In my experience, almost all conversations about building wealth take a turn towards investing. These talks, which can be with neighbors, friends, or colleagues, tend to cover everything from retirement funds to taxable accounts, with plenty of “one-upping” and bragging along the way.
But there’s one financial topic that almost everyone refuses to cover – and that’s debt. How much we owe on our homes, our cars, our credit cards, and our personal loans is, sadly, never a sexy subject.
Let’s Talk About Debt
But in my eyes, it should be. In fact, I would argue that paying down debt is the smartest financial move anyone can make. Not only can paying off debt help you save money faster and become richer over the long haul, but it can improve your existence in countless, life-changing ways.
Of course, this was a lesson I had to learn the hard way. After paying off $60,000 in debt alongside my husband, I now realize that the experience transformed us individually and as a couple. Not only did we learn a lot about ourselves and how much we could withstand, but we learned to see money for what it truly is – a tool you can use to build wealth.
Plus, we learned that building wealth is about a lot more than having money in the bank; it’s also about building the right mindset.
How Becoming Debt-Free Changed Our Lives
I still remember the day my husband and I decided we were sick of being broke. Newly pregnant with our second child, we were running the numbers to see if we could afford full-time daycare for both. Since childcare costs represented a large chunk of our income at the time, we weren’t sure we could swing it.
Worse yet, we couldn’t really figure out what our problem was. We were making plenty on paper, but it always managed to disappear by the time the next payday rolled around.
In my mind, I envisioned a hole in the bottom of our bank account – as money poured in, it poured right out the back just as fast.
Of course, we knew deep down that any “leak” in our finances was likely the result of our own poor choices. So, we decided to figure out exactly what was going on.
Where Was The Money Actually Going?
As a result, one of the first things we did was pour through our previous bank statements to see where our money was actually going. And boy, we were surprised.
After tallying up the numbers and putting all of our spending into different categories, we discovered that we were spending well over $1,000 per month on food – for two adults and a baby! Plus, we were paying over $1,000 towards credit card bills, car payments, and student loans every month.
Once we learned what was draining our bank accounts each month, we created a monthly spending plan and learned to live on a budget. Once our new plan was in place, we allocated all of our extra money towards paying off each of our debts.
To score some big wins at the beginning, we went after the loans with the smallest balances first. As a result, we killed our credit card bills first, followed by a small personal loan, and our student loans.
Once those were done, we paid off our two cars – a 2009 Toyota Prius (which was almost new at the time) and a 2007 Dodge Caravan. At that point, we were entirely debt-free aside from a small mortgage on our home.
The Benefits Weren’t Just Financial
What we gained from the experience is hard to quantify, but it runs much deeper than money. As we paid off our debts, we learned just how difficult and taxing those bills had been on our relationship.
We learned that we didn’t want to struggle, and that the decisions we made on a daily basis could actually make our lives easier. And we learned that we could live on a lot less money each month if we wanted to, and that it didn’t affect our lifestyle or overall happiness in any way, shape, or form.
Plus, we learned the most important lesson of all – that we had the power to change our future. That change in mindset triggered a series of events that led us to where we are today – debt-free, building wealth quickly, and spending less than we have in our entire adult lives.
Why Paying Down Debt is the Ultimate Investment
While everyone’s situation is different, there are few (if any) downsides to paying down debt. While investments can perform poorly or even cost you money, paying off debt can only improve your net worth.
Plus, there are other benefits that can only stem from making the changes required to get out of debt – and stay out. Here are some of the ways that paying down debt can change your life for the better (and forever):
Get an instant return on your money
If you’re one of those people who has a bundle of money earning 1 percent of less in a savings account, you would be crazy not to throw some of that cash towards any high interest balances you’re carrying. By paying off high interest debt, you’ll get an instant return on your money.
If your credit card balances are sitting at the average APR of 15 percent, for example, you can get an instant 15 percent return on your money just by killing those debts once and for all. It doesn’t get any better than that.
Improve your cash flow
When you start making progress, you’ll notice that you have more money leftover at the end of each month. That extra cash flow can improve your life in numerous ways, make it easier for you to save and build a nest egg over time.
Once you pay off debt, you’ll also find yourself with extra money to beef up your retirement contributions or invest in taxable accounts.
Buy your own freedom
Living with debt usually means living paycheck to paycheck and struggling to get by. You might be able to afford your monthly obligations just fine, but that’s only as long as you keep earning the same income. Paying off debt has the effect of reducing your monthly expenses, and that act in itself can buy you some freedom.
When you don’t owe everybody money each month, you can consider options you never dreamed of before – changing jobs, working fewer hours, or striking out to build a business on your own.
You’ll learn to live on less
Paying off debt requires you to take a close look at your spending and your lifestyle. To free up the cash you need to pay down your debts, you need to learn to live on less. If you’re like me, you might find that you actually enjoy living on less and spending less.
Not only can it make your life simpler, but it can make your financial situation a lot less stressful, too. And of course, there are financial benefits that come with spending less each month. When you spend only a small percentage of what you earn, you have more money left over to save each month.
The Bottom Line
When you consider the fact that the average U.S. household with debt carries $15,762 in credit card debt, it’s easy to see why most debt talk is off the table. Nearly everyone you know is drowning in debt, and as a result, no one wants to talk about it.
But there is plenty to gain if you’re willing to confront your debts head on and invest in yourself. And if you’re like me, you might find that paying down debt is about more than money – it’s about responsibility, taking control, and even growing up.
While it’s true that paying off debt can improve your financial situation, it does more than that; it teaches you that you have the power to take control.
Once you learn that you are behind the wheel, watch out. At that point, nothing can hold you back from achieving your goals.
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