Debt is like shackles, weighing you down, binding you from the things you enjoy. Sound dramatic? Sure, it is. But let’s be serious, debt is dramatic. Necessary and unnecessary debt weighs you down by making it impossible to get far ahead in life. Think of the trips you won’t be able to take and the fun you will not be able to have because all of your hard earned money is going toward debt payments.
Debt can crudely be put into two categories: necessary and unnecessary. Necessary debt is for big purchases that are virtually impossible to make without incurring some debt. Such purchases would include a home, car or school debt. These are necessary items that will significantly benefit you immediately or in the future.
The trick here is to make sure you do not take on too much debt. If you are pulling in a couple thousand dollars a month, a $200,000 home is stupidly out of your price range. A modest home with a reasonable mortgage payment can actually be a worthwhile investment- an investment that will require some form of debt (unless you have thousands of dollars of cash on hand). The two keys with any big purchase is to first, find something within your price range as to not take out too much of your monthly budget and second, make a good down payment to keep your overall loan to a minimum.
Necessary debt can hold you down if you are not smart about your purchases, but it is typically unnecessary debt that is a financial down fall. Credit cards tend to be the biggest debt offenders. It seems easy to swipe your plastic in exchange for all of the goods that you want. But while you are working out your plastic, your credit card bill will increase higher and higher. And soon you will be in over your head. A $500 bill with 18 percent interest will cost you an extra $90!
If you have a pile of maxed out credit cards, start by prioritizing. Determine which credit cards have the highest interest rates; those bills are the ones you will want to pay off first. If possible, transfer debt from a high interest card to a lower interest card. Continue paying a little on each card until you pay them off one by one.
Getting out of unnecessary debt takes a lot of work and sacrifice. And if you have been using you credit cards to maintain a certain lifestyle, it is time to give that up. First start with a debt diet: give your credit cards a break. In fact, do not even take them shopping with you. If you cannot pay cash upfront then you probably do not really need it. On pricier purchases, make a note of it and wait for 30 days. If you still want it after a month and can pay cash, go for it.
Soon you will eliminate your debt, break free from those shackles and get your home in order, once and for all.