If you’re swimming in debt, you probably already know the basics of how to get out — you simply have to cut back on expenses and put that extra money toward your debt. Of course, if that was so easy to do, fewer people would be in debt.
Reducing your debt is a bit of a mental exercise. You have to want to be out of debt more than you want the shiny new object you have your eye on. You have to want to be out of debt enough to take on that second job. You have to want to be out of debt enough to make the commitment. Without a good reason to change your behaviors, you won’t get very far. Find inspiration in the following reasons to focus on debt management.
Paying Less Money
When you buy something with credit or by taking out a loan, it costs more than buying the item outright because you’re also paying interest on the item. Most people know this when they make the decision to buy something on credit, but what you may not realize is just how much more you end up paying for the item. This is especially true for people with bad credit, who have to pay higher interest rates. For instance, Bankrate.com shows an example of the difference between a person paying the typical auto loan rate of 4.26 percent and someone paying a subprime rate of 13 percent. Over 5 years, there would be a difference of about $5,000 between the two borrowers.
Having more for the Things You Really Want
When you have too much debt, you simply can’t afford many of the little extras that others take for granted. You can’t take your kids on a trip to Disney World. You can’t go out to see the latest movie or try the new restaurant in town. All of your money is tied up in repaying your debt. However, once you’ve paid off that debt, you’ll have a lot of extra money to do what you want to do. For many people, this equates to several hundred dollars a month.
Being in debt can be stressful. You’re worried about whether you’ll have enough money for groceries at the end of the month. You know that your life can be ruined by a medical emergency or a broken-down car. You’re afraid to answer the phone because you know it’s just another debt collector. According to an article in WebMD, this stress can also negatively affect your health, increasing the frequency of illness and even causing major problems like heart attacks. As you reduce your debt, you’ll also reduce this stress in your life.
Better Credit Score
The two biggest factors in determining your credit score are your on-time payments and the ratio of debt you have to available credit, according to Consumers Alliance Processing Corporation. As you reduce your debt, your credit score will start to rise. While getting a new loan may be the furthest thing from your mind right now, you’ll qualify for better rates the next time you need to apply for something. A better credit score can also help you get into a new apartment, get a new job or get better rates on your insurance.
Get Better Things
One of the biggest traps of being in debt is being unable to buy things that are better quality. For instance, a pair of boots from L.L. Bean might cost significantly more than a pair of boots from your local big box store, but they’ll last several years instead of a single season. In many cases, being able to afford the extra money for a higher-quality product means that you spend less overall. When you’re debt-free, you won’t have to think twice about making these types of choices.
Setting a Good Example
Kids follow the examples their parents set. If you’re living paycheck-to-paycheck, those are the types of habits your children are going to pick up. They won’t see you saving up for big purchases or saving for retirement. They’ll think that everyone incurs debt and struggles to pay it off. If you work hard to get out of debt, then show your children how to save up for the things you want, they may never go into debt at all.
Living Without Fear
As you become debt-free, you’ll find that you’re less afraid of financial uncertainty. If your car breaks down, you have money in an emergency savings account to pay for the repairs. You’ll no longer be afraid that the banks will turn you down when you apply for an auto loan or a mortgage refinance. In short, your life starts to feel brighter.
Getting out of debt can be a struggle. It requires a commitment on your part. However, when you have enough reasons to make it through the hard times, you’ll start to see that light at the end of the tunnel.