How to Overcome a Fear of Debt

How to Overcome a Fear of Debt
Mike Randall
By: Mike Randall
Posted: September 3, 2013's popular "How-To" series is for those who seek to improve, rebuild or better understand their subprime credit rating.

Many people believe fear of debt is a good thing. It can prevent you from overextending yourself and entering that cycle of indebtedness many Americans face.

I have a different view on the matter. I believe any fear whatsoever around finances has the potential of leading to bad monetary decisions and negative financial consequences.

Debt is not an evil to be feared, but rather a tool to be understood.

In fact, without debt most of us would be living in rented spaces, driving older vehicles and would only able to afford only what we could pay for at the moment.

Debt allows us to borrow from our future earnings and put that money to use now.

One example of this is borrowing for a college education.

The amount we borrow for college is negligible when compared with the increased earnings we will see over our lifetime.

If we take a closer look at the fear of debt, we can actually see it is not really debt that we fear, but rather the consequences of large amounts of debt.

Ask others to describe their fear of debt. When asked, they will usually talk about a fear of not having enough money.

A fear of not having enough money is about not feeling safe financially. In order to overcome a fear of debt, people must be taught to feel safe about money and finances.

Here are some rules to follow that will help you to overcome the fear that surrounds money, financial safety and debt:

1. Have sufficient savings.

It is generally recommended that you keep up to six months of your salary in a savings account.

This amount will allow you to meet all of your financial obligations if something bad happens.

If you are able to keep even more than six months of your salary in savings, you will be in an even better position.

“Maintaining a fear of debt can

hurt your financial future.”

2. Manage your expenses.

Creating a budget is a great way to manage your monthly expenses and see how much you spend compared to the amount you are bringing in.

Creating a budget will allow you to plan for payments.

If your monthly expenses and the amount you continue to save does not exceed 90 percent of your earnings, you are living within a manageable budget.

3. Retirement account.

Having a retirement account such as an employer’s 401(k) or a personal IRA can give you a strong sense of future financial safety.

If you are lucky enough to have an employer-sponsored 401(k ) that offers matching funds, be sure to take full advantage by maxing out your contributions.

4. Maintain a good credit score.

One of the best ways to ensure you do not spend more money than you have to on debt is to maintain an excellent credit score.

Always pay bills on time and check your credit report for errors at least once each year.

This allows you to take advantage of the best interest rates, lowest cost insurance and other perks that come from having good credit.

5. Educate yourself on financial matters.

Most of the fear around finances and debt comes from not fully understanding the way debt works.

You should take time to learn about the difference between good debt and bad debt.

You should also work to understand the idea of investing for a long-term return.

By staying educated, you remove the fear of the unknown and can become more empowered over your financial life.

I hope this guide has shown you a fear of debt – and the related fear of not having enough money – can be managed.

Maintaining a fear of debt is a limiting belief that can hurt your financial future and prevent you from becoming financially secure.