Paying Interest is BAD
For many, interest is a way of life. Almost every store in America offers financing with low-interest. We expect interest on credit/store cards, vehicle loans, mortgages, and many other forms of debt. Why do we accept paying for the opportunity to pay things out? It doesn’t have to be a way of life. According to most financial experts and those who have grown financial wealth, you shouldn’t pay interest at all. It doesn’t make sense to pay for “payment opportunity.”
Warren Buffett said this about credit cards :
“Interest rates are very high on credit cards. Sometimes they are 18 percent. Sometimes they are 20 percent. If I borrowed money at 18 or 20 percent, I’d be broke.”
For more of Warren Buffett's money tips (and where I found this quote) click here.
Snowball Your Debt
This simple proven trick to get out of debt is the snowball. If you really want to get out of debt, this is one of the most rewarding ways, which is also why it’s probably the most accepted.
Here are 5 steps to snowballing your debt.
- Line out your debts in order of smallest balance to largest (ignore the interest rates)
- Make minimum payments on ALL of your debts EXCEPT your smallest balance
- Put all extra money available towards the smallest balanced debt
- Celebrate when it’s paid off!
- Move all the extra money to the next smallest, and keep the snowball growing!
Quit Borrowing Money
This one is probably the hardest for a lot of people. We often want to buy something right when we see it. The shiny objects get our attention fairly easily. If we want to win with money and our budget, we can’t succumb to the temptation to buy things right away.
If you have the money budgeted for purchases, that’s one thing, but if your instinct says to put it on a credit card or some other type of loan, don’t do it. Wait until you have the money ready.
Here are 3 reasons why you should wait:
- Buyer’s Remorse: This one is the worst feeling. The day after you make a purchase, especially a large one, you get a feeling in your stomach the day after or a few days after that it was a mistake. You’re probably right if you took on debt to buy it.
- Interest: As already discussed, interest is a terrible thing to spend money on. The opportunity to buy right now is not a good reason to pay interest.
- You’re a Slave: When we borrow money, we have to pay it back. When we save for items and something happens where we need the money, we can use it for the emergency if necessary. If we borrow the money, we don’t get to use our money for something if it comes up, we must pay it to the lender. We are a slave to the lender until our debt is resolved.
Cut up those credit cards! If you’re serious about getting out of debt and want to quit borrowing money, cut up the temptation in your wallet. Dave Ramsey calls this plastic surgery or “plasectomy.”
I know, I just told you to quit borrowing money. I definitely do want you to quit borrowing money, but I don’t want you to quit paying off debt and budgeting.
If you are serious about having financial freedom, carry on. Keep budgeting. Continue paying off debt until you are out for good.
Budgeting can be difficult because, for some, they are discouraged when they mess up. We mess up still, and we’ve been doing this for many years. It happens, but don’t quit because you make a mistake. Instead, learn from your mistake and try not to do it again.
Debt is more difficult because many people are so far in debt. Americans have over $1 trillion in credit card debt. Chances are, your credit card debt could be significant. YOU CAN GET OUT. Americans recently surpassed credit card debt with student loan debt equaling $1.3 trillion. If you have student loans, YOU CAN GET OUT. It took us many years to get out of debt. Sometimes it seemed as though we never would. With 4 kids and on one-income, debt didn’t seem to go down very quickly. On March 10th, we made our last payment.
You can’t quit with finances as they’re an everyday part of life. YOU HAVE TO FIGHT, AND YOU CAN WIN. That is, if you want to bad enough.