Your Personal Debt Clock: Understanding the U.S. National Debt and Your Finances

In 2023, the U.S. national debt clock shows a staggering $33 trillion dollars. It's a number that's hard to fathom, and it continues to grow. For over two decades, the U.S. government has consistently spent more money than it collects in revenue. This fiscal strategy has resulted in an ever-expanding national debt. While this might seem concerning, it's crucial to understand that not all debt is inherently bad, a sentiment echoed by some economists.

The Purpose of Debt

Debt, as it turns out, can serve many useful purposes. According to Kris Mitchener, a professor of economics, public debt has often been used to address emergencies. It's a way to finance necessary expenses without placing an immediate burden on the current generation through increased taxes.

This was evident during the COVID-19 pandemic when the national debt increased by more than 89%. Top economists argued that 2020 was not the time to worry about the debt but rather to prioritize saving lives and the economy. Debt provided the means to do just that.

Debt's Dual Nature

It is important to distinguish between good and bad debt. While debt can be a powerful tool for funding essential initiatives, there's concern over how much debt the U.S. is accumulating. When it comes to your finances, you should consider not whether debt should be used but how often and how much.

Good debt typically involves borrowing money to invest in assets that appreciate or generate income, such as a mortgage for a home or a student loan for education. These debts can potentially improve your financial well-being over time. On the other hand, bad debt includes borrowing for non-essential expenses that depreciate quickly, like credit card debt for discretionary purchases. To determine what kind of debt you have, assess whether it contributes to your financial growth or if it's holding you back. Evaluating the purpose, and potential long-term benefits of your debt can help you identify whether it falls into the category of good or bad debt.

Debt-to-GDP Ratio

Economists gauge the severity of a nation's debt using the debt-to-GDP ratio. Currently, the U.S. debt held by the public hovers at nearly 100%. In contrast, experts suggest a responsible debt-to-GDP ratio for a country the size of the U.S. would be around 70%.

Many believe that while debt can stimulate economic growth, maintaining the right balance is crucial. A high debt-to-GDP ratio can lead to challenges in servicing the debt, particularly when interest rates are on the rise.

What Does Your Personal Debt Clock Look Like?

So, how does the U.S. national debt relate to your personal finances? While it might seem like these two worlds are vastly different, there are valuable lessons to be learned. Your financial health can be likened to managing your own debt clock. Consider these tips when evaluating your own debt clock:

How to Start Managing Your Debt

Like the national debt, not all debt in your life is inherently bad. Mortgages, student loans, and even responsible credit card use can be useful tools when managed wisely. However, it's crucial to monitor your personal debt-to-income ratio, similar to the national debt-to-GDP ratio. Understanding how much debt you can comfortably manage is key to financial stability.

Here are some actionable tips to help you start managing your debt effectively:

• Create a Detailed Inventory: Begin by making a list of all your debts, including the outstanding balances and minimum monthly payments. This provides a clear overview of your financial obligations.
  
  
• Set Clear Goals: Determine your financial goals. Do you want to pay off credit card debt, or focus on other debts, such as student loans or a mortgage? Establishing clear objectives will guide your debt management strategy.
  
  
• Consider Debt Consolidation: Explore options like debt consolidation loans or balance transfer credit cards to consolidate multiple balances into a single balance with a fixed payment that will fit into your budget. If you are looking for an installment loan with fixed payments, get started with Sunset Finance today.
  
  
• Monitor Your Progress: Regularly review your debt repayment plan and adjust it as needed. Celebrate milestones along the way to stay motivated.

Remember that managing debt is a journey that requires commitment and discipline. Stay persistent, and over time, you can become a pro at managing your debt.

How to Use Debt Wisely

Just as the U.S. government strategically employs debt for essential purposes, you can also use credit wisely. Taking on debt for investments in education, a home, or starting a business can lead to long-term financial growth.

Here are some tips on how to use debt wisely:

• Education Investments: Student loans can be a form of good debt if they're used to finance education that enhances your career prospects. Acquiring new skills or degrees can increase your earning potential and open doors to higher-paying jobs. When taking out student loans, explore federal options and consider repayment plans based on your income.
  
  
• Mortgage for Homeownership: Buying a home is one of the most common uses of good debt. A mortgage allows you to build equity in an asset that often appreciates over time. Additionally, mortgage interest may be tax deductible, providing potential financial benefits. Ensure your mortgage fits comfortably within your budget to avoid overextending yourself.
  
  
• Entrepreneurship and Business Ventures: Starting or expanding a business often requires capital and well-considered loans can fuel growth. Small business loans, lines of credit, or even personal loans can be used to fund entrepreneurial endeavors. However, careful business planning and a realistic repayment strategy are essential.
  
  
• Debt for Emergency Expenses: Sometimes, unexpected emergencies arise, such as medical bills or urgent home repairs. If an emergency situation necessitates borrowing, you may want to explore loans with set payments for a specific term which are designed to fit into your budget.
  
  
• Capitalizing on Opportunities: There may be opportunities, such as investments or real estate ventures, where using debt strategically can yield significant returns. However, thorough research and risk assessment are paramount to ensure that potential gains outweigh borrowing costs.
  
  
• Building Credit: Responsible use of credit cards and installment loans can help establish and improve your credit history, which is essential for future financial endeavors, like obtaining future loans or mortgages.

Remember, using debt wisely requires careful consideration and a repayment plan. Before taking on any debt, assess your financial situation, evaluate the potential benefits and risks, and create a strategy for managing and repaying the debt. It's essential to strike a balance between leveraging credit for financial growth and avoiding excessive debt that could lead to financial stress.

How to Balance and Budget

Balancing your budget is the cornerstone of sound financial management. Here are some helpful tips:

• Calculate Your Income: Begin by determining your total monthly income, including your salary, side hustles, investments, and any other sources of revenue.
  
  
• List Your Expenses: Categorize your monthly expenses into essential (e.g., rent or mortgage, utilities, groceries) and non-essential (e.g., dining out, entertainment, shopping). This will help you identify areas where you can cut back if necessary.
  
  
• Set Financial Goals: Define both short-term and long-term financial objectives. Whether it's building an emergency fund, paying down debt, or saving for retirement, having clear goals will guide your budgeting decisions.
  
  
• Prioritize Debt Payments: Allocate a portion of your income to debt repayment. Focus on paying down bigger balance debts first, as they can be the most financially draining. As you pay off one debt, redirect the freed-up funds to tackle the next one.
  
  
• Create a Contingency Fund: Establish an emergency fund to cover unexpected expenses like medical bills or car repairs. This fund acts as a safety net, reducing the need to rely on credit cards or loans in emergencies.
  
  
• Track Your Spending: Monitor your spending diligently. Utilize budgeting apps or spreadsheets to record every expense. This practice will help you identify areas where you can cut costs and ensure you stay within your budget.
  
  
• Review and Adjust: Regularly assess your budget to ensure it aligns with your financial goals. Life circumstances can change, so be prepared to adjust your budget accordingly.

Remember, achieving a balanced budget requires discipline and consistent effort. By keeping a close eye on your income and expenses, prioritizing debt repayment, and making informed financial decisions, you can maintain a healthy financial balance and work toward achieving your financial goals.

Get Help From Sunset Finance

While the U.S. national debt is a topic of national concern, there are valuable parallels to be drawn for your personal financial journey. When managed wisely, debt can be a tool for achieving your goals. Monitoring your own "debt clock" and understanding your financial limits are crucial steps toward financial stability. Sunset Finance is committed to helping you navigate this journey, providing the support and resources you need to reach your financial goals.

Sunset Finance offers a variety of personal loans to meet your financial needs. Whether you need to cover an unexpected expense, consolidate debt, or make a major purchase, Sunset Finance can help.

Our personal loans have equal installments for a set term and are designed to fit into your budget. We also offer credit and budgeting resources to help you manage your finances and improve your credit. With multiple locations throughout South Carolina and Georgia, Sunset Finance makes it easy to get help when you need it.

Managing your debt and personal finances may seem daunting, but with our Cleaning Up Your Finances Checklist, you can tackle it step by step.

Free Personal Finance Resources

If you would like more resources on personal finances and budgeting, check out these resources:

• For more great information on all things credit-related, head to our 'Basics of Credit' reference page.
• Read about How To Adjust Your Budget For Rising Prices
• Download our Free Simple Monthly Budgeting Worksheet
• Check out our online resource center for more budgeting basics and more
• Learning to manage a budget becomes a relatively simple task with a bit of practice.
• Take a look at The Basics of Budgeting to get started.