If you have been following along with my journey, chances are you probably already have learned that I am constantly on the look out for financial tips and strategies to improve my financial abilities and the financial stability of my family. One common thread though out my writings, is the continual mention of ‘debt’ and ‘savings’.
I have been looking more thoroughly at the amount of debt we have been carrying and the various ways to counteract this growing problem. There are many reasons, in which I have come across that suggest that paying off your debt should be your a top priority and therefore, I want to look at 3 specific reasons that reinforce this perspective.
1) Relieving Stress
Let’s face it, having debt can cause a whole lot of stress! This reason alone is enough to convince most people that by paying off your debts, you will sleep much better at night and enjoy the daylight hours with even more. However, even though this may seem somewhat obvious, why do we still avoid paying off debt? Albeit sometimes, we simply can’t pay off the debts at that specific time, although sometimes we do choose to use our money in other areas.
There are numerous reasons for this, however, often times, I would say we feel that the money would be better spent elsewhere. While, necessities are well – necessities and we can’t do without them – we still do find ways to avoid getting rid of those debts and still sending our money off in plenty of other directions.
So maybe it is important to try and gain a better understanding of how paying off debts actually will benefit us in the long-run. The reality is, by freeing up monthly debt payments- we will actually have more saved income down the road to work with. Having money for emergency type situations, can definitely be both a bonus and a comfort.
2) Saving versus Paying off Debt and Interest
This point is not by any means meant to downplay the importance of saving. On the contrary, it is meant to focus on the timelines of when to save versus when to pay off your debts. For example, if you find you have some extra money and are deciding whether to save it for a rainy versus making an additional credit card payment – it really is a matter of timing and the order in which you make these decisive transactions.
If you do have looming debts, it could be a good idea to use the income to pay the debt off first. Once you have paid off a large portion of your debt, you will likely see that you have actually been able to save some more money each month. You can then, which choose to put it aside into a savings fund for future use.
In addition to your debt, can be some major interest charges. These fees can quickly add up – making it even less likely you will be able to save very much money. First, lifting the burden of that debt and then focusing on saving income could instead prove to be the better course of action for you in the long run.
3) Improving your Credit Score
As I mentioned, as debts continue to linger, interest amounts grow – and in turn the total balance you owe could become unmanageable. Let’s for example say you start having trouble keeping up with payments – your credit score will be negatively affected. By choosing to make your debt payments a priority, you can stay on top of your payments and this will reflect positively in your overall credit history.
If however, your credit score does start to decline – making payments on a regular basis as well as even making a lump sum payment will help you to get your score back on track. Ultimately, the moral of the story here is – the less credit you owe, the more successful you will be at improving your credit rating.
For my family: it makes more sense to set a goal of paying off debts and trying to avoid buying non-essentials that only cause our debt level to rise. Also, if we are fortunate to have some extra money coming in, we will choose to pay off more of our debt and once we have, we can then start to place a bit more money into our savings account.
I feel good about this decision and one thing’s for sure, I am looking forward to relieving some of our ‘debt-stress’ and I can already envision having a better night’s sleep!