PAY OFF YOUR DEBT

Photo Credit: Stefano Polio

Student loans, credit cards, mortgages, car loans, and all the other fun ways we can owe someone money are one of the biggest causes of stress and financial worry we ever face in life. Spending on credit feels like free money, but when the time rolls around to pay off that debt, it feels like theft, even though we’re entirely aware that we spent that money in the first place. Add interest to the situation, and it immediately jumps from bad to worse.

Let me preface this with the fact that I am in no way any kind of financial advisor. I’ve never considered myself great with money, but I can say I was lucky to learn some valuable lessons about credit and debt very early on. So please take my advice with a grain of salt while also knowing that what I’m recommending is pretty much what you’ll hear from any other person who actually has some background in this field.

The short answer is to make a habit of paying your debts on time and with the biggest possible payments. Easier said than done, right? However, if the payments you make to clear out your debt become bigger priority instead of an afterthought, it can make it easier.

Buying something on credit isn’t the problem, it just spreads out our payments for that thing. What really gets us is the interest which is simply the money we spend to let us spend money we don’t have. The faster you pay off the money you borrowed, the faster that interest goes away, and more often than not, the less interest you have to pay overall.

A quick breakdown: If I buy something on credit for $100 and my credit card has a 10% interest rate and a $10 per month minimum payment, if I only make the minimum payments, I’m going to have to pay an extra $10 in the end. (Yes, I know that math’s not perfect; it’s just an example) However, if I pay $100 on credit, and then turn around and immediately pay back the $100, I don’t have to pay that $10 interest cost, and it becomes almost no different than “delayed cash” which can really save people who are sometimes living paycheck to paycheck.

Don’t get caught up in the idea that credit is free money; it’s the opposite. Credit is money you pay to use and should be avoided whenever possible. Your best option is to pay off any remaining debt as fast as possible and try not to add any more if you can help it. This may require living extra frugally until you’re debt-free and for anyone struggling, I won’t lie, it’s going to be even harder.

I highly recommend setting all debt payments to be automated by your bank or that service to help take your mind off of the process. More importantly, I recommend paying as much as you can afford into that debt every single month until it’s gone. If your minimum payment is $50 a month, but you can swing a $100 payment, do it, even if it’s not every month. The amount of interest you won’t have to pay at the end is well worth the extra effort.

When you’re all done, cut up your credit cards and celebrate the incredible accomplishment of becoming debt-free.