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“It’s just a coffee, four bucks isn’t going to break the bank.” “It’s just a car loan, I’ll pay it off and be out of debt in no time.” Does this sound familiar?
We have been consumed by this concept that money management isn’t a big deal, as long as we can get what we want. Most people think that as time goes along, they will magically pay off their debts and find financial freedom, but that doesn’t seem to be the case. When it comes to debt, Americans are drowning! In fact, people from the age of 45 to 54 reported the most debt, coming in with an average of $134,600. Now, I don’t know about you but that scares me!
So what is my point here? Sometimes I talk about making and saving money, but we’ve never really discussed why it’s so important to get out of debt and how to get started. So let’s talk about it. Here are six ways that debt affects your life.
Make sure to grab the Get Out of Debt Gameplan from my freebie page so that you can eliminate this problem altogether! (Need the password?)
1. Debt Causes Stress
Debt takes a toll on your health and wellbeing. The stress of not having control, and endlessly owing money can affect relationships by creating a gap in communication and pressure to perform.
It can also cause medical conditions. Stress can affect your blood pressure, cause ulcers, create fatigue and more. It is not uncommon to work a strenuous amount of time in order to keep up with those minimum payments, either. I want more for you.
If you get rid of your debt, you will be eliminating the need to overwork yourself and relieve the stress of paying so many bills, making life easier.
2. Debt Keeps You From Living Your Dream Life
The reality? We pay for our money with our time. When most people go to work, they are trading hours for dollars. Even if you are lucky enough to have a job that isn’t paid for with hours, you are still investing energy into making a living.
I don’t know about you, but if I’m spending pieces of life, I want it to be on things that we really want. Not mindless purchases of things like snacks at the gas station that are now accumulating interest.
Getting serious about eliminating debt asap will enable you to create that dream life that you want. If you aren’t strapped with minimum payments, you can buy that gorgeous house, take those vacations, or drive those dream cars because the money that you make will be free to put towards the important things.
Being more mindful of your purchases will impact your life in many ways, and one of them is by helping to eliminate debt and find fulfillment.
3. Debt Grows Quickly
There is a really good reason that focusing on getting out of debt will ultimately change your life. It can be summed up in one word: interest. Yes! Interest, this nasty little agreement that is written into every loan and financial agreement is making a bigger difference on your income than you think.
I remember the first time I received a credit card statement, and the interest charge was only about $10. I thought to myself, ‘Why is everyone freaking out about this?’. Well, if you have wondered the same thing, I want to show you how to figure out what your interest is actually going to cost you down the road.
4. Debt and the Rule of 72
We can find how much interest is actually costing or returning on each loan with a very simple formula. This is one of the most basic financial concepts, but it is typically used for the return of interest. However, it works just as well for calculating debt interest, and it will offer a mind-blowing perspective!
First, find the percentage of your interest rate, then plug it into this simple formula:
72 / % rate = How many years your money will take to double.
For example, you have $1,000 in credit card debt at an interest rate of 25%. Plug the numbers into the rule of 72:
Your debt will be doubled in about three years if you just pay the minimum payment. Can you imagine going from one thousand dollars to two thousand dollars and not even getting anything from it? That would suck right?!
You might be thinking that one thousand dollars would be relatively realistic to pay off. But, if you take a look at the national credit card debt average of $5,700, this concept becomes a bit more relevant. I think it’s safe to say that the majority of people don’t have that kind of money lying around, especially not people that are in consumer debt like credit cards in the first place. That is why it is so important to get out of debt as soon as possible!
5. Debt Controls Your Finances
When you are stuck with a ton of high-interest debt, it grows quickly. Unless you get a handle on the situation by controlling your spending and creating a debt-free plan, then you will find yourself on a hamster wheel.
These payments will likely never go away without extra effort. Over time you will find your life being controlled by bills without ever getting anything out of it. When lack of money controls your finances, you will definitely not be living the life that you desire.
If you eliminate your debt now, then you will be more likely to achieve that life later on.
6. Debt Can Hurt Your Credit Score
Debt can hurt your credit and even prevent you from getting loans. When you have credit cards that are racked up with charges, it looks like you can’t afford to pay the money back or don’t manage what you have well, making lenders hesitant to take the risk.
Having a lower credit score will also affect your interest rate on a loan, ultimately making it cost much more over time. A low score may even make it impossible for you to get a loan in the first place.
To combat this, try to get your credit card balance down to a third of your limit, or consider using debt consolidation to climb out of high balances more quickly.
7. Debt Can Keep You From Creating A Secure Future
When you have a mountain of debt, it takes time to get rid of it. You know what else takes time? Growing a retirement fund. If you take the Rule of 72 and use it to figure out a retirement plan, it is clear that the sooner you begin stashing money, the better off you will be. You don’t actually have to start with a lot of money in order to retire wealthy. What you really need is time.
However, does it make sense to stash money at a lower rate than you are paying interest for on your debts? That is the question, and it is one that can only be answered by you.
Many people believe that you should only focus on paying your debt off, then begin to save for retirement. This is a really valid method, but only if you are dedicated and keep going until you are debt free.
If you struggle to keep your debt in check and have no plans to change, I would recommend putting money into a retirement account. It’s better than wasting it on random impulse buys, right?!
Either way, the more money you set aside for retirement asap, the more it will grow, and the better off you will be later in life(with less effort!). Having no debt means you can set aside more money. It’s the ideal solution!
How To Start Paying Off Your Debt
Getting out of debt will not happen without effort. Plain and simple. But that effort will be worth it! Ultimately, getting out of debt is more achievable than you think. It all starts with a mindset shift. Understanding how debt is affecting your life means that you can begin to take back control. Decide what is worth your time and money. Then keep your eyes on the prize towards financial freedom and being debt free.
Don’t forget to grab the Get Out of Debt Gameplan before you go. If you need the password to the freebie section, you can get it below!