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Why You Truly Need to Get Out of DebtIt’s nothing new to hear that if you’re in the red, you should make it a priority to get out of debt.

Let’s face it, debt sucks.  We all know it, but here in the U.S., we just can’t seem to stay away from it.

NerdWallet states that the average household that has credit card debt is carrying a balance of $15,654… ouch.

And that doesn’t even count other forms of debt – mortgages, car loans, student debt, etc.

Ok, so what?  Is it really that big of a deal?

If you’re in debt now and you’re reading blogs like Route to Retire, chances are you’re already working on digging yourself out.

However, I implore you to push yourself to get out of debt even faster.  Regardless of how you found your way into it, it’s something you need to find a way out from.

Not only can debt make your day-to-day life a little tougher, but it can also have a dramatic effect on your financial future.

 

Been there, done that…

Why You Truly Need to Get Out of Debt - Been there, done that...
I found my way into debt by being careless… and boy did I let the money fly!

I’m not here to judge – I’ve been there too.  I was almost $30,000 in credit card debt around the time I graduated college.

Hey, look at me – I beat the average!  Congrats to me… oh, wait – never mind – that’s not a good thing.

When I started my current job shortly before graduating in 1999, I was brought in to help fight the infamous and deadly Y2K bug… which turned out to be not so deadly.

However, it also turned out to be a great opportunity for me.  Not only did that open up a path for a heckuva long term of employment, but it also opened my eyes to the debt situation I was in.

How?  One of the software patches we were installing was for Quicken.  Intuit basically said, “Hey, if you’re running a really old version of Quicken that’s not Y2K compliant, we’ll give you the full version of Quicken 98 to at least upgrade to for free.”

I ended up installing it just to check it out and they gained a lifetime customer because of it.  This was before aggregate services like Mint or Personal Capital.  So this was the first time I actually saw all my finances in one place… and it wasn’t pretty.

Seeing how bad off I was depressing and made me feel guilty.  But that’s good because I turned that depression into anger and channeled it into finding a path to get out of debt.

Just like a lot of others are doing, I put my nose to the grind and worked my way out of it.  I then paid off my student loans and, once married, we knocked out my wife’s student loans as well.  Since then, we also decided not to buy things like new cars anymore either.

So now all we’re left with is our mortgage on our house, which we’re aiming to have paid off in the near future.  We also have one mortgage left on one of our rental houses.  However, that’s a different kind of debt since that debt makes us money, so I’m not too worried about that.

 

Why you should aim to get out of debt even faster

Why You Truly Need to Get Out of Debt - Why you should aim to get out of debt even faster
This is me aiming to get out debt faster… you should do the same.

Getting into debt is easy.  Getting out of debt is so-o-o-o-o slo-o-o-ow.  It’s like walking across a field filled with deep mud.  Your feet get stuck and each step is difficult, slow, and tiresome.  You feel like you’ll never get to the other side.

Working your way out of this mess needs to be a lifestyle change in how you move forward.  It becomes a matter of patience to climb out and along the way, you routinely feel like you’re just not getting anywhere.

But here’s the bigger problem with being in debt…

Even if you’re on the “road to recovery”, you have to realize that all that time it takes to get out of debt is time lost… and that’s the more unfortunate problem.

You’re losing time in which you could be building actual wealth.  You’re losing time where the magic of compounding interest could be working for you.

As I mentioned, the average amount of credit card debt hanging over the typical American’s head is $15,654.   The national average APR (credit card interest rate) in 2017 was 15.59%.

If you plug these numbers in a calculator like this one at CreditCards.com, you’ll see that it would take 215 months (that’s 17.92 years!!!!) to pay off your debt when making the minimum monthly payments.  You’d also be paying $11,586.48 in interest charges… hoofa!

However, that assumes your first minimum payment is $469.62 and it goes down after each payment along with your balance.  Let’s be more optimistic and say that you’re going to pay the $469.62 every month regardless of the minimum payment going down.

Bankrate’s calculator says you’d be paid off in 44 months.  That’s a lot of time (just shy of four years), but still better than the almost 18 of just paying the minimum payments.

Now imagine if you were able to sock that $469.62 away every month instead.  For giggles, let’s assume a 7% return stock market rate of return.  Investing that money every month for four years would yield you a stash of $25,813.98!

That’s almost $26k that will continue to grow and help build your future.  If you then just left that money alone and didn’t add any more to it, it would be worth around $100,000 in another 20 years.  Crazy, right?!

Instead, though, getting out of debt helps you break even and merely get yourself out of the red.  It’s still a feat to be commended, but it’s not a perfect finish line.

It sucks and I can relate.  I hate to think just how much further we could be ahead of we hadn’t missed out on that time that was wasted paying off consumer debt.

 

Don’t waste any more time

What to Do with Your Money Right Now
Every minute matters – get out of debt and build your financial future!

It’s easier said than done, but you need to get out of debt fast.

It might seem like you’ll never be able to dig yourself out, but you need to do it and you should strive to find a way to do it as fast as possible.

Whatever the reason is that got you into this mess, you need to come up with a plan to get yourself out.

I urge you to make some sacrifices to make it happen even faster.  Depending on your level of debt, that may be easy to do or it might require some major life changes.

Maybe cutting back on the low hanging fruit from your expenses could be all it takes to make a difference.  Small, yet important things like cutting out or reducing your cable package or looking at cheaper cell phone plans (we use Total Wireless and love it!) might suffice.

But if you’re further on down the slippery slope, it might be time to do some soul-searching and look at making some bigger decisions.  Focus on the big three: housing, transportation, and food.

Think about it – downsizing your house can be a hard idea to consider, but think about how much this could help your financial future!

Whatever changes you decide to implement might make you feel like you’re giving up on the things you’ve worked to attain.  But in all actuality, those changes will actually slingshot you much further ahead down the line financially.

 

Whether you’re hoping to pursue financial independence or too just tweak a few things in your life to improve your finances, debt is like the poison.

Avoid it like the plague and if you’re already in it, get yourself out as fast as you can.

 

Thanks for reading!!

— Jim

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Why You Truly Need to Get Out of Debt
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18 thoughts on “Why You Truly Need to Get Out of Debt

  • February 20, 2018 at 7:03 am
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    I think you hit it on the head, Jim. Debt is so bad because it holds you back from making investment gains. Right now I’m paying off a few emergency expenses from last year. Only minimums are going into my savings and retirement accounts. While my net worth is ‘increasing ‘ every month as I pay this debt down, I know there will be no investment income coming from this spent money. Hopefully I’ll be passed this stage fairly quickly.

    Reply
    • February 20, 2018 at 11:31 am
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      Always hard when the unexpected happens and throws a wrench in the works, but I’ve no doubt you’ll be back to continuing to fully fund your accounts soon. Good luck, Lady Dividend!

      — Jim

      Reply
  • February 20, 2018 at 12:45 pm
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    We’re so fortunate that we never had any big consumer debt. Mrs. RB40 owe a little student loan when she graduated, but she paid it back very quickly.
    The only debt we have now are the mortgages for our home and rentals. I’d like to get rid of those at some point, but I’m not in a huge hurry. More money to invest would be great. We’ll probably get rid of our rentals over the next 5 years and take the profit. It’s a lot of work.

    Reply
    • February 20, 2018 at 5:55 pm
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      Interesting on the rentals. I’ve considered it as well, but I do like having that hedge against the volatility of the stock market.

      — Jim

      Reply
  • February 21, 2018 at 11:32 am
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    Good post on debt. One thing that amazed me was that, once we paid the last of the home mortgage off, suddenly life seemed to alter dramatically. Suddenly the numbers leading to retirement seemed to fall into line, and we really good set a specific date. The debt had added an additional “weight” (like you talked about above) which psychologically was keeping us from breaking free. We had to keep working, because we had this debt.

    In addition, for many folks looking to use the ACA medical supplement money for their health care, it is based on your modified gross income. If you have to have money coming in to pay off a mortgage, this gross income need may place you outside the boundaries for reimbursement. Better to pay off the debt!

    Reply
    • February 21, 2018 at 4:44 pm
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      I could only imagine that weight lifted once your mortgage is paid off – fantastic!

      That’s something I never thought of on the income and ACA money. Another incentive to get everything paid off!

      — Jim

      Reply
  • February 21, 2018 at 12:10 pm
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    Two Great points:

    1) You realized it when you started tracking it.
    2) Payoff that debt FAST. You’re losing compounding opportunity, and you’ll never get it back.

    Words from the wise. Folks would be smart to listen.

    Reply
    • February 21, 2018 at 4:48 pm
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      Damn, Fritz – I think you just summarized my whole post in two bullet points… you’re good! 🙂

      — Jim

      Reply
  • February 22, 2018 at 1:33 pm
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    I know it is proverbial but being in debt is like being a bit of a slave. Again, more symbolically than anything else, but I don’t want to be beholden to a bank. I am fine with my family, my community, my country, even government to an extent, but not a bank or other corporate entity.

    Reply
  • February 25, 2018 at 9:05 am
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    You nailed it. Debt is so easy (and normally more fun) to get into.

    It takes a lot more time and effort to get out of it. It’ll be painful but if you come up with a plan and stick to it, you can crush your debt.

    Reply
    • February 25, 2018 at 8:29 pm
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      It’s definitely more fun to get into, but looking back at the mess created takes away from it all! 😉

      — Jim

      Reply
  • February 26, 2018 at 12:03 pm
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    It’s amazing that people have so much credit card debt. Amazing to me at least!

    I’ve never carried a balance on my credit card, so the idea is very foreign. I did have student loans though, and once I graduated I paid them off as quickly as possible.

    Seemed like a good investment 🙂

    Reply
    • February 26, 2018 at 3:51 pm
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      Very impressive, Mr. Tako – I should have hung out and learned from you in my college days! You could have helped me save a fortune! 😉

      — Jim

      Reply
  • March 5, 2018 at 3:42 pm
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    Great article Jim, some good points here. I came by after hearing you on the DYEB podcast. Love the simple site design too. I’ll be back!

    Reply
    • March 5, 2018 at 9:19 pm
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      Haha, real funny on the simple site design, Mike… love it! 🙂

      Glad you stopped by – hope to see you here more often!

      — Jim

      Reply
      • March 5, 2018 at 11:13 pm
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        I meant it! My site design is simple on purpose. I’m not a designer and it’s too easy to screw up a complex design – simple resonates with almost everybody.

        Reply
        • March 6, 2018 at 10:46 am
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          Oh, I thought you were making a joke based off of what Pete said during the podcast. In that case… thanks! 🙂

          — Jim

          Reply

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