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Why You Should Pay Your Debt

jeremyr
jeremyr Updated: June 26, 2023 • 6 min read
Getting out of debt

At the end of every year, many of us sit down and write out our resolutions for the next 12 months. Some take the opportunity to focus on improving health related issues like committing to a balanced diet or exercise regimen others focus on completing a project which has long since been on the backburner.  While there are plenty who set fiscal goals for themselves, all too few set their sights on making a move towards meeting their financial obligations and going debt free, even though it will drastically improve their chances to succeed in the future.

Best Debt Consoliodation

What About the United States

In fact, in the United States it seems like fewer people understand the importance of paying down debt. At the end of 2019, US consumers owed just under one trillion dollars in credit card debt alone. Even worse, many people drag debt from their days at college with student debt becoming the second highest form of debt in the US. With all of that debt and its compounding interest, perhaps the best path to success isn’t just saving more and spending less, but also to paying off what you owe.

How Debt Impacts Your Life

Unfortunately, living in debt is a fact of life for so many across the United States, from a relatively early age. A high percentage of college graduates carry around student debt for years or even decades. This burden and achieving the goal of living debt free is one which eludes up to 42 million Americans  who owe a cumulative total of $1.5 trillion in student debt alone.

To make matters worse, while adjusted for inflation, wages have stayed pretty much the same over the last 40 years while the costs for property, medical services and higher education have skyrocketed. This means more people are relying on debt to make ends meet. Now, nearly half of adults in the United States, some 47%, have some sort of credit card debt, according to a recent survey by CreditCards.com. The average debt per household is over $6,000.

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Taking on more debt can have an immediate effect on you and your family in many different ways.

  1. Your credit score will take a hit – There’s a limit on credit card debt. When you reach that limit or come close to it, your credit score will drop which could lead to higher interest rates and eroding your financial security.
  2. You’ll be paying more interest every month – credit cards are by far the most popular types to debt but the interest rates are very high with the average at around 17.4% APR. With that kind of return, borrowers will find themselves paying more for interest out of their salaries every month.
  3. Prevent you from spending on the items you really want - The interest from that high monthly payment will take away that option, at least without getting further into debt. When you end up debt free, you’ll have more funds to buy things you truly enjoy.
  4. Stop you from expanding - the more debt you take on, the less likely you’ll be able to get additional capital and branch out into new ventures such as a business loan or exploring debt consolidation options.
  5. Falling prey to a bad loan deal – many people don’t do their homework when it comes to personal loans. There are a lot of offers for debt consolidation loans on the market but most aren’t exactly what’s right for you meaning you might miss your financial goals. All the more reason to read our blog on what mistakes to avoid when looking for a personal loan.
  6. Increasing you stress levels – financial anxiety can be the direct result of not earning enough money, the piling up of ongoing expenses or worrying about credit. We should all aim for reducing stress levels which have been shown to be a serious physical and mental health risk. In the aforementioned CreditCards.com survey, nearly half of debtors say they are stressed about their current credit cards balance.

Financial stress is particularly pertinent to long term monetary commitments such as student debt. These kinds of loans are easy to refinance as you can read about here.

The 2020 Factor

The year 2020 has been a tumultuous one, due to the COVID 19 pandemic. This has translated into 42% of Americans increasing their credit card debt.  According to the CreditCard.com study, some 23 percent of adults have added to their debt during the pandemic. This applies especially to younger people with 34 percent of millennials saying they have increased their debt balance.

The crisis has also brought ballooning unemployment, furthering to weaken the national and global economy. This uncertainty which hangs over the heads of many in the US has triggered a shift in consumer behavior. Despite the circumstances, most Americans do not plan on cancelling a credit card, with almost 40 percent of people saying they only use cards when making a purchase. This is, in part, due to the skyrocketing online commerce, necessitated by brick and mortar stores closing, long lockdowns and other restrictions.

There’s also a demographic component in extending your debt limits. Turns out city dwellers are stretching their credit card debt about 39 percent more than in pre-pandemic times as compared to suburban or rural residents who have expanded the use of their cards by 25 and 22 percent respectfully.

Holiday Season Debt

We’re now on the cusp of Black Friday and the 2020 holiday season and retailers find themselves on edge. As the pandemic still rages in many parts of the US, they’re not sure how consumer spending is going to pan out in November and December. Before the outbreak, the holidays meant a large jump in personal debt. In 2019, individuals and families racked up an additional $1,325 in holiday debt  on average which, for the most part, took one to three months to pay off while sixteen percent took 5 months or more to repay it.

Is this a good time to look into going debt free? Maybe it is. This year, due to the COVID outbreak, there very well might be fewer family gatherings, fewer people getting on planes and therefore fewer gifts to buy and expenses. In some cases, that is bound to lead to an opportunity for a reduction of credit card debt on one level or another.

 

The Debt Free Resolution

What can debt consolidation and reduction mean for each and every consumer?

Well, first of all it means that you won’t have to be at the mercy of the credit card companies or other lenders.  They are the ones calling the shots, deciding how much you pay each month and what the interest rate on your credit will be. In some cases they can raise your minimum payment or interest level with just a couple of months’ notice.

Secondly, you have a chance to own your own assets. When you take out a car loan, the vehicle is used as collateral and can be repossessed if you default. The same applies with a property and mortgage. When collateral is part of the equation, this is called a secure debt, When you pay off a secure debt, the asset belongs to you to do with as you see fit without the threat of foreclosure or repossession.

These advantages and others we previously alluded to all translate into freedom. Financial freedom and a debt free life - stopping to borrow against the monies you are supposed to make in the future. That’s what happens every time you take out a loan or pay the minimum charge on your credit card. You are pawning your income over the next several months or years. This is part of a vicious cycle which not only places every borrower in a financial hole and also decreases their standard of living both in the present and the future.

So as we approach the holiday season and the end of what everyone will agree has been an extremely challenging year, perhaps it’s time to make a resolution to change in how you manage debt and reduce it in your household.

Best Debt consoliodation

jeremyr
Written by jeremyr

Jeremy is a freelance writer and a 20-year veteran in the communications and content industry, with years of experience writing for esteemed financial outlets.