debt and bad debt. A good debt is a mortgage at a low-interest rate. A good debt is any debt that will help create an asset that will generate wealth or appreciate in value over time.
  Bad debt? Are those credit cards that are charging anywhere from 22 to 25%? You are paying a financial company 25% per year out of your hard-earned income to sustain a debt you took on, and now it’s time to get rid of it. So that’s considered bad debt.
  Bad debt can also be a margin account if you own stocks and bonds. You may have doubled your investment portfolio by utilizing that margin or that borrowing power to buy more stocks and bonds. With the volatility of the markets, it is time to reduce that debt; it’s time to get off margin.
• Pay down Debt.
  Creating a Payoff Plan to pay down your debts.
  There are two different strategies. One is called the snowball strategy. And one is called the avalanche strategy.
  Snowball Strategy is you start with your smallest debt, like a credit card that has the smallest amount of debt on it. And you take that one first. Pay that down first. Then you go to the next one, and you get rid of that one, and on and on. So, it’s like a snowball effect. And it gives you a feeling of accomplishment. That felt good. Let’s do it again.
  The Avalanche Effect is different. You choose the credit card account that has the highest interest rate to pay first, and you pay that down. That’s called the avalanche. It’s like an avalanche because you take your expense load quickly by first eliminating the highest interest rate account.
• Reward Milestone Moments.
  The Freedom mindset allows the new you to come forth. When you have paid down debt, do something special for yourself, a facial, take an extra $50 for yourself, get your nails done, or do something that feels good and celebrate the new sense of accomplishment.
• Move to an Investment Mindset.
  You are following your plan, rewarding those milestone moments, and you know you are making progress. Now you can plan to use the same amount of money you paid down your debt to build an investment account. In other words, move into an investment mindset. This is so important. You move from a debt mindset into a freedom mindset and finally to an investment mindset. This is how you do it.

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