What is your net worth? How can this help your debt?

What is your current Net Worth?

When doing a personal finance evaluation, it's always good to understand your net worth.

If you've read through our other pages and steps in becoming debt free, then you have already figured your total assets and debt (liabilities). Now you can figure your current net worth. Just take your assets and subtract your total debt. This will give you your net worth.

Keep in mind what you totaled for your assets and debt. For example, you can add your total house value into your assets, but be sure you add in any and all mortgages on that property into your debt. Same thing with anything you purchased on "no interest" deals. Be sure to include that in your debt calculations.

If your net worth is positive, then maybe you aren't in that bad of shape and you are closer to being debt free than you think. Chances are that many of your assets are not liquid (not cash or easily turned into cash like a house or car), but you want to take a look at some of your liquid assets and use them to pay off your high interest debt. For example, if you have a Money Market account that is getting 5% interest, but you have credit card debt that is at 9%, it would likely make sense to pay off the credit card debt with your Money Market assets. It would be a net gain of 4%. This is where a financial advisor could help look at all your assets and give you some sound advice. We don't typically recommend using a 401k or other retirement vehicle to pay off debt. Again, we recommend you discuss your debt and finances with a professional financial advisor before doing anything.

If your net worth is negative, then it's time to buckle down. Give up some "wants", start paying off some of your high interest debts, and start reducing your debt to get on the road to debt freedom.