Manage existing debts and Has access to potential resources | Financially Healthy Behavior

Your behavior is one crucial factor that determines your financial well-being. It is not just what you know to do, but what you actually do that counts. Knowing you must save for retirement is different than saving for retirement. Knowledge should inform behavior not to be a substitute for it.
The next behavior in our look at six financially healthy behaviors is managing existing debt and has access to potential resources. This is your skills and ability to control your debt. And your capacity to generate outside resources in times of need. Let’s take a look at each.
Manages Existing Debts

• “A manageable debt load is one in which the individual is able to keep up with associated debt obligations without experiencing significant stress.” This includes formal debts like credit cards, student loans, car loans, etc. It also includes informal debts to family, friends, and others in your social network.
• Your debt load is different than your living expenses. Yes, they are all “bills that gotta be paid. True dat!” But living expenses are results of your living and consuming. In contrast, debt is a “voluntary” surrender of future time and earnings. Both are cost obligations, but here we are only talking about your debts.
• The characteristics of a well-managed debt load are:
  • you are paying your bills on time, every time.
  • you have discretionary income left after debt service payments. Paying your “bills” shouldn’t take all your money.
  • your overall debt load is consistently being reduced.
• Managing debt effectively in our consumer-based “buy now-pay later” advertising saturated ecosystem requires you to develop a visceral aversion to debt. Change your default programming to be against adding liabilities to your balance sheet. Refuse to encumber another minute of your future by promising payments. The best-managed debt is no debt at all.
• How you pay your debts now impacts your future ability to borrow money from both formal and informal sources. A weak or erratic payment history limits your ability to borrow from those same sources again. While a good payment history will often be rewarded with an increased credit line and expedited access to resources.

Has Access To Potential Resources

• In times of need, a person should be able to gather potential additional resources by calling on external formal and informal sources. Those sources determine your financial and social lines of credit, i.e., how much you can borrow. Potential social and economic resources should be cultivated before needing them.
• People often depend on their social networks to help weather a shock even if when they have access to formal financial products. Social capital that can be converted into resources when needed is especially crucial for those with credit score challenges or less responsive financial institutions.
• Your social network requires vetting. Who do you believe is part of your safety net? Who will you depend on and come through for you during tough times? Do they agree? Since reciprocity is often implied in these relationships, who regards you as part of their safety net. Do you agree?

Managing debt and cultivating credit lines are MoneySmartLife behaviors and skills necessary to acquire on your journey toward financial well-being.
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