We live in a society that normalizes debt. A substantial number of American households carry a significant amount of it. Even those who you may assume simply earn more money than you may be maintaining their lifestyle via credit cards rather than a high salary. It can be tempting to pull out the plastic every time you want something that you haven’t saved up for and easy to think of those credit card invoices as simply another bill that comes in each month that isn’t any more disruptive than paying the utility bill. However, there are strategies that can help you shed these and other debts and good reasons to do so.
The Role of Interest
One of the big reasons to become debt-free is because interest can be so costly. In fact, if you aren’t careful, with certain types of loans, you can end up paying off nothing but the interest for years. This can be a big danger with such things as credit cards and student loans. This doesn’t just affect your finances in the here and now. When you’re putting money toward these bills, that’s less money that you could be investing in your retirement savings or other accounts to grow and compound in value over the decades ahead. Therefore, prioritizing paying this down will help you in both the long and the short run.
Credit Card Debt
Maybe you don’t really notice how much you owe on your credit card, or maybe you’re struggling to keep up with payments and watching your balance balloon out of control as interest keeps that number climbing. Whatever the case, this is one of the most important debts to get rid of so that you can put that money to better use. One smart approach is to look for a way to reduce the interest while you’re paying down what you owe. A strategy for doing this is with a personal loan. This might enable you to get rid of a debt that you’re paying 18%, 20% or even more in interest on for much more reasonable terms. You can review a guide that explains taking out a personal loan to pay off a credit card and why this might be the right solution for you to help you decide if you want to go this route.
Student Loans
Another big problem for many people can be student loans. Sometimes it is possible to refinance them, but as with credit cards, you need to prioritize paying them off so that you aren’t overwhelmed by interest. If you’re currently a student, you might want to look to whether there are options to have some of your loans paid off or forgiven based on the employment that you seek after graduation. In some fields, a portion of government loans will be forgiven if you take a public service position in a high-need area for a certain period of time. There are also some private employers who will offer assistance as part of their employee perks.
A Long-Term Strategy
In general, there are many benefits of being financially independent and aiming to be debt-free can be a smart strategy because it will leave you free of financial obligations that can hamper your ability to be more flexible in your choices of where you live and work and what you do. The one exception to this is your home mortgage, but some people prefer even to work hard to own their homes outright to avoid owing money to anyone. Switching your mindset from one in which you get what you want now and pay for it later to one in which you save up for the things that you want and have a financial cushion to cover the things you might need can seem constricting at first, but over time, you may find that it gives you more far more freedom.
Committing a certain amount of money to pay down debts each month and another sum toward an emergency fund for unexpected expenses can help you eventually live within your means. This can be difficult in the short term, but over the long term, you’ll end up with more disposable income and more money to invest for your future.
