Credit interest eats away at wealth. Every household has a budget and must live within its means and save for the future. We each must be careful not to allow debt interest repayment to reduce our ability to live comfortably or retire with financial security.

Interest on debt, except for investment or business debt, is paid with after-tax income and reduces our capacity to pay down the principal on our mortgages or increase our retirement investments. Both Americans’ and Canadians’ household debt service ratios are edging up as the ratio of household credit debt to personal disposable income advances toward 200%.

Shift your financial paradigm away from debt. The fact that so many people act without discretion while increasing debt shows that consumers need a more mature view of finance. We need to examine our true need for each purchase and consider the effect on our family’s income-generating ability before giving in to the temptation to buy more than we can afford.

Essentially, to avoid debt, we need to govern our response to each desire to have what we cannot afford. How do we do this? Work at not buying what you cannot afford, meaning living by a responsible paradigm of fiscal temperance. Learning to say to yourself, “No. I will survive without this item and will be better off debt-free!”

“If worst comes to worst, meet poverty halfway by retrenching expenses.  That is what I am striving to do, that and to reform before poverty forces me to.  Furthermore, I have established enough levels in my soul where I can get along with less than I have; get along contentedly,  I mean, not by the calculation of our income, but by your manner of living and your culture, is your wealth really to be reckoned”. Montaigne

Good financial discernment directs our actions when considering taking on a debt.

If a man, for example, has borrowed fifty dollars from a friend to go to a concert with his girlfriend, the next step would be to pay his friend back what is due to him. Simple kindness demands that the fifty dollars be paid back. But how and when shall it be paid back? A spendthrift might never pay it back, and so he or she would fail to observe the golden rule of “do unto others as you would have them do unto you” in relation to finance.

Develop a strategy to pay back debt. To pay back debt requires resolving to set aside a small sum from our income each week or month until we have allocated the repayment of our debts. Look at all your debts and pay down the higher-interest debts first. Another approach would be to pay off the smaller loans and/or credit cards first to achieve victories sooner while creating the habit of debt reduction.

What is your financial viewpoint? In the end, we must be determined to be guided by wise discretion in how we use credit to attain financial goals. This is for the good of all – family and society. Your financial advisor can guide you on how to reduce debt and increase your investment portfolio.