People today are living with more debt than ever before. In the US, the average household owes $8,000 in debt on credit cards, student loans, and other forms of revolving debt.
This includes mortgages, car loans, and personal loans. The problem with this isn’t only that it adds up to a lot of money for those who can’t repay their debts in full.
It’s also that paying off your debt early is not always a good idea. Here are some pros and cons of paying off your debt early.
What is the difference between paying off your debt and cutting your debt?
Paying off your debt doesn’t always mean that you’re actually paying down your total debt. For example, when you pay off a credit card, you’re not actually reducing the amount of money that is owed on that card.
So, if you were to pay off $10,000 in credit card debt early with the intention of completely paying it off, by the time you’ve paid it all down, you may have accumulated another $10,000 in debt on other cards.
Most experts recommend paying down your total debt as quickly as possible. This means that instead of just getting rid of one credit card balance or one loan and then adding more new ones to it again, you should focus on paying them all off in full at once.
This way, it’ll be easier to see progress and maintain momentum.
Pros of Paying Off Your Debt Early
Some people decide to pay off their debt early because they believe it will allow them to live more comfortably.
Paying off your debt early also gives you more time and flexibility to spend money on other things with the money you would have spent paying your loans back.
Cons of Paying Off Your Debt Early
The cons of paying off your debt early are mainly that it takes longer to save up for other things, like a vacation or new car.
However, the long-term benefits of repaying your debt early outweigh the short-term pain.
The pros of paying off your debt early are that you’ll be able to afford more luxuries in life, like eating out at fancy restaurants and buying expensive clothes. This is because you’ll have more money to put towards those purchases.
What is debt?
Debt is money owed to those who lend it, such as a bank, credit card company, or anyone else who allows you to borrow money in the form of a loan.
There are two types of debt: secured and unsecured. Secured debts are considered loans, where you pledge something of yours like your house or car as collateral for the loan.
Unsecured debts are not loans but rather personal loans like credit cards. There is also a third type of debt: mortgage debt which is secured by property that you own.
While there are many benefits to paying off your debt early, it can also be costly and there are some risks to consider.
Whether you’re thinking of paying off your debt or cutting your debt, you should always weigh the pros and cons before you take any action.
10 Steps to Get Out of Debt and Become Financially Independent
The average person has literally no idea how to get out of debt. There’s a lot of bad advice out there, and people are often too embarrassed to ask for help.
But getting into debt doesn’t have to be your life sentence – there are plenty of ways you can get back on track financially and live a more fulfilling life with more personal freedom.
Here are ten simple steps anyone can take to find their way out of crippling debt and take control of their money once again.
Track your spending
The first step to getting out of debt is to understand where your money goes. You need to track your spending for a few months in order to figure out what you’re actually spending your money on, and how much you can realistically cut back.
It’s also important that you get rid of any credit cards or loans you currently have before you start trying to improve your financial situation. You should only use the cash in your wallet – and avoid charging anything unless it’s an emergency.
Get a Simple Budget
The first step in getting out of debt is to get a simple budget. You’ll need to know how much you’re spending every day, and where your money is going.
But don’t worry – this doesn’t require any fancy math skills or complicated software. Write your income down on the left hand side of a sheet of paper, and list all your expenses for the month on the right hand side.
Then add up the totals of both columns and see how much you can spend each day on essentials like groceries, gas, rent and utilities.
When you have a basic idea of how much money you’ll have to work with each month, you can start living within that amount rather than spending what seems like unlimited funds every day. It’s amazing how quickly we can get out of control when we don’t know what our true budget is!