You might have a house, a car and some money in savings, but how much of it do you actually own?
That’s where net worth comes in. It’s not just a financial buzzword. Think of your net worth as a snapshot of your financial present — it’s a simple way to take an objective look at what you’re doing with your money.
This guide will help you understand how debt affects your net worth, why that number matters and what to do if your assets’ values are lower than you’d like (or even negative).
What Is Net Worth (And Why Should You Care)?
Your net worth is everything you own, minus everything you owe. The formula is dead simple: Assets – Liabilities = Net Worth. But to get a precise answer of your financial standing, let’s break down what you need to count.
What are my Assets?
Assets are the things you own that have value, like:
- Money in checking or savings accounts
- Retirement accounts, like a 401(k) or IRA
- Your house or the part of it you’ve paid off
- Your car and other vehicles
- Other property or valuables (Think art, jewelry, antiques, etc.)
What Counts as a Liability?
Liabilities are debts – money you owe. That includes:
- Your mortgage
- Car, boat or other vehicle loans
- Credit card balances
- Student loans
- Personal loans
- Medical bills
Wait, Where’s my Income?
Your income does not count toward your net worth unless you’ve saved or invested it. A big paycheck doesn’t matter much if it all goes right back out!
How Debt Shrinks Your Net Worth
Even if you have valuable assets, debt chips away at what’s really yours. But not all debts are created equal.
The Value of Secured vs. Unsecured Debts
There are two different kinds of debt: Secured and unsecured. Secured debts are those that have material collateral. If you were to stop paying your mortgage or car loan, your lender could repossess “your” property to account for the lost payments. But if you remain in good standing and pay down these debts, you begin to “own” the thing you borrowed money to buy — this is called equity. And it’s the only part that adds to your net worth.
For example:
- Your car is worth $30,000 but you owe $25,000 on the loan → Your net worth from the car is only $5,000
- Your home is valued at $300,000 and your mortgage balance is $280,000 → You have just $20,000 in home equity
Unsecured debts are those that are backed by an agreement of repayment. Creditors will look at your credit score and decide if you’re trustworthy enough to take out a personal loan, or open a new credit card.
What About Student Loans?
In the United States, student loans are technically considered unsecured debts, but they’re distinct in a few major ways.
Both the federal government and private lenders offer student loans. Federal loans are backed by the government, and have multiple repayment plans that adjust to different financial situations. Private loan holders may be able to negotiate better rates for their accounts, though financial relief options are more limited.
Federal student loans have no statute of limitations — so unlike other unsecured debts, there is no way to “run out the clock” on your obligation to pay. They’re even difficult to discharge in bankruptcy. Your student loans can therefore be a long-term weight against growing your net worth, and paying them off can significantly free up your investment options.
What if Your Net Worth is Negative?
First off — don’t panic. Having a negative net worth just means you owe more than you own, and it’s more common than you think. Falling into the negative can happen when:
- You take on loans before building savings
- You’re hit with large medical bills
- You lose a job and fall behind on payments
It can feel like a setback, but here’s the truth: Net worth is just a number, and numbers can change. It’s not your worth as a person. What matters most is the direction you’re going — not where you start!
How to Track Your Net Worth
Seeing your progress can motivate you further, and you don’t need fancy tools to get started.
Option 1: Use a Spreadsheet
Create two columns: One for assets and one for debts. Add it up and subtract to find your total. Update it once every few months and track your progress.
Option 2: Try a Free Net Worth App
Commonly-suggested apps like Mint, NerdWallet and Empower connect to your accounts and show your net worth in real time.
How to Raise Your Net Worth
You don’t need a windfall to build wealth. Like all great journeys, this one also begins with one step.
Step 1: Pay Down High-Interest Debt First
Credit cards usually have high interest rates, which means they can drain your net worth quickly. Focus on knocking these out first — it frees up money and improves your overall financial picture.
Step 2: Build an Emergency Fund
Even a small savings cushion makes a difference. Aim for $500–$1,000 to start: This prevents you from turning to credit cards the next time an emergency hits. And it counts as an asset!
Step 3: Avoid Buying “Assets” That Lose Value
A brand-new car? It loses thousands the minute you drive it off the lot. Buying a solid, used car can do the same job and save you a ton in interest. As much as you can, pay in full for assets that lose value as they age — vehicles especially.
Step 4: Grow Assets That Gain Value
Things like retirement accounts, investment portfolios and home equity build your net worth in the long-term. You don’t need a lot to start — just make consistent deposits and watch the magic of compound interest.
Step 5: Celebrate the Small Wins
Pay off a credit card? Add it to your net worth tracker. Savings hit a new high? Mark it down. Progress builds momentum!
When to Ask for Help
Money is personal, and it can be confusing. It’s always in your best interest to understand what you want — and that means it’s always okay to get support.
Talk to a Financial Coach or Advisor If:
- You’re unsure how to balance paying off debt vs. saving
- You don’t know where to start
- You want a plan for long-term financial growth
And If Debt Is Holding You Back?
Debt consolidation can be a solid option for anyone with unsecured debts over $10,000. If credit cards, medical bills or personal loans are taking up your whole budget, enrolling in a debt consolidation program might be a way to gain instant flexibility in your budget — and put you on track to get debt-free, faster.
How Debt Consolidation Works:
- Combine multiple eligible bills into one lower monthly payment
- Pay off debt faster, typically in 24–48 months
- Free up cash so you can save more and grow your net worth
Even if your net worth is negative right now, it’s not forever. Every dollar saved, every debt paid down, and every smart money move makes a difference. And we’re here to help you move forward: Get a free quote from Accredited Debt Relief, and see how much you can save today.