Life After Debt

On a podcast the other day, I listened as the host read a letter from an elated subscriber. The ecstatic subscriber was celebrating what they termed “life after debt”. They had no debt whatsoever – no mortgage, credit card, student loan or any other type of consumer debt! Their home was paid for, so were their cars and everything else they owned. I imagine this person sleeps easy at night – no fear of the repo man!

There is life after debt. I aspire to this kind of life and this month will bring me one step closer to that goal. The final installment on my student loan is due this month. Yes, by month end my grad school loan will be paid in full! This gives me a warm fuzzy feeling.

Debt is a slippery slope. It reduces your net worth. Net worth is simply what you own minus what you owe. If the total of what you owe exceeds the value of what you own, you have a negative net worth. Not only does debt reduce your net worth, it could lead to loss of self-esteem, delayed retirement, bankruptcy and other unpleasant consequences. This is why you need to make a quality decision to dump debt.

It is much easier to get on the debt trail than to change course. Climbing out of debt can be a daunting task, unless you have a plan. Here are some tips that served me well in paying down my five-figure student loan:

Draw the line on borrowing. If borrowing is a revolving door in your life, you cannot be debt free. You must be willing to make tough choices. Avoid easy credit and either forgo certain needs or devise other just means to pay for them.

Know how much you owe. What’s the outstanding balance on your loan? What’s the interest rate? Is the interest rate fixed or variable? These are all hard facts you should know cold. Knowing your annual interest cost and potential cost over the life of the loan can provide the extra motivation to double-down on your debt reduction plan.

Keep your payments current. A missed payment could not only extend how long it takes you to pay off your loan but also trigger penalty rates on the loan and lead to a lower credit score. Set up automated payments from your checking account. Not only does this simplify your life, it reduces the chances of missing a payment.

Use savings from paying off one debt to tackle another. Assuming you have both a car loan and a student loan and you are able to pay off the car loan early. Rather than increase your spending, add the amount of your fixed car payment to your regular student loan payment so you can pay down your student loan at a faster rate.

Follow these tips and in due time you’ll be able to raise a toast – to life after debt.

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