5 Reasons You Should Get Out of Debt

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Have you thought about getting out of debt, but find very few reasons to actually do so? After all, getting out of debt would most likely mean selling the majority of your stuff. That doesn’t sound very fun does it? According to my research though, you’ll actually be happier without debt, and just to be thorough, I’ve got five main reasons you should get out of debt.

1) Avoid Those Interest Payments

Let’s use your house as an example. Let’s say you need to take out a $100,000 loan from the bank to make the purchase. If you decide to pay the minimum amount for the full 30 year term, guess how much you would actually pay for that loan? Drumroll……..$240,000!! And that’s with using a fairly low interest rate of 4.6%! What if you could pay that debt down after just a few years rather than 30. You could save yourself over $140,000. That’s a pretty huge savings.

You might not realize it, but this same pheonomenon is happening with your credit cards and car loans as well, but you never think about the long-term impact of these small charges. Let’s assume that you keep a $1,000 balance on your credit card each month. With an average credit interest rate of 15%, your monthly fee on this amount is only $12.50. Seems like peanuts, right? But what if you suddenly couldn’t pay that balance because of a personal emergency? After just six years, that $1,000 will turn into $2,000. Then in another six years it inflates to $4,000. Then $8,000… $16,000… $32,000. See how quickly debt can balloon on you? It’s best to just pay it off and avoid the potential disaster.

2) Increase Your Cash Flow For Investing

There are so many opportunities looming around out there, but many of us never see them because we have absolutely nothing to invest! There might be a real estate deal down the road, a new company that is sure to succeed, or an idea of yours that should be patented and produced, but since you’re in debt, you just continue to go to work and come home each day, barely able to think about anything else because of your lack of money.

Many of us live paycheck to paycheck. If, for whatever reason, one of those paychecks didn’t get deposited into our account, we would be in serious trouble. We wouldn’t be able to make the house payment, the car payment, the student loan payment, or the credit card payment.  What if we didn’t have all of these payments though? Cash would be abundant wouldn’t it? Each month, you would have an excess of about $2,000 to do whatever you pleased. What if you invested it? By investing $2k each month for just three years (and then contributing nothing after that), you would have $3,000,000 in 40 years. Isn’t that amazing! This is why I’m working to get out of debt and start hard-core investing.

3) Improve Your Credit Score

As much as I hate to admit it, our credit scores are important. Not only do you need to have a good score to get a home loan, but this score is also being used to judge your character. Did you know that your credit score might get pulled by your employer before they offer you a job? If they see a low score, they might question your morals or assume that you’re simple irresponsible.

To keep your credit score high, it is best to use your credit sparingly and pay off your balance in full every month. In other words, it’s best to get out of debt and only use credit for everyday purchases.

4) Decrease the Stress In Your Life

Which of these scenarios is more stressful?

  1. You lose your job, have only $150 in your bank account, and have $150,000 in loans. If you don’t pay, you will then lose your car, your furniture, and house.
  2. You lose your job, have $15,000 in the bank, and don’t have any debt whatsoever.

I don’t know about you, but I would definitely consider the first option to be the most stressful! The second scenario sounds so stress free that I probably wouldn’t even mind losing my job. I would have plenty of time to find another one, and who knows, maybe it will be an even better job than the one I had before!

5) Buffer Against Disaster

This has been indirectly mentioned in a few of the above reasons, but it is absolutely true isn’t it? If you depend on credit cards and short-term loans for your emergency situations, you are continually in the hole, always trying to dig your way out of disaster. If only the slightest thing goes wrong and you suddenly don’t have another way of borrowing money to cover yourself, you will start to lose some of your possessions. And not only that, but your credit will suffer, which might even inhibit you from renting an apartment. Debt is what makes people homeless. Don’t ever forget that.

Are you trying to get out of debt? What is your reason for doing so?

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Money

Derek

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

17 Comments

    • The freedom is great isn’t it? I have more cash flow now and I don’t ever have to be worried about the next bill that comes along because the cash is always there! 🙂

  1. Please give me ideas of ways to make money to pay down debt. I am stashing my credit cards and going to live strictly on my paycheck so I will need help. Also I am about to go through a divorce so I will be a single mom responsible for a 16 yr old and 9 yr old with one car . My 16 yr old is very active so I have to be available to watch the 9 yr old. Garage sales make less than $100 in my area and are really not worth the hassle. Please any ideas would be great. Really want out of debt.

  2. While I agree that getting out of debt reduces stress, I take issue with the examples you give in section 4 about stress. You could lose your job at any point while working your way out of debt, so it’s important to have a cushion/emergency account set up. And if someone only has $150 in the bank to begin with, it’s unlikely they’ll have too much extra cash to toss at their debts.

    • I certainly agree. I was merely saying that those that are in debt are typically strapped for cash. When digging your way out, it is certainly advised that one should build up a couple thousand dollar emergency fund (at minimum) before aggressively paying their way out of debt.

  3. Less debt does equal less stress. It also give you many more choices. Working to make the minimum payments is a recipe for disaster.
    Kim@Eyesonthedollar recently posted..Happy Labor Day!

    • It sure does! No that I’m out of debt, I am looking at more investments, so my money will actually be growing while everyone else’s is shrinking!

  4. Many of us really fell victim on credit card debts. I’m glad I still don’t have one myself, but I’m also thinking to get a credit card in the future, though, I’ll be sure to use it responsibly.
    Mark Ross recently posted..How To Choose The Best Business Location

    • Credit cards are a great tool, but you have to be very careful with them. I’d say that 90% of the population probably shouldn’t have one.

    • The reduced stress is amazing! It is so much easier to sleep at night!

  5. Decreasing the stress in my life was the biggest motivator for getting out of debt! I can’t wait to payoff my mortage and be completely debt free, it will be awesome!! Having extra money for investing is new to me but it’s a nice perk too.
    MonicaOnMoney recently posted..Free TV, Just Like It Used To Be

    • It’s a great reason to get yourself out of debt for sure. You can really think much more clearly about important decisions when debt isn’t hanging over your head!

  6. It has to be for the peace of mind! Debt does take a toll on ones emotion at some point, guilt may even set in of why you had to spend that much and be that much in debt.

    And two, being out of debt allows you to save and pounce on lucrative opportunities when they happen, you never have to miss out again 🙂
    Simon @ Modest Money recently posted..What Kind Of Broker Should I Use?

    • Simon. I like the way you think! I love the idea of getting out of debt and stacking up cash for those future opportunities. You are the man!


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