If you’re a longtime visitor of this blog, you know we’re not fans of debt. It keeps you enslaved to someone else and holds you back from a strong financial future! With that said, here’s a rundown of some of the top reasons why it’s important to pay off debt.
Why Is It Important to Pay Off Debt?
This post was written by our guest writer, Kate Underwood. If you want some extra help getting out of debt, be sure to check out our free debt snowball tool!
1) It Is Your Responsibility
First of all, let’s address the obvious: if you have debt, that means somewhere along the way, you signed an agreement that said you would eventually repay it. Why is it important to pay off debt? Because you owe the money!
Yes, there are a few rare occasions when someone has gotten pulled into a debt situation somewhat due to someone else’s mistake. But for the most part, your debt is your legal obligation to repay.
I don’t know about you, but if someone pays for something that benefits me, I won’t sleep soundly at night until I’ve paid it back. It just doesn’t feel right.
So there’s a clear reason for paying off debt: you owe the money. You’re responsible for the total amount due, so fulfill your obligations and pay it back.
2) It Gives You A Sense of Pride
Why is it important to pay off debt? Well, paying off the last of a loan should give you a sense of pride. If reminds you that you’re a person of integrity, and one who follows through on their promises.
When you’ve held onto debt, it can feel like a heavy weight around your shoulders. But paying it off provides a feeling of accomplishment. You’ve done something that not everyone has done before!
- Imagine your debt came in the form of student loans. Once you’ve paid them back in full, you have a sense of ownership regarding your education. Your degree fully belongs to you.
- Likewise, paying off a mortgage (I’ve heard) gives people an amazing sense of pride. That feeling of ownership can’t be beat. I can’t wait to pay off my house, slip off my shoes, and walk around the yard to feel the grass beneath my feet. What a rush that will be!
No matter what your debts consist of, paying them off will give you an enormous sense of pride. You’ll know that what you own is truly yours. That’s worth the pain of hard work over time to get rid of your debt.
3) Paying Off Debt Reduces The Interest You Owe
It’s important to pay off debt because the longer you keep it, the more interest will continue to accrue. You can run simple calculators to see how much you’d pay over the life of a loan if you paid it off over various timelines.
You’ll pay more in interest fees the longer the amount of time you remain in debt. And yes, some types of interest are tax-deductible, but that doesn’t mean you should just stay in debt!
- If you go for the debt snowball method, you can pay off the debt with the lowest total balance first, to give yourself momentum. There’s a lot to be said for the emotional side of money. We like to see progress!
- If you prefer, go after your highest-interest debts first to decrease the total amount you’ll pay. Mathematically, this may make sense, but tons of people swear by the debt snowball because they know our hearts don’t always follow the math.
Debt holds you back from building significant wealth. When you calculate your net worth, all debts are subtracted from all of your assets. So however much your debt total may be, it’s lowering your net worth.
Why is it important to pay off debt, then?
You can’t exactly increase your wealth while you’re still stuck making payments on your:
- your college education, or
- your credit card.
If you have debt, you’ll always owe the first part of your paycheck to someone else.
On the contrary, once you’ve destroyed your debt once and for all, the potential for growth and wealth-building is incredible.
Just think: that $500 or $1,000 payment that used to go to lenders… You can immediately start to put that amount into retirement accounts or use it to help you purchase a rental property.
Every dollar you’re putting towards debt could be so much more impactful in building wealth. So that’s why you want to quit being trapped in a cycle of debt!
5) Paying Off Debt Gives You Options
Are you still wondering, “Why is it important to pay off debt?” This one’s a biggie: paying off debt opens up SO many options!
Tons of people are held back by the shackles of their debts. But when you repay all of your debt, brand-new choices open up in your life.
For example, when I realized I wanted to quit my job for a few years to stay home with my kids, it was possible ONLY because we didn’t have debt.
- My student loans were gone,
- we didn’t have vehicle loans, and
- our expenses were reasonable.
Having debt paid off opened up a world of possibilities for our family.
Whatever your dream is, I can guarantee it’ll be easier without debt.
- You may want to quit your day job to start a small business.
Or perhaps take a year to travel the country in an RV (that’s one of my big dreams!)
- Maybe your dream is to invest heavily in the future so you can retire early–how cool would that be?
The potential for pursuing your dreams breaks wide open once you’re not limited by debt. So that’s another key reason why it’s so important to pay off debt.
Why Is It Important to Pay Off Debt – For You!!
Think of the ways debt is holding you back from your best life. No matter why you took on debt, it’s time to take charge and get rid of it forever!
Fulfilling your obligations, feeling a sense of pride, building wealth, and creating options for yourself are all powerful motivators for destroying debt. So get after it, starting today!
AUTHOR Derek Sall
Derek has a Bachelor's degree in Finance and a Master's in Business. As a finance manager in the corporate world, he regularly identified and solved problems at the C-suite level. Today, Derek isn't interested in helping big companies. Instead, he's helping individuals win financially--one email, one article, one person at a time.