Trying to achieve financial success without paying off debt first is like trying to finish a marathon with a ball and chain. Becoming debt free is not only a prerequisite but also a great habit builder for how you will be living the rest of your life (albeit with a few more freedoms).
When I was young, my father often said to me – ‘You can either work hard for the first 20-25 years of your life and enjoy the rest of it in comfort, or breeze through your parental sponsored youth and struggle for the rest of your life.’
At the time, I thought it was just something he said to motivate me to focus on school, but life experience has proven to me, the depth of that statement. In fact, it is true at so many levels that as I’ve gotten older, I’ve pretty much made it a motto with everything I do. I even tend to tackle the chores I hate the most, first.
The sentiment literally fits like a glove however, when it comes to money matters. With money, the sooner you do the hard work, the wealthier you’re going to be in the long run.
Step one of the hard work though is always paying off debt. Technically, its deciding to never take on more debt but thats a box that can be checked pretty quickly as long as the intention is made. Most of us that have debt are likely to have more than one. Whether it is student loans, credit cards, car loans, personal loans, or some combination of these. All of these are inherently different kinds of loans with different maturities and terms associated with them. There are two unique strategies to attack them but the one thing common to attacking all debt is your willingness to live far beneath your means and using your savings to pay down debt. Even taking on a second or third job if you can. All that starts with a budget.
Once you have a budget in place and a target of what you will save every month and how much you can you pay towards debt, there are two distinct strategies you can adopt.
- The Quick Win Strategy (AKA The Snowball) – This strategy works by identifying the lowest balance debt and putting all your extra dollars towards paying it off. Once you’ve done that, you move on to the next lowest balance and so on. Psychologically, this one is great because it keeps you on the straight and arrow with a steady dose of motivation and victories, so if you are the kind of person that tends to struggle with staying disciplined if you don’t see quick results, this is the way for you. Before you know it, you will be working on finishing off the largest of your debts and well on your way to success.
- High Interest First Strategy – This is the one that I prefer because of the aforementioned reasons. In this method, once you have figured out how much extra payment you can make towards your debts, you identify the one that has the highest interest rate and put all the money towards that debt. It doesn’t matter if it is the largest one that will take the longest to pay off. Mathematically, you’re pretty much doing yourself a solid by attacking your most formidable foe first. While he may have more fight in him, once you’ve conquered that one, you’re never going to look back. You’ve completed the most difficult job first. Time to turn on the cruise control.
Once you’ve paid off your debts, it is time to start building wealth and that milestone is closer than you think. You just have to get started first.
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