It’s no secret that debt can be a major barrier to advancing in life financially, but just how does debt hold you back from achieving your financial goals and leading your best life? If you are one of the 344 million Americans in debt, here are some of the ways debt can hinder your overall financial health, and the steps you need to take to overcome your debt and live a better life.
How Debt Impacts Your Life
#1. Your Credit Score
If you have credit card debt and other forms of debt that appear on your credit history, your credit score is most certainly suffering as a result. Without a higher credit score, doing basic things like renting a car, renting an apartment, and even buying a house can be a major struggle.
It can also cost you more, forcing you to put more money down in order to acquire the things you need in life.
#2. Your Investment Activity
If you always owe money, it can be extremely difficult to find money that you can invest. While this may not sound like a major problem for those who are younger, the reality is that it can prevent you from working towards retirement and building your wealth.
The longer you go without investing, the longer it will take to recover. This is because time is your best friend when it comes to investing. The longer you can have your money invested, the more it will compound and grow into.
#3. Your Emergency Savings
Are you one personal emergency away from having no money? With debt, this can be a reality for many. Most aren’t prepared for a financial emergency like a hospital visit or a car breaking down.
But while others can develop an emergency savings for these types of events, others with debt might be at a disadvantage as their money has to go toward their debt before they can stash it away.
#4. Your Overall Mood in Life
Debt isn’t just a financial problem, it can do a number on your health as well. If you’re constantly stressed and anxious about your finances, you may end up feeling run down or developing mental health problems like anxiety and depression.
The last thing you want is for your debt to dictate how you physically and mentally feel.
#5. Your Quality of Life
Without access to the funds you need because you’re so focused on paying down debt, you can end up living well below your means. This means cutting out more of the things you want in order to free up more money to repay debt.
If you have a seemingly insurmountable debt, this can be a major endeavor that may lead you to feel rather joyless in your day-to-day life. Overall, debt can be very impactful, holding you back and preventing you from getting the most out of your life and your finances.
Your Income Without Debt
If you currently have an established budget that details all of your income and expenses, you have an overview of just how much money you have at any given time. But with debt, it’s considerably less.
Let’s imagine, for example, that you’re currently paying off something at $500 a month. That’s an extra $500 expense that you have to incorporate into your budget. Rather than that $500 going towards savings or investments, it’s immediately leaving your bank account to go towards debt and putting an overall strain on your budget as you try to afford other basic necessities without it.
Once it’s paid off, however, that’s an extra $500 that you can use to pay for things that are important. Whether that $500 would be useful towards rent, groceries, or something else entirely, it’s easy to see why you should be paying off your debt as soon as possible. Constantly being in debt means constantly being in the red and having to spend money on something that’s preventing you from achieving true financial freedom.
How To Get Out Of Debt
Now that we have a better understanding of how debt affects nearly every area of your life, you may be wondering, what am I supposed to do next? How exactly am I supposed to pay off all of my debt, especially if I have multiple sources of it and a high amount that continues to grow with interest?
The good news is that many have walked this path before you, offering insight into how to make clearing your debt completely a reality. Here are some helpful strategies that will illuminate how to get out of debt.
#1. The Debt Snowball Method
The debt snowball method is a method in which those who are in debt will focus on continuing to make the minimum payments on all their debts, but prioritize paying off the remaining balance of each from smallest to largest.
Once they pay off the smallest of their debts, they will then take the money they were paying monthly for that debt and apply it to chip away at the next largest debt until they have finally cleared all remaining debts.
#2. The Debt Avalanche Method
The debt avalanche method differs from the snowball method in that you’re focused on paying the minimums of all other debts while turning your attention to the debt with the highest interest rate first.
Given that those with debt may have certain types of debts like credit card debt where interest can be high and end up continuing to drive up the amount they owe, this strategy may work better for some individuals. Once you’ve paid off the debt with the highest interest, you then move on to the next one until you’ve finished paying off all your debt.
#3. The Debt Consolidation Method
Keeping track of multiple debts at the same time and making sure that you’re paying them off effectively can be a difficult feat. So why not work towards combining them and paying them off all at once? That’s the point of the debt consolidation method.
By consolidating your debt, you not only have just one debt to focus on paying, but you might also be able to lower interest rates and make it easier to repay your debt on your own terms. If you do have other debts you can’t consolidate, try making minimum payments until this consolidated debt has been paid in full.
#4. Make Debt Repayment A Priority
Once you decide the plan you will use to pay off your debt, your next step is to pay it off as quickly as possible. The sooner you do this, the sooner you can start building wealth. If your finances are in complete disarray, consider following the Dave Ramsey Baby Steps. These are 10 simple steps that will help you build a financial foundation, get out of debt, and start saving for your future.
No matter what your finances look like, whenever you come into money, say from a tax refund, or a gift, put all of it towards your debt. You might even consider working overtime or picking up a side hustle so you can put more money towards your debt.
Finally, make it a point to cut back on some expenses and put that money towards your debt. For example, consider skipping having any meals out for the month and put that money towards your debt. Then next month, choose to drive as little as possible and put the difference towards your debt.
Having debt will keep you from reaching your financial goals. The sooner you make it a priority to pay off your debt and change your situation so you do not go back into debt, the sooner you can start down the path and become financially independent.
Don’t give in and accept that debt is a part of life. You can live a different life, you just have to take the first step.