Are Your Liabilities Holding You Back? Here's What You Need to Know
- BetterYourFinance.com
- Apr 6
- 4 min read
Money can feel like a fog. You know it is there, surrounding every choice you make, but it is easy to lose sight of where you are headed. One of the most overlooked forces that quietly pulls you off course is your liabilities.
We talk a lot about assets. The home you bought, the investments you are growing, the income you bring in. But liabilities? They do not make great dinner conversation. Yet, understanding them might just be the key to breaking free from financial stress and stepping into a life that feels aligned, intentional, and free.
Let us clear the fog.
What You’ll Learn:
What liabilities really are (not just a finance textbook definition).
Why understanding your liabilities is crucial to your financial health.
How to calculate your total liabilities.
A relatable story that brings this concept to life.
Practical strategies to take control of your liabilities.
How shifting your mindset around debt and responsibility changes everything.
What Are Liabilities?
In plain terms, liabilities are what you owe. They include debts like credit card balances, mortgages, student loans, car payments, personal loans, and any other financial obligations.
They represent the commitments you have made, some wise, some impulsive, that impact your present and future cash flow. And they often come with emotional weight. Guilt, stress, even shame. But they are also neutral tools. When understood and managed with clarity, they can be navigated with calm and control.
Why Does It Matter?
Because your net worth, one of the simplest ways to measure your financial health, is calculated by subtracting your liabilities from your assets.
It does not matter how much you earn or what kind of car you drive if your liabilities outweigh your assets. Ignoring liabilities is like sailing without checking for leaks. You may look like you are cruising, but eventually, you will sink.
Understanding your liabilities gives you the power to:
Make smarter spending choices
Know how much you actually own versus owe
Feel a sense of control over your financial future
How to Calculate Your Liabilities
Calculating your liabilities is refreshingly simple. List everything you owe.
Here is a breakdown:
Credit cards: Total outstanding balance
Student loans: What is remaining
Mortgage: The unpaid principal
Car loan: What you still owe
Medical debt: Any balances not paid off
Personal loans: Any amount still due
Add them up.
Total Liabilities = Sum of all your outstanding debts
Using an Example to Calculate Liabilities
Let us take Ann, a 32 year old nurse.
Here are her current debts:
$7,500 in credit card balance
$12,000 remaining on her car loan
$38,000 in student loans
$190,000 on her mortgage
Total Liabilities = $7,500 + $12,000 + $38,000 + $190,000 = $247,500
That is her total liability figure. On its own, it is just a number, but it is the first step in making it smaller, more manageable, and eventually, something she controls rather than fears.
A Transformation Story
Meet John, a 40 year old teacher who felt like he was drowning in debt. Between credit cards, medical bills, and an underwater mortgage, his liabilities had ballooned to nearly 300,000 dollars. He avoided looking at the numbers. He believed if he could just earn more, he would eventually dig himself out.
But more income did not solve the problem. What changed was his mindset.
John started by facing the numbers, writing down every single debt. He negotiated lower interest rates, refinanced his mortgage, sold a second car he did not need, and stopped using credit cards altogether. In five years, he cut his liabilities in half.
And perhaps more importantly, he no longer felt ashamed. He felt powerful.
Strategies to Minimize Your Liabilities
Track It Monthly. Liabilities should not be a mystery. Create a spreadsheet or use a financial app that gives you a clear view of what you owe.
Prioritize High Interest Debt. Attack credit cards first. These are often the most toxic liabilities due to high interest rates.
Automate Minimums and Snowball the Rest. Make minimum payments automatic. Then use any extra money to attack the smallest debt first (snowball method) or the highest interest (avalanche method).
Refinance Smartly. Lowering your interest rates on student loans or mortgages can significantly reduce your total liability over time.
Do Not Confuse Good Debt with a Free Pass. Yes, some debt can help build wealth, like a mortgage or student loans. But all liabilities must be managed with a clear repayment strategy.
Why This Is Important
Liabilities do not just affect your credit score or your budget. They shape your freedom.
Every dollar you owe is a dollar you do not control. And when your liabilities outpace your assets, your options shrink.
But when you actively understand and manage your liabilities, you create breathing room. You make space for choice. And you start building real wealth, not just the kind that looks good on paper, but the kind that buys you time, peace, and purpose.
Steps You Can Take to Get Started
Here are steps to manage and reduce your liabilities:
List all your debts, every single one
Find your total liabilities
Compare it to your assets to calculate your net worth
Choose a debt payoff strategy (snowball or avalanche)
Automate your minimum payments
Use windfalls or side income to crush your top priority debt
Track your progress monthly
Final Thoughts
Liabilities can feel heavy, but like any weight, they carry potential. Carried carelessly, they will break you. Carried with purpose, they will build you.
You do not have to do it all at once. You lift it one pound at a time, one payment at a time, one intentional decision at a time.
Facing your liabilities is not failure. It is power. It is the moment you stop running and start reclaiming control. And that moment is the first real step toward lasting financial freedom.
You are not stuck. You are just getting stronger.
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