Closing - Keep Learning and Keep Earning

Lesson #4.1 The Importance of Crushing Your Debt (1:00 mins)

We’ve all been there. Staring at our bank accounts after a night of too many cocktails and too much shopping, thinking “Why??? Why did I spend $300 on this dress I’ll only wear once???” Don’t worry, we’re here to help you avoid that sinking feeling in your gut by talking about the importance of crushing your debt.

Most times people get into debt slowly. It creeps up on you little by little, until suddenly you find yourself with hundreds or thousands in debt wondering how you got here.

Debt can creep up you.

Its tempting to want to ignore your debt and assume that it will take care of itself over time, but if you’re currently in debt, it’s important to start making a plan to get out of it as soon as possible because:

1. Debt is a major danger to your financial stability and mobility

It prevents you from making the most use of your money. What you put toward debt payments could be saved for rainy days or put on some goal that you are trying to achieve.

Because it takes funds from your future salary for your current liability, then you never get to experience the full impact of your money. No matter how much you have in your pocket it’s actually less than you think because someone can claim a cut.

Let’s face it, it’s hard to achieve your other goals when you are constantly struggling with another bill to pay:

  • That job you wanted to take that would be perfect for you but you have to forgo it because they don’t pay enough to cover your debt payments.
  • That once-in-a-lifetime trip your friends wanted you to come on but you can’t because it’s not financially responsible for you to do while in debt

Debt doesn’t just exist, it keeps you in the past – paying for something long since enjoyed and moved on from – until it can be paid off.

2. The longer you have debt the more you pay in the long run

Alright, it’s time for some math 🙂

Let’s say over the course of the semester you get a little carried away. A pizza or 5 here, a drink or 2 there, throw in a couple of books and you’ve now spent $500.

If you bought it with cash, then the damage is done. You’re out $500 but at least that’s the end of it.

If you bought it on a credit with a 22.5% interest rate and only paid the minimum payment each month, then there’s way more pain to be felt.

Not only would you pay back the $500 you spent, but you would pay an additional $992.55 is interest to the credit card company (2x how much you actually borrowed) and it would take you 150 months (that’s over 10 years to pay it back)!

How does this even happen you ask?

Here’s a snippet. Of your $10 monthly payment, only a few cents go to paying back what you borrowed, and more than 90% goes to interest. That’s just free money you’re giving away to the credit card company.

And look at how much the balance is after each monthly payment.

58% of people carry a balance each month, raking in billions for credit card companies and costing people billions in return.

You can check out the full amoritization chart here. Trust me, you want to see this.

3. Debt carries an emotional price tag

Having burdensome debt can be very overwhelming.

It can cause you to avoid opening your bills, give you stress and anxiety, and cause you to worry about how you will be able to pay it off.

source: here

Sure, we can say ‘good debt’ and ‘bad debt’ but any debt can be harmful if it causes you shame, guilt, stress, anxiety, and or fear.

If you’re currently in debt, it’s important to start making a plan to get out of it as soon as possible. The sooner you do, the less interest you’ll have to pay, and the easier it will be to achieve your other financial goals. There are plenty of resources available to help you get started, and you’ll find them in the next few lessons.