Why You Should Pay Your Debt

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.

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.