Now, more than ever, you have seemingly limitless opportunities to find financial education resources to help you improve your financial literacy and financial capabilities. When you struggle with a credit card, store card, car loan, and medical, or even mortgage debt, formal and informal education can open the gateway first to a better understanding of your financial situation and then to better behavior to correct or improve upon your financial choices.
What is the difference between financial literacy and financial capability?
Financial literacy is about knowing. Financial Capability is about doing. Financial literacy indicates an individual’s ability to understand and even discuss a variety of critically important personal and household finance topics. Financial capability indicates the individual’s skill level revolving around personal and household financial issues.
How to Build Financial Literacy on Debt Reduction
Building your understanding of personal finance topics, especially debt reduction and debt prevention, should be a life-long commitment. Unfortunately, very few states require any sort of personal finance class for their students to graduate from high school. Consequently, most of us will build our financial literacy on our own through experience, conversations with family and friends, and personal research.
Financial literacy arises from awareness, new understandings, gained knowledge, and the mental connecting of topics and principles related to personal finance. Consider the following options for building your financial literacy around debt reduction and debt prevention:
Banks and Lenders
Some banks and lenders have developed some great financial education programs. You must recognize, though, that they exist and generate revenue from lending, so they will come at the subject from an understandably pro-borrowing point of view. They typically argue for common sense and reasonable loans rather than mindless consumer debt.
The traditional source of personal finance education includes businesses specializing in personal finance. Many used to (or still do) publish magazines and newspapers with well-researched articles from respected journalists and financial experts.
These long-established businesses usually have websites with thousands of blog posts, often multiple each day related just to consumer debt. As the line between journalism and blogging continues to blur, you will likely notice many of the posts on some of these sites are basing their writing more and more on opinion rather than on research and best practices.
If you pick a personal finance topic, you will likely find millions of blog posts on the subject. The Google search term “Best Ways to Get Out of Debt” currently yields results linking to posts that list the 3, 5, 6, 7, 8, 10, 23, 25, 26, and even 33 easy and best ways to get out of debt.
Bloggers come in all sizes and shapes and come from various backgrounds. Many bloggers in the FIRE field or Financial Independence Retire Early simply blog about their personal experiences and financial lessons learned throughout life. Other bloggers have written books and published peer-reviewed articles, offering a bit more stable and traditional view of money management.
Blogs can offer fantastic information and even provide effective motivation to move from financial knowing to financial doing. However, you should get a well-rounded view of the topic by visiting and reading blogs from dozens of writers. If you find that nine out of ten bloggers agree from experience on how to get out of debt, you can probably trust what they are sharing.
We highly suggest you avoid getting drawn into an exclusive relationship with any individual blogger, author, radio talk show host, or otherwise. We have met far too many learners in our classes who argue an erroneous debt elimination principle based on the opinions of their favorite talk radio personality. Just as you should shop around for the best deal on big purchases, you should read around so you can distinguish between financial fact and blogger fiction.
Books (including ebooks and audiobooks) can offer a lot of help in getting out of debt. Books published with large national publishers are typically written by well-known writers, TV or radio personalities, or others who have already built a strong social media following.
Books published on Amazon directly by the author or through a smaller, local publishing company can often offer the most innovative and insightful information on debt reduction. However, you will have to weed through a lot of fluff from authors with nothing new to say on the subject.
Whether you have a five- or fifty-five-minute commute each morning and afternoon, you might find some great podcasts to help you decide on your debt elimination method while you drive or ride to work. Like our caution regarding bloggers, we suggest you listen to a variety of podcasters and not just one so that you don’t become a mindless follower of a brainless albeit forceful or entertaining podcaster. As you listen to several sources, you can quickly learn the difference.
Webinars can offer excellent information to build financial literacy for combatting consumer debt. Often pre-recorded or self-guided, you can take such courses at your own speed at any time and from anywhere. Whether you spend a half-hour or ten hours taking an online class, you should look into getting a certificate of completion, not for show but because it often comes after a course quiz or exam that confirms your newly-gained learning.
How to Build Financial Capability
Reading and studying might build literacy, but it does not automatically lead to capability. A few rare studies even indicate that some financial education programs have absolutely no effect on the learner’s financial performance. Fortunately, other studies find that results depend on the type of programs and courses used to increase your capabilities.
Consider these types of programs when building your debt elimination capabilities:
Workshops and Camps
Many nonprofit credit counseling agencies offer free personal finance workshops, especially around debt and budgeting. You can also find personal finance camps for teens and adults at local financial institutions, libraries, and YMCAs, to name a few.
Workshops and camps should include opportunities to both learn and practice financial principles. A debt workshop should provide you with a chance to put together a debt reduction strategy. A debt camp should help you pull and review your credit report in order to identify your path out of consumer debt.
Interactive Activities and Downloads
Online activities, calculators, and downloads give you a hands-on experience with personal finance topics, taking you from novice to expert-level capabilities. Activities might include simulated budgeting activities.
Downloads, on the other hand, allow you to start putting financial principles into practice within your own finances. Debt Reduction Calculators, for example, come as online forms, PDFs, Excel spreadsheets, or printable documents you can fill out with your personalized information. The best downloads also include practical, easy-to-follow steps to get started.
Personal coaches can provide you with the support and motivation to make steady progress toward debt freedom. Although coaches don’t need to specialize in personal finance, you might consider looking for a certified Financial Fitness Coach through the Association of Financial Counseling and Planning Education.
There’s No Teacher like Experience
Of course, learning by doing continues to be both the most common and the most effective way to build our personal capabilities. At the end of the day, it’s the only way to put book knowledge to use. You will make mistakes, and not just early on. We all do. But, as we keep trying and keep learning and keep experimenting, we eventually find methods and systems that work for us as we work toward debt elimination goals.
Common Questions About Managing Debt
- How debt management affects credit score?
The FICO scoring model ignores any consumer participation in a debt management program. Indirectly, though, participation in debt management involves closing accounts to further use, which might initially lower your credit score. Over time, though, by establishing a pattern of on-time monthly payments and paying off your debts, you can build a positive credit score through a debt management program.
- What to look for in a debt management plan?
When deciding on a debt management plan (DMP), choose one through a nonprofit agency so it can offer all the concessions creditors can provide DMP clients. Also, make sure to confirm that any debt management agency has registered to do business in your state, usually through the secretary of state or a department of banking, consumer affairs, or finance.
- Can I get into a debt management plan on my own if I’m married?
If you are the sole owner of the debt, you may enroll in a debt management plan on your own, even if you are married. If your spouse is a joint account owner, both of you will need to enroll in the debt management plan. If your spouse is an authorized user, you do not need your spouse’s authorization to join a DMP.
- Is debt management better than bankruptcy?
Financial advisors and credit experts all generally recommend consumers consider bankruptcy as an option of last resort. Because bankruptcy has both long-term and significant effects on your credit, debt management is considered a better option for bankruptcy whenever possible. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 requires consumers to meet with a nonprofit credit counseling agency before filing a bankruptcy petition with the courts.
- Is there a do-it-yourself debt management plan?
Many credit card companies will offer you a debt management plan with lower interest rates if they know you have no credit cards with other credit card companies. If you have debts with multiple credit card companies, they are less likely to offer you a DMP because it might eliminate their competitive advantage of charging higher interest rates than other creditors.