It is surprising how comfortable we have all become with the concept of debt. How many times have you heard a friend complain about their student loans, expensive car payments, or credit card debt? If you are in a lot of debt and paying high-interest rates on that debt, you can feel totally hopeless and overwhelmed.
We have normalized debt so much as a society but it shouldn’t be normal.
Debt is sometimes unavoidable when it comes to student loans or a mortgage. However, the true negative impacts of debt can come from other sources like high-interest rate credit cards, car loans (cars don’t hold their value), and other payment obligations that steal from your paycheck each and every week.
According to the Survey of Consumer finances conducted by the Federal Reserve, the national average amount of debt for young adults under the age of 35 is $67,400. So how is it that we can get out of debt if we made some mistakes when we were younger and are now overwhelmed?
I remember when I turned 18, I was targeted all the time to sign up for a new credit card or retail credit card. At the time, I didn’t have an understanding of what debt really was and how credit card companies make compound interest off of my ignorance. Not long after, I realized debt was a trap, and that I needed to get out of it as soon as possible. Here is how I did it:
I stopped using my credit cards. I itemized all of my debts on a “snowball” calculator spreadsheet from the lowest to the highest debt account. As usual, I paid the minimum payments on each account. However, I began to knock them out one at a time. Paying off as much as I can on the account with the lowest debt. Then after that particular debt was paid off, I did the same method to the next smallest debt. Repeat this method until each debt is paid in full. Your momentum will work in your favor and sooner than later you will be debt-free.
How is that we find ourselves in that much debt? Trying to live outside of our means. Just because you “can” afford the monthly payment, doesn’t mean you should get in debt for it.
Let’s say, once you’re debt-free, you decide to invest $100.00 a month into an investment account with a 10% return rate. 40 years later, you will have turned that $100 a month (total contribution of 48k) into roughly $632k because compound interest is now working in YOUR favor. If you spend the next 40 years in debt, paying that $100 a month to a credit card company, you will be missing out on some serious cash for your future.
Feel free to reach out to us if you have any questions or would like a link to a “snowball calculator” spreadsheet.
#simpleadulting.