Living without debt may seem almost impossible. You might not know anyone who doesn’t owe money to someone in their life. Most monthly expenses include car payments, credit card debt, student loans and a mortgage. You might be paying off some other debt as well, such as medical debt or back taxes. Some do not think much about their debt despite paying out hundreds of dollars on it each month, a substantial amount of which may be interest. Others are stressed about it or even overwhelmed, but they don’t know how to get rid of it. It is possible to lead a debt-free lifestyle, but should you, and if so, how do you?
Why Make the Change
Living without debt is a smart financial decision. You won’t waste money on interest, and you won’t have the worry of what might happen if you fall behind on your bills. If you don’t owe outstanding balances, you have more freedom. It’s easier to leave a job or other situations that are making you unhappy. You can also use the money you would waste on interest for investing instead. The key is to switching to a mindset in which you save up for what you want instead of buying them now and paying for them later.
How to Do It
There are essentially two different approaches that you can take to getting out of debt. Financially, the best approach is to pay off high-interest loans first. This will generally save you the most money. However, some people find it more psychologically rewarding and thus more motivating to pay off one or two small debts first. Getting started in the first place is more important than exactly where you begin.
You should also look at whether you can reduce how much you owe. For example, you probably get plenty of offers in the mail for new credit cards, and some of them offer no interest on a balance transfer for a short period of time, such as six or twelve months. If you can pay off the balance in this timeframe, it may be worth getting one of these cards. If you have student debt, you can look into refinancing. But first, make sure you do some research on the best student loan refinance companies so you can make an informed decision. A private lender may be able to offer you better options at a lower rate. This could reduce your monthly expenses and the total amount of interest that you pay.
Your house payments are a slightly different matter from other money that you owe. If you talk to others about paying off your mortgage early or go online to see what is suggested, you will find very strong opinions on either side of taking this step. On the side of paying off, some will argue that it’s better to be free and clear of any debt. On the side of making an exception for your mortgage, some will point out the tax breaks you can get or that you would be better off investing the money you might otherwise use to pay off the mortgage early. This is a decision you should weigh carefully and make a decision on based on your own particular situation and comfort level.