Apparently it’s really easy for people to rack up a bunch of debt. They get credit cards at a young age and think it’s ok to go hog wild buying anything and everything they want. They decide they are ready to buy a new car while carrying the debt of credit cards and school loans. Before they know it, they are in over their heads and don’t know what to do.
From my perspective, there are two kinds of debt. One adds value to your overall wealth, while the other chips away at it. Mortgages and school loans fall into the first category. While you are still throwing money away on interest, you are still building equity as long as you have a regular mortgage that you will eventually pay off in 30 years or less and own the house completely. Just be smart when you buy a house. Don’t get into a mortgage you can’t afford to pay each month. The bigger, nicer house can wait until later in life. School loans, if utilized properly and efficiently can increase your earning potential. This is why these are two perfectly acceptable forms of debt.
Credit cards, department store cards, vehicle loans, boob job loans, and whatever else you can think of fall into the second category of debt. These are debts chipping away at your wealth and the sooner you pay them off, the better off you will be. So your top priority should be to pay these various cards and loans off ASAP!!! Find ways to cut back elsewhere so you can put more each month towards them than you already are. For example, are you buying coffee every morning or eating out for lunch every day? Getting coffee once a week could save you as much as $12 a week, which adds up to about $50 per month. Eating out for lunch only once a week can probably save you at least $20 a week or about $80 a month or more. So now you have an additional $130 a month that you can be using to pay down your credit cards faster. I’m sure if you really think about it, you can find other ways to cut back The sooner you pay off those debts, the sooner you’ll free up that money to increase your savings, or the principle amount you pay each month on your mortgage. Both of which increase your wealth.
So if you can’t keep your credit card balances at $0 each month, cut them up and throw them away. If you don’t have it, don’t spend. If an emergency comes along, you can always get a new one. Also resist buying a new car. The longer you can go after it is paid off, the more you’ll have to put towards paying off your other debts, or towards savings each year. And remember, adding to your wealth is far better than throwing it all away, because 5, 10, or 15 years from now, you don’t want to have nothing to show for your hard work.
I don’t think I can say it more simply than that.