McGUIRE AIR FORCE BASE, N.J.– If you've ever Googled "debt management" you'll know that there are a lot of resources out there for someone in dire financial straits - 28.9 million to be exact.
But in this day and age of identity theft and Internet fraud, how do you know who to trust? Whether you're just starting out, in over your head already or just changing directions, you need a plan - a financial plan.
"Without a financial road map you'll be lost," said Valerie Fioretta, A&FRC community readiness technician. "Without a sound financial plan, you'll struggle through life's changes. The financial plan is crucial to a successful life."
According to Barbara O'Neill, a financial management specialist with the Rutgers Cooperative Extension, debt management is important because whether you're single or supporting a family, there is only so much outstanding debt you can handle before it gets beyond your ability to repay.
"Poor financial practices, such as late payments and charged-off debts, will lower your credit score," said Ms. O'Neill. A low credit score can affect things like your future employment, ability to buy a home or rent an apartment and even your car insurance premiums. She also added that out-of-control debt can cause physical symptoms of distress, such as insomnia, headaches and fatigue.
Sound familiar?To diagnose a potential debt overload, look for the following symptoms: calls from creditors to collect payments, juggling bills because you can't pay them all, taking out a loan or new credit to repay previous debt, and a high debt-to-income ratio.
According to Ms. O'Neill, your debt-to-income ratio indicates the percentage of after-tax income that is being consumed by consumer debt payments such as credit cards and car loans.
"A 15 percent debt-to-income ratio is a good upper limit," she said. "Ten percent or less is even better, especially if you have a big family or are a single-earner. A debt-to-income ratio of 20 percent or more is an indication of debt overload. Essentially, it means that one full day's worth of pay is unavailable because it is 'spoken for' through previously incurred debt."
Here's how you figure out your debt-to-income ratio: add up the monthly dollar amount you pay toward credit card bills, car loans, student loans, etc., and then divide that by your "take home" pay. Multiply by 100 and you should get a number between zero and 20. If your number is higher than 20, it's time to evaluate your current debt management practices and make some changes.
If you're in overload, you're not alone. One of the biggest causes of debt overload is overspending, said Ms. O'Neill. Another is living "paycheck to paycheck" with little or no savings. Without savings, these people use their credit cards to handle emergency expenses because they have no ready cash.
So what do you do if you're already in too deep?
"Live below your means," said Ms. O'Neill. "Don't charge more than you can afford to repay in full the following month. If your expenses exceed your income and you are using credit cards to enhance your lifestyle, stop. Instead, explore ways to increase household income, reduce expenses, or both."
This brings us back to the financial plan: Evaluating your current spending habits and creating a financial plan is the best way to identify "leaks" in your current budget and get your finances under control, said Ms. Fioretta. She added that all A&FRC consultants and technicians can conduct budget appointments with anyone who would like some help or advice - for any reason.
"I recommend people come in anytime, but especially when there's a life-changing event," Ms. Fioretta said. A life-changing event could be getting married, having a baby, retirement, changing careers or even just making a big purchase.
Other options for resolving debt-related issues are non-profit, state-licensed credit counseling agencies, which may be able to negotiate with your creditors for you. If you just want to get out of debt faster, you can do a free "PowerPay" analysis online at www.powerpay.org. Other resources are available at www.militaryonesource.com.
Ms. Fioretta also recommended people get advice before there's a real problem. Losing your house or car can affect your career, causing you to miss work trying to find a new place to live or a ride to work. Even smaller financial struggles can affect your work by taking your focus and attention off of the mission.
"Deployments can make the situation worse on families because it adds to the stress," she said. "This is why budget management is especially important for military families."
For more information on debt management and a wide variety of other financial topics, servicemembers and their families are invited to attend a Financial Resource Fair Feb. 27, 9 a.m. to 3:30 p.m., at the Fort Dix Timmermann Center. Representatives from 15 financial resource agencies, including Ms. O'Neill, will be available to answer questions and two-hour seminars will be presented on credit, debt management, basic investing, and investment scams and foreclosure avoidance.
