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?
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.
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.
source: lifeandmyfinances.com
