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Hope for the best, but don't avoid preparing for the worst

"Debt" can be an ominous word with a bad connotation. When you hear statistics like, "the average person took on 2 percent additional debt since the previous year," you probably see it as a bad sign. Is it? Can taking on debt be a good thing?

The statistic mentioned above is not a figment of our imagination. The Sun Sentinel published data collected by the credit-reporting agency Experian showing that the average person in South Florida took on more debt this year than last.

For those living in Palm Beach and St. Lucie counties, that meant a debt increase of approximately 2 percent. Those living in the Broward/Miami-Dade area raised their debt level to $28,008, a 2.6 percent increase but still $1,000 lower than the national average. Total debt includes anything outstanding, from car payments and utility bills to student loans and mortgages.

Why are these statistics a good sign? You have to dig a little bit further for the answer. The data showed that while overall debt totals were increasing, debts that are traditionally considered "bad" were decreasing. Namely, the average individual has less credit card debt this year than he or she did in 2014.

Whether people were working hard on paying off outstanding balances, making regular payments or using them less, the average totals were down anywhere from about $20 to $50, around $4,422 in the Palm Beach-St. Lucie area. At the same time, average credit scores increased in the same areas by about five points.

While neither of those numbers may seem like a big deal, they are "significant" as noted by Ron Griffin, Experian's director of public education.

Even in the best of times, unexpected things can happen. Companies continue to lay off employees, medical conditions do not choose you based on your economic status and negligent drivers are not going anywhere. That $4,000 credit card balance can quickly become overwhelming should life throw you any of those challenges.

You never hope for the worst, but that shouldn't prevent you from planning for it. As you think about 2016, consider planning for those financial contingencies. You can place a focus on:

  • Making on-time payments: It can help you raise your credit score, and creditors are more willing to work with people who have a good track record.
  • Building your savings account: Put extra money away. You can start small by throwing any extra change in a jar or committing to a dollar a day. The point is that you treat the account as if the money is untouchable except in emergencies.
  • Creating a budget and sticking to it: Keep a spreadsheet or use a computer to help keep track of your spending. Hold yourself accountable to your spending and find areas where you can cut back.
  • Prioritizing paying down your debt: Mortgages and other debt are a necessity for many people. While they aren't necessarily bad debt, you can still focus on paying them down. The less debt you have, the more prepared you will be to handle unexpected financial burdens.

Last, know that if you do face a financial challenge you can't handle, it's okay to ask for help from a bankruptcy attorney. You don't have to file for bankruptcy to benefit from their advice. In fact, in many situations they are able to help consumers avoid bankruptcy with alternative debt solutions.

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