Are you thinking about dumping your debt? Maybe you are still on the fence about whether it is really worth it. Let me tell you a true story that might help you make up your mind.
I was born into a large family and am the youngest of five. All of us siblings are quite different, especially when it comes to financial wisdom. I inherently do not like to spend money and my older brother Mike just can't get enough of it. I remember when he graduated from high school and started leasing a brand new truck. After that he purchased a Corvette on payments and then borrowed some more money from the bank to buy a motorcycle and snowmobile. And, a few years later, he found a bank that would give him the money to buy a 30′ boat. Mike appeared to be extremely wealthy, but the reality was that he was deeply in debt and was struggling to make all the payments.
Fast forward 10 years and not much has changed. Mike is 40 years old and is still in debt – his net worth is $5,000 or so (thanks to his company pension – otherwise his net worth would still be negative). Still, he struggles to make his payments each month and feels trapped by all of his financial obligations.
I, on the other hand, took a severely different route. Yes, I did rack up $12,000 in debt by going to college, but I paid that off as quickly as possible and currently have no other consumer debt. This year I am working to pay off my house as quickly as possible, which will make my net worth equivalent to $150,000 before reaching the age of 30. Once the mortgage is paid off, my necessary expenses will only total about $1,000 a month, and the rest of my income goes toward whatever I want. Most likely, I will put this cash toward investments so I can retire early (like, by the age of 40) or at least have the option to.
— Which person would you rather be? Mike, or me? I hope I am not coming across as boastful – that's the last thing I want to do. I just want you to realize that a debt free life is 100 times more enjoyable than a life with a few toys and a pile of debts. Debts naturally tend to pile up and will begin to choke the life out of you. But, if this story isn't enough, let's take a look at 5 great reasons to get out of debt.
1) Increase Your Cash Flow
When you get rid of your debt, your money begins to flow in faster than you ever dreamed possible. Instead of your bank account rising by only $100 each month, it will grow by $500, then $1,000, and then maybe even $2,000 a month after you get rid of that mortgage. Get rid of your debt and your cash flow will increase immensely.
2) Build a Savings to Invest
There are opportunities all around us, but many of us don't even notice them because we don't have the money to invest in them anyway. Perhaps your mutual fund is about ready to rise uncontrollably, or you could invest in that business that you have always wanted to start. When you decrease your debt, you can increase your cash flow, which beefs up your savings, and can increase your investment amount, which ends up paying you even more money!
3) You Can Stop Paying Interest
Do you have any idea how much money you have wasted on interest payments? If you own a house, you are paying at least $200 a month in interest alone (probably a lot more if you have a 30-year loan). You pay interest on your credit card, on your car, and maybe even on your furniture. There is a lot of money lost in interest payments and if you can just get rid of your debt, the interest payments would be over. Finally, you could begin to put that money into savings instead.
4) Reduce Your Insurance Needs
When our bank account is small, large expenses scare us, which causes us to spend too much money on insurance. If we had $1,000 in the bank, then you could reduce your auto insurance premium by increasing the deductible to $1,000. This could also be done with your home insurance. Plus, you could cancel all of those ridiculous insurance plans that you were scared into, like the pipes in your house that your utility company claims they don't cover. Stop throwing away your money. Get rid of your debts, build up a hefty savings account, and reduce your insurance premiums to save some money.
5) Live Stress Free
Have you ever had it where you are frantically calculating the bills and discover that you don't have enough money in your account to pay for them all? If this happens enough times, then you might actually be heading toward bankruptcy. Talk about stressful! What if you have no payments and your bank account had $10,000 in it? Would that just be so relaxing? Let me tell you, it is.
Becoming debt free is a great feeling and will quickly propel you onto the road of financial freedom and wealth. Get rid of your debts ASAP and enjoy the good life.