Paying off Debt

Debt robs your present and steals from your future. Debt keeps you stuck in a cycle that makes it impossible to build wealth. Debt shoves your goals far off into the distant future. But people in debt sometimes can’t see all those things. They’re so caught up with being in debt that they can’t see a way out.

Here are 6 reasons to get out of debt:

1. Increase Your Financial Security

Debt is a serious threat to your financial security because it keeps you from making the most of your money. What you spend on debt payments could be stashed away for a rainy day, for your retirement, or for your kids’ college education. Once you become debt free, you’ll have more room in your budget to work on becoming financially secure.

2. Reduce the Stress in Your Life

Debt can lead to extra stress as you worry about how you’re going to cover all the debt payments and other living expenses. A little stress every once in a while isn’t harmful, but constant stress can lead to serious health issues including migraines and even heart attack. In some cases, becoming debt free can literally save your life.

3. Reduce the Number of Bills You Pay

The more people you owe, the more bills you have to keep up with and pay. Once you become debt free, you’ll have fewer bills coming in the mail every month. You’ll only have a few monthly expenses to worry about, things like utilities, insurance, and cell phone service—all expenses that don’t have minimum payments and interest charges and long-term obligations.

4. Own Your Assets

“Paying off debt gives you full control of your money. You get to own your assets.”

When you have a mortgage, you don’t own your home, the bank does. The same thing goes for your car and your auto loan. Being debt free means you own the house you live in, the car you drive, and the clothes you wear. Paying off your secured debts in particular means you don’t have to worry about the threat of foreclosure or repossession.

5. Increase Your Future Earnings

Whenever you take out a loan or charge something on a credit card, you’re simply borrowing from your future income. So, the $1,000 or $100,000 you spend today will be taken from what you earn in the days to come.

Truthfully, debt decreases your future standard of living, by giving you less money to live on than what you have today. Make the most of the income you expect to earn

Get Out of the Mercy of Your Lenders

As long as you have outstanding debt, you don’t get to make the decisions about your money; your lenders do. They decide how much you pay them and when you pay them. In some cases, they can increase your interest rate and minimum payment and give you less than two months to adjust your budget to fit them. Paying off your debt and becoming debt free puts you in complete control of your money.

HOW TO PAY OFF DEBT

The debt snowball method is a debt-reduction strategy where you pay off debt in order of smallest to largest, gaining momentum as you knock out each remaining balance. When the smallest debt is paid in full, you roll the minimum payment you were making on that debt into the next-smallest debt payment.

The debt snowball works because it’s all about changing your behavior. You don’t have to hold a math degree or have gone to business school to beat debt.

Here’s how it works:

Step 1: List your debts from smallest to largest regardless of interest rate.

Step 2: Make minimum payments on all your debts except the smallest.

Step 3: Pay as much as possible on your smallest debt.

Step 4: Repeat until each debt is paid in full.